EU Competition Law and Intellectual Property Rights (Elgar Competition Law and Practice series) 1781006881, 9781781006887

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© Pat Treacy 2024

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Control Number: 2024936872

This book is available electronically in the Law subject collection https://dx.doi.org/10.4337/9781781006894

ISBN 978 1 78100 688 7 (cased) ISBN 978 1 78100 689 4 (eBook)

To my wife, Sally, without whose encouragement, forbearance, patience and support it would not have been possible to complete this text.

CONTENTS Extended contentsviii Prefacexiv Acknowledgmentsxvi Table of casesxviii Table of legislationxxxi Introduction to EU law and intellectual property rights: scope and approachxli

1

Competition and IP law interface

1

2

Article 101 TFEU and IP licensing

34

3

Technology Transfer Block Exemption

123

4

Competition law assessment of technology licences outside the TTBER

171

5

Other agreements involving IP licences

184

6

IP, dominance and abuse

224

7

Mergers and IP

301

8

IPR/competition law issues in the pharmaceutical sector

340

9

Competition law, standards and FRAND

423

Index473

vii

EXTENDED CONTENTS Prefacexiv Acknowledgmentsxvi Table of casesxviii Table of legislationxxxi Introduction to EU law and intellectual property rights: scope and approachxli

1  COMPETITION AND IP LAW INTERFACE I.

GENERAL PRINCIPLES 1.01 A. Introduction 1.01 1. A complex relationship 1.01 2. IP laws 1.15 3. Competition laws 1.23 4. The early deference of EU competition law to IP law 1.34 B. Recent Trends 1.45 1. The modernization of competition law and the shift to a more economics-based approach1.46 2. The modernization and harmonization of IP law 1.49 3. The evolving role of IP in commercial practice 1.54 a. New business models 1.55 b. Digital technologies 1.57 c. Competition law authorities have adapted 1.60 4. Competition law enforcement with sectoral variations? 1.61 C. The Key Protagonists 1.69 1. The European Commission 1.69 a. DG Competition 1.72 b. DG Connect 1.73 c. DG Grow 1.74 d. DG RTD (‘Research and Innovation’) 1.75 2. Council, courts and Parliament 1.76 D. IPRs in the Single Market 1.87 1. The single market imperative 1.87 2. Interplay between Articles 34–36 TFEU and 101–102 TFEU 1.88 3. Exhaustion of rights 1.96 4. Specific subject matter 1.100 5. Essential function 1.105 6. The importance of ‘consent’ 1.107 7. International exhaustion/harmonizing initiatives 1.111

2  ARTICLE 101 TFEU AND IP LICENSING I. II.

ARTICLE 101 TFEU AND LICENSING OF IP – GENERAL PRINCIPLES ARTICLE 101(1) TFEU – AN OVERVIEW A. Agreements, Concerted Practices/Unilateral Conduct B. Undertakings 1. Economic undertakings

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2.04 2.05 2.06 2.15 2.15

EXTENDED CONTENTS 2. Economic activity 2.16 3. Independent undertakings 2.17 4. Principal/agent 2.19 C. Object or Effect of Restricting Competition 2.31 1. Object restrictions 2.32 2. Effects restrictions 2.47 3. Ancillary restraints 2.53 4. Extent of necessary effect on competition – de minimis2.59 5. Effect on trade – a question of jurisdiction 2.66 a. IPR as an entry barrier – the relevance of exhaustion 2.72 b. The height of the barrier posed by IPRs 2.81 III. ARTICLE 101(2) TFEU AND THE CONSEQUENCES OF INFRINGEMENT 2.88 IV. ARTICLE 101(3) TFEU 2.94 V. RESTRICTIVE CLAUSES IN LICENCE AGREEMENTS 2.102 A. Existence/Exercise/Specific Subject Matter 2.104 B. Exclusivity 2.129 1. Manufacturing exclusivity 2.142 2. Sales restrictions/exclusivity 2.145 3. Exclusivity in the courts 2.151 C. Tying and Bundling/Quality Control Obligations 2.174 D. Restrictions on Prices or Customers 2.195 E. Field of Use Restrictions 2.200 F. Non-compete Obligations 2.211 G. Disincentives for the Licensee to Develop/Exploit Own Technology/Grant Back Requirements2.219 H. Royalty Payments on Unpatented/Partially Patented Products 2.245 I. Post-Expiry Royalties 2.257 1. Introduction 2.257 2. The early approach of the Commission 2.259 3. The Court of Justice Rules 2.263 4. The Commission’s approach in the 2014 Technology Transfer Guidelines 2.274 5. The approach to post-expiry royalties in the US 2.278 J. No Challenge Clauses 2.282 K. Application of Article 101 TFEU to Different Types of IPR Licences 2.300 1. Patent licences/knowhow licences 2.301 2. Trademark licences 2.311 3. Copyright/design right licences 2.329

3  TECHNOLOGY TRANSFER BLOCK EXEMPTION I. II.

OVERVIEW OF THE TTBER 3.04 PROVISIONS OF THE TTBER – SUMMARY 3.12 A. Article 1 – The Definitions 3.14 B. Article 2 – The Exemption 3.22 C. Article 3 – The Market Share Thresholds 3.27 D. Article 4 – The Hardcore Restrictions 3.39 E. Article 5 – The Excluded Restrictions 3.45 F. Articles 6–11 – Additional Provisions 3.47 1. Article 6 – Withdrawal of the benefit of the block exemption 3.48 2. Article 7 – Non‑application of the block exemption to networks of agreements 3.51 3. Article 8 – Application of market share thresholds 3.52 4. Articles 9–11 – Relationship with other block exemptions, transitional period and duration3.56 III. GENERAL COMMENTS ON THE TTBER 3.58 A. Distinction Between Competitors and Non-competitors 3.58 1. Blocking positions 3.64 2. Key takeaways on blocking positions 3.94

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EXTENDED CONTENTS B. Use of Market Share Thresholds 3.95 IV. THE APPLICATION OF THE CORE OPERATIVE PROVISIONS OF THE TTBER 3.102 A. Hardcore Restrictions – Agreements Between Competitors 3.102 1. Price fixing 3.103 2. Output restriction 3.112 3. Allocation of markets/customers 3.115 a. Sole licences 3.118 b. Restrictions protecting the parties from each other 3.119 c. Restrictions protecting licensees from each other (and the licensor from the licensees)3.124 B. Hardcore Restrictions – Agreements Between Non-competitors 3.135 1. Price fixing (Article 4(2)(a)) 3.136 2. Passive sales restrictions on the licensee (Article 4(2)(b)) 3.140 a. Sales into reserved territories/customer groups (Article 4(2)(b)(i)) 3.144 b. Captive use limitation (Article 4(2)(b)(ii)) 3.152 c. Single customer supply obligations (Article 4(2)(b)(iii)) 3.153 d. Sales at the wholesale level only (Article 4(2)(b)(iv)) 3.154 e. Sales to authorized distributors only (Article 4(2)(b)(v))/sales to end-users must be permitted (Article 4(2)(c)) 3.155 C. A Change in the Competitive Relationship of the Parties (Article 4(3)) 3.159 D. Excluded Restrictions (Article 5) 3.163 1. Grant back obligations (Article 5(1)(a)) 3.166 2. No challenge provisions (Article 5(2)(b)) 3.182 3. Limiting developments outside the licence (Article 5(2)) 3.192

4  COMPETITION LAW ASSESSMENT OF TECHNOLOGY LICENCES OUTSIDE THE TTBER I. II.

OVER THE MARKET SHARE THRESHOLD MULTILATERAL LICENCES AND POOLING AGREEMENTS A. The Creation and Operation of a Technology Pool B. Agreements Between the Pool and Licensees III. SETTLEMENT AGREEMENTS

5  OTHER AGREEMENTS INVOLVING IP LICENCES I. II. III. IV.

VERTICAL AGREEMENTS AND ANALOGOUS ARRANGEMENTS APPLICATION OF ARTICLE 101 TFEU TO OTHER AGREEMENTS RELATING TO IPRS HORIZONTAL AGREEMENTS AND IP – GENERAL PRINCIPLES R&D AGREEMENTS/SPECIALIZATION AGREEMENTS A. The Definitions – Article 1 B. The Exemption – Article 2 C. Access to the Results of the Collaboration and to IPR – Articles 3 and 4 1. Access to results: ‘foreground’ IPR and knowhow 2. Access to pre-existing knowhow 3. Limits to permissible joint exploitation 4. Obligations to supply D. Market Share and Duration – Articles 6 and 7 E. The Hardcore Restrictions – Article 8 1. Restrictions on R&D 2. Restrictions on output or sales 3. Restrictions on pricing or royalties 4. Restrictions on active and passive sales/sales to resellers F. The Excluded Restrictions – Article 9 V. SPECIALIZATION AGREEMENTS OR PRODUCTION AGREEMENTS VI. STANDARDIZATION AGREEMENTS

x

4.07 4.10 4.15 4.21 4.31

5.02 5.22 5.24 5.29 5.42 5.43 5.44 5.47 5.53 5.56 5.59 5.60 5.65 5.67 5.68 5.70 5.71 5.73 5.79 5.84

EXTENDED CONTENTS A. Introduction B. The Approach of the Commission under Article 101(1) TFEU – Introduction C. Standardization Agreements – ‘By Object’ Restrictions D. Standardization Agreements – ‘By Effect’ Restrictions E. FRAND F. Good Faith Disclosure G. Article 101 TFEU, IP and Standardization – Conclusion VII. SUBCONTRACTING

5.84 5.89 5.100 5.102 5.107 5.125 5.133 5.136

6  IP, DOMINANCE AND ABUSE I.

II.

INTRODUCTORY REMARKS 6.01 A. Dominance 6.10 B. Abuse 6.21 C. Purpose of Article 102 TFEU 6.29 D. Article 102 TFEU: Bright Line/by Object or ‘Effects’? 6.43 E. Article 102 TFEU – Constantly Evolving: Start With First Principles 6.56 F. Does Article 102 TFEU Have Exceptions? 6.77 G. How Does IP Fit Into This Regime? 6.82 H. Refusals to Deal – Overview 6.88 I. The Development of the Case Law 6.96 1. IMS Health6.131 a. The Commission interim measures decision and IMS’s appeal to the GC 6.134 b. The CJEU’s preliminary ruling on the national court reference 6.139 2. Microsoft6.142 a. Indispensability 6.151 b. Elimination of competition 6.154 c. New product 6.158 d. Justification 6.164 e. Other interesting points 6.169 f. Refusals beyond Microsoft? 6.171 J. Other Types of Abuse 6.180 1. Tying 6.182 2. Unfair licences 6.194 3. Excessive royalties 6.207 4. Exclusivity 6.222 5. Abuse of the IP system 6.230 a. AstraZeneca – misuse of patent and regulatory systems 6.239 b. Boehringer Ingelheim – unmeritorious patents 6.257 c. Teva – divisional patents 6.259 d. Other IP related abuses – patent ambush 6.260 e. Collecting societies 6.266 SUMMARY ON ARTICLE 102 6.286 A. Dominance 6.289 B. Abuse 6.292

7  MERGERS AND IP

I. OVERVIEW A. Introduction II. JURISDICTION A. EU Merger Regulation B. Concentrations C. Turnover Thresholds D. Substantive Appraisal 1. Introduction 2. Innovation concerns

7.01 7.01 7.11 7.11 7.14 7.27 7.39 7.39 7.42

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EXTENDED CONTENTS 3. Existing research and development programmes 4. General innovation concerns 5. Non-horizontal concerns 6. Procedural issues 7. Conclusion on innovation E. Big Data Concerns III. ANCILLARY RESTRICTIONS A. Acquisitions and Joint Ventures B. Principles Applicable to Common Restrictions in Acquisitions 1. Licence agreements 2. Non-competition clauses and IPR C. Principles Applicable to Common Restrictions in Joint Ventures 1. Licence agreements 2. Non-competition covenants IV. REMEDIES A. Types of Remedies 1. Licence agreements 2. Re-branding 3. Interoperability 4. Access to data V. CONCLUSION

8  IPR/COMPETITION LAW ISSUES IN THE PHARMACEUTICAL SECTOR I. II.

7.47 7.56 7.62 7.83 7.86 7.89 7.96 7.99 7.100 7.100 7.105 7.112 7.112 7.114 7.119 7.122 7.122 7.135 7.139 7.145 7.151

INTRODUCTORY REMARKS 8.01 ARTICLE 101 AND IPR IN THE PHARMACEUTICAL SECTOR 8.38 A. R&D/Product Development 8.41 B. Licensing Following the Research Phase 8.48 1. Post-expiry royalties 8.52 a. The early decisions 8.53 b. Ottung v Klee – the first Court case 8.57 c. Ottung v Klee confirmed 8.64 d. The implications of the case law 8.68 e. What if a simple right to terminate is not commercially feasible? 8.77 f. Summary 8.86 2. Grant back obligations 8.93 C. Co-marketing, Co-promotion and Authorized Generics 8.98 D. Parallel Trade 8.110 E. Agreements at the Time of Generic Entry 8.117 F. Agreements to Coordinate Higher Prices 8.121 III. LITIGATION AND SETTLEMENTS 8.131 A. Lundbeck8.136 1. Potential competition 8.145 2. By object 8.156 B. Paroxetine8.165 1. Potential competition 8.168 a. Relevance of the market context 8.168 b. Factual considerations 8.169 2. Patent issues 8.171 3. By object 8.175 a. Market features 8.176 b. Patent/settlement specific issues 8.178 c. Agreement/factual specific issues 8.182 d. Potential counter-arguments/scope of the patent 8.186 e. Relevance and assessment of procompetitive effects in ‘by-object’ analysis 8.189 4. By effects – effect of uncertainty – counterfactual 8.191 C. Servier8.194

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EXTENDED CONTENTS D. Cephalon/Teva8.206 E. Pay For Delay – Summary 8.210 IV. ARTICLE 102 TFEU AND IPR IN THE PHARMACEUTICAL SECTOR 8.214 A. Some Concepts 8.214 B. Dominance 8.215 1. Relevance of the Anatomic Therapeutic Classification 8.216 2. Market definition in generics/Paroxetine – the relevance of patents 8.237 3. Dominance and IPRs in pharma 8.244 C. Abuse 8.253 1. The abuse of patent/regulatory procedures 8.253 a. AstraZeneca8.254 b. Pfizer Italy – divisional patents 8.280 c. Reckitt Benckiser – UK – exclusionary strategy 8.285 d. Boehringer Ingelheim – Commission – misuse of patent system 8.288 e. Teva/Copaxone – Commission – misuse of divisional patents 8.291 f. Denigration – Commission – Teva/Copaxone; Vifor/Pharmacosmos8.297 g. Spain – CNMC – Merck Sharp and Dohme misuse of legal procedures/ withholding information 8.300 h. Use of blocking patents – Switzerland/EU – Novartis/Eli Lilly8.302 2. Pay for delay and other exclusionary strategies 8.304 a. Les Laboratoires Servier (Servier) 8.305 b. Paroxetine/generics8.309

9  COMPETITION LAW, STANDARDS AND FRAND

I. INTRODUCTORY REMARKS 9.01 II. STANDARDS, SEPS AND FRAND – HISTORICAL AND TECHNICAL CONTEXT 9.05 III. CASE LAW AND LEGISLATIVE/REGULATORY DEVELOPMENTS 9.31 A. Patent Ambush – Rambus9.35 B. Non-FRAND Terms – Qualcomm/Royalties9.46 C. IPCom – The Transfer of FRAND 9.54 D. PAEs, Privateering and Portfolio Splitting 9.56 E. Injunctions – A Straw in the Wind – Google/MMI9.71 F. Seeking Injunctions, Imposing Unfair Terms – EU Investigations into Motorola Mobility Inc (MMI) and Samsung 9.73 1. Commission investigations: Apple/Samsung; Microsoft and Apple/Motorola 9.78 a. Dominance 9.85 b. Abuse 9.91 2. National courts and CJEU – reference in Huawei v ZTE9.112 3. Access to court/the exercise of IPR 9.123 4. The ability to raise a competition defence in injunction proceedings 9.132 5. Discrimination and the right to a licence 9.144 IV. NON-COMPETITION LAW INITIATIVES 9.159

Index473

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PREFACE This book is an effort to distil almost 40 years’ experience of EU competition law and to synthesize it in a way that will be useful to others in future. I should note at the outset that I was involved in a number of the cases discussed in this book. My interest in the matters discussed is now historic and personal. I have no relevant or material financial interest in any of the issues dealt with in this text. The relationship between competition law and intellectual property is fascinating. Its importance has continued to grow over the last 40 years, as evidenced not only by the ever-increasing number of cases but also by the enormous amount of attention that it now receives from legal practitioners, competition authorities, policy makers, economists and academics. The sectors most obviously affected by this relationship, technology, media and telecommunications (TMT) and pharma bio, are crucial in a modern knowledge based economy and particularly important in Europe. This has only added to increased recent focus on the underlying policy issues surrounding competition, innovation and intellectual property and questions about how the law on market competition and behaviour should respond. There are many excellent textbooks and practitioners’ guides dealing with competition law in general, to which I have referred throughout and without which this book (and my understanding of competition law) would be much poorer. Nevertheless, Luke Adams at Edward Elgar felt that there was a place for a book that would draw together the IP specific aspects of competition law and policy as they stand in 2023 and put them in context to act as a guide to anyone with an interest in this regime as it currently stands. I was happy to take on the task, although like all such tasks it took much longer and was more difficult that I originally envisaged. I was fortunate that Luke is a patient man. It has been a labour of love to try to draw together all the disparate strands of policy, law and economics and weave them into a narrative that I hope is neither too lengthy and complex, nor too short and simplistic. I have tried to find the Goldilocks ideal of ‘just right’ to help others who also seek to understand, balance and advise on the relationship between intellectual property and competition law. The focus is inevitably legal, and from an EU perspective, but I hope also to have appropriately reflected the enormous contribution to EU competition law and policy of those beyond the EU, and the tremendous work done by our comrades in the economics profession in understanding how competition may (or may not) work. It has been challenging to find a sensible structure when so many issues overlap and concepts developed in one area are adapted and applied in others. I have sought to divide things up sensibly without too many cross references and hope to have avoided too much repetition or, alternatively, things slipping through the cracks. There is much more that could be written, but xiv

PREFACE

this is as near as I could get to something that I thought people might wish to read (albeit not in a single sitting). I hope that the footnotes will help identify good opportunities for further reading.

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ACKNOWLEDGMENTS I have been fortunate to have the opportunity to work on cases involving the interaction between competition and intellectual property rights alongside intellectual property and competition lawyers, both in house and in private practice from all over Europe, and indeed the world. They are far too many to name but I should like to acknowledge how much I have enjoyed and benefitted from the intellectual curiosity and generosity of colleagues, clients and other lawyers throughout my career. I include in that number those who work at the various competition authorities with which I have primarily engaged, particularly DG COMP (from long before it bore that name) and also the CMA (in its various iterations). Any author writing in such an enormous field benefits hugely from the work of those who have gone before. Several works are referenced in the footnotes, but these represent only a fraction of the works I have learned from throughout my career or referred to while writing this book. From my encounters with early editions of Valentine Korah’s introductory work onwards I have been inspired by the work done by practitioners to make the discipline of competition law accessible and engaging for others. More recently, I continue to refer to works such as Bellamy and Child; Whish and Bailey; Van Bael and Bellis; and Faull and Nikpay among others: without them the task would have been impossible. I owe a significant debt also to the economists who have brought the tools of their discipline into focus for lawyers, again to name only a few: Gunnar Niels; Simon Bishop and Mike Walker. I have also found texts that draw the two disciplines together such as O’Donoghue and Padilla very useful. I would also like to acknowledge the debt I owe to those who work primarily in academia, such as Ariel Ezrachi and Pablo Ibáñez Colomo, whose writings (and contributions to the blogosphere) significantly enrich and make easier the lives of competition lawyers. Specifically, I should like to acknowledge the assistance I received early in the life of this work from ex-colleagues in the competition team at Bristows LLP. Osman Zafar was a dynamo in getting the project underway. When he moved to an in-house role at Oxford University Press, much momentum was lost. Others who did helpful work on sketching out one or more chapters include Helen Hopson, Sophie Lawrance, Stephen Smith and Noel Watson-Doig, while others helped with reviewing or providing references as and when busy work schedules permitted. I enjoyed working alongside Edwin Bond, Matthew Hunt and Francion Brooks on some of the materials that formed the basis for early drafts. For many years, Myles Jelf was an invaluable sounding board and sparring partner on IP and related competition law issues. The Bristows’ partners as a whole were typically supportive of this project. I am grateful for the longstanding support of those with whom I worked for many years, including particularly those from the IP team with whom I worked most closely who contributed very greatly to my understanding of IP law and practice. xvi

ACKNOWLEDGMENTS

Since my retirement, Bristows has generously permitted me to continue accessing some of the firm’s resources. Finally, as well as putting up with me for almost 20 years while I was still in practice, my former PA Susan Palese has continued to support me as I focused over the last 18 months on drawing together and completing the real bulk of the text. She has dealt with my IT inadequacies patiently and corrected swathes of text with good humour and unparalleled accuracy. She has gone above and beyond in checking and correcting numerous quotations and in the task of footnoting. Without her Herculean efforts, this book would never have been finished and I thank her from the bottom of my heart. Any errors or omissions are mine alone. London, 3 December 2023

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TABLE OF CASES EUROPEAN CASES Court of Justice of the European Union AB Volvo v Erik Veng (UK) Ltd, Case C-238.87, (ECLI:EU:C:1988:477), [1988] ECR 62111.40, 6.84, 6.92, 6.104–6.109, 6.114, 6.178, 6.212, 9.20 AB Volvo v Erik Veng (UK) Ltd, Case C-238.87, Opinion of AG Mischo (ECLI:EU:C:1988:332), [1988] ECR 6211 6.107–6.108, 6.114, 6.116, 6.210, 9.129–9.130 AKZO Chemie v European Commission, Case 62.86, (ECLI:EU:C:1991:286) 6.11, 6.46, 6.75 Arbeitsgemeinschaft der öffentlich-rechtlichen Rundfunkanstalten der Bundesrepublik Deutschland (ARD) v European Commission, Case T-158.00, (ECLI:EU:T:2003:246), [2003] ECR II-38257.124, 7.127–7.128 ASBL Vereniging van Vlaamse Reisbureaus contre ASBL Sociale Dienst van de Plaatselijke en Gewestelijke Overheidsdiensten, Case 311.85, (ECLI:EU:C:1987:418)2.20 Asnef-Equifax v Asociación de Usuarios de Servicios Bancarios, Case C-238.05, (ECLI:EU:C:2006:734), [2006] ECR I-111257.91 AstraZeneca AB and AstraZeneca plc v European Commission, Case C-457.10 P, (ECLI:EU:C:2012:770)  1.63, 6.46, 6.51, 6.63, 6.66, 6.181, 6.239, 6.251–6.252, 6.255–6.256, 8.226–8.227, 8.245–8.247, 8.254–8.276, 9.49 AstraZeneca AB and AstraZeneca plc v European Commission, Case T-321.05, (ECLI:EU:T:2010:266)  6.46, 6.69, 6.226–6.227, 6.236–6.237, 6.239–6.249, 6.252–6.256, 8.01, 8.215, 8.219–8.227, 8.264, 8.268–8.270, 8.278 Atlantic Container Line AB and Others v European Commission, Case T-191.98, (ECLI:EU:T:2003:245) 8.278 Autortiesību un komunicēšanās konsultāciju aģentūra.Latvijas Autoru apvienība v Konkurences padome (AKKA.LAA), Case C-177.16, (ECLI:EU:C:2017:689) 6.209, 6.218, 6.271–6.284 BaByliss SA v European Commission, Case T-114.02, (ECLI:EU:T:2003:100)7.122 Basset v Société des auteurs, compositeurs et éditeurs de musique (SACEM), Case 402.85, [1987] ECR 1747  6.268, 6.282 BAT Cigaretten-Fabriken GmbH v European Commission, Case 35.83, (ECLI:EU:C:1985:32)2.325 Bayer AG and Maschinenfabrik Hennecke GmbH v Heinz Süllhöfer, Case 65.86, (ECLI:EU:C:1988:448), [1988] ECR 5249 2.122, 2.284–2.287, 2.294–2.295, 4.35, 4.44, 8.181 Bayer AG and Maschinenfabrik Hennecke GmbH v Heinz Süllhöfer, Case 65.86, Opinion of AG Darmon (ECLI:EU:C:1987:336), [1988] ECR 5249 2.284, 2.288–2.293, 2.295 Bayer AG v European Commission (Bayer Adalat), Case T-41.96, (ECLI:EU:T:2000:242), [2000] ECR II-3383 2.08, 8.22, 8.113 Bayerische Motorenwerke AG v ALD Auto-Leasing D GmbH [1995] ECR I 3439 (ECLI:EU:C:1995:344)  3.22, 3.188 Belgische Vereniging van Auteurs, Componisten en Uitgevers CVBA (SABAM) v Weareone. World BVBA, Wecandance NV, Case C-372.19, (ECLI:EU:C:2020:959)6.279–6.284 Bertelsmann AG and Sony Corporation of America v Independent Music Publishers and Labels Association (Impala), Case C-413.06 P, (ECLI:EU:C:2008:392)7.39 Brasserie de Haecht v Consorts Wilkin-Janssen, Case 23.67, (ECLI:EU:C:1967:54), [1967] ECR 4072.50 British Airways plc v European Commission, Case C-95.04 P, (ECLI:EU:C:2007:166), [2007] ECR I-23316.78

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TABLE OF CASES British Airways plc v European Commission, Case T-219.99, (ECLI:EU:T:2003:343)6.52 BRT v SABAM, Case C-127.73, (ECLI:EU:C:1974:25), [1974] ECR 3131.39 Bulgarian Energy Holding and Others v Commission, Case T-136.19, (ECLI:EU:T:2023:669) 6.50, 6.64, 6.66 Bundesverband der Arzneimittel-Importeure eV and European Commission v Bayer AG, Joined Cases C-2.01 P and C-3.01 P, (ECLI:EU:C:2004:2), [2004] ECR I-232.08 Cementbouw Handel & Industrie BV v European Commission, Case T-282.02, (ECLI:EU:T:2006:64), [2006] ECR II-3197.121 Centrafarm BV and Adriaan de Peijper v Sterling Drug Inc, Case 15.74, (ECLI:EU:C:1974:114), [1974] ECR 1147 1.97–1.99, 6.14, 6.84 Centrafarm BV and Adriaan de Peijper v Winthrop BV, Case 16.74, (ECLI:EU:C:1974:115), [1974] ECR 11831.97–1.100 Centre belge d’études de marché – Télémarketing (CBEM) v SA Compagnie luxembourgeoise de télédiffusion (CLT) and Information publicité Benelux (IPB), Case 311.84, (ECLI:EU:C:1985:394), [1985] ECR I-3261 6.75, 6.78 CEPSA Estaciones de Servicio SA v LV Tobar, Case C-217.05, (ECLI:EU:C:2006:784), [2006] ECR I-119872.25 CICRA and Others v Renault, Case C-53.87, (ECLI:EU:C:1988:472) 1.40, 6.104, 6.212 Coditel SA v Ciné-Vog Films SA and others (Coditel 2), Case 262.81 (ECLI:EU:C:1982:334), [1982] ECR 3381 1.91, 2.43, 2.53, 2.103, 2.135–2.136, 2.139, 2.154, 2.170, 2.330 Commission v Servier and Others and C-151.19P Commission v KRKA, Case C-176.19 P, [2019] OJ C 139.37 8.194, 8.209, 8.211 Commission v Servier and Others and C-151.19P Commission v KRKA, Case C-176.19 P, Opinion of AG Kokott (ECLI:EU:C:2022:576) 8.48, 8.133, 8.212–8.213 Commission v Servier SAS, Case C-176.19 P, [2019] OJ C139.36 6.229, 8.194, 8.305–8.306 Compagnie Maritime Belge NV and Dafra-Lines v European Commission, Joined Cases C-395.96 P and C-396.96 P, (ECLI:EU:C:2000:132), [2000] ECR I-13658.247 Compagnie Maritime Belge NV and Dafra-Lines v European Commission, Joined Cases C-395.96 P and C-396.96 P, Opinion of AG Fennelly (ECLI:EU:C:1998:518), [2000] ECR I-13656.293 Competition Authority v Beef Industry Development Society Ltd and Barry Brothers (Carrigmore) Meats Ltd [2008] ECR I-8637, Case C-209.07 (Irish Beef), (ECLI:EU:C:2008:643)2.32 Consten SaRL and Grundig GmbH v European Commission, Joined Cases 56.64 and 58.64, [1966] ECR 299 1.06, 1.36, 1.90, 1.95, 2.106, 2.108, 2.133, 2.150, 2.302, 2.315, 5.11, 6.181, 6.230, 8.98 Coöperatieve Vereniging ‘Suiker Unie’ UA and others v European Commission, Joined Cases 40.73 to 48.73, (ECLI:EU:C:1975:174), [1975] ECR 1663 2.06, 2.11 Coty Germany GmbH v Parfümerie Akzente GmbH, Case C-230.16, (ECLI:EU:C:2017:941)3.09 Coty Germany GmbH v Parfümerie Akzente GmbH, Case C-230.16, Opinion of AG EWahl (ECLI:EU:C:2017:603)3.09 Courage Ltd v Bernard Crehan and Bernard Crehan v Courage Ltd and Others, Case C-453.99, (ECLI:EU:C:2001:465), [2001] ECR I-62972.89 DaimlerChrysler AG v European Commission, Case T-325.01, (ECLI:EU:T:2005:322), [2005] ECR II-33192.24–2.25 Davidson Rubber Co Agreements OJ [1972] L 143.312.96 Der Grüne Punkt – Duales System Deutschland GmbH v European Commission, Case C-385.07 P, (ECLI:EU:C:2009:456) 6.198–6.199, 6.208, 6.284 Der Grüne Punkt – Duales System Deutschland GmbH v European Commission, Case T-151.01, (ECLI:EU:T:2007:154) 6.198–6.199, 6.208 Design Light & Led Made in Europe and Design Luce & Led Made in Italy v European Commission, Case T-886.19, (ECLI:EU:T:2022:442) 5.118, 6.204–6.206, 6.284 Deutsche Börse AG v European Commission, Case T-175.12, (ECLI:EU:T:2015:148)7.45 Deutsche Grammophon v Metro SB, Case 78.70, (ECLI:EU:C:1971:59) 1.91, 2.43, 2.170, 6.211 Deutsche Telekom AG and Slovak Telekom a.s. v European Commission, Joined Cases C-152.19 P and C-165.19 P, (ECLI:EU:C:2021:238 and ECLI:EU:C:2021:239), 6.74, 6.129, 6.173, 6.175 Deutsche Telekom AG v European Commission, Case C-280.08, (ECLI:EU:C:2010:603)6.256 Dole Food Company, Inc and Dole Fresh Fruit Europe v European Commission, Case C-286.13 P, (ECLI:EU:C:2015:184)8.180

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TABLE OF CASES EasyJet Airline Co. Ltd v European Commission, Case T-177.04, (ECLI:EU:T:2006:187), [2006] ECR II-19317.120 Eco Swiss China Time Ltd v Benetton International NV, Case C-126.97, (ECLI:EU:C:1999:269)2.271 EDP (Energias de Portugal) v European Commission, Case C-331.21, (ECLI:EU:C:2023:812)8.183 EDP (Energias de Portugal) v European Commission, Case T-97.05, (ECLI:EU:T:2005:333), [2005] ECR II-37457.120 EMI Electrola GmbH v Patricia Im- und Export and Others, Case 341.87, (ECLI:EU:C:1989:30), [1989] ECR 791.107 Eurofima [1973] CMLR D217 6.195, 6.197 European Association of Euro-Pharmaceutical Companies (EAEPC) v European Commission, Case T-574.14, (ECLI:EU:T:2018:605)8.115 European Night Services v European Commission [1998] ECR II-3141, Case T-374.94, (ECLI:EU:T:1998:198) 2.48, 2.65, 3.70 Europemballage Corporation and Continental Can Company Inc v European Commission, Case 6.72, [1973] ECR 215 (ECLI:EU:C:1973:22)6.34 Expedia v Autorité de la concurrence, Case C-226.11, (ECLI:EU:C:2012:795), [2013] 4 CMLR 142.60, 2.64 Facebook Inc and Others v Bundeskartellamt, Case C-252.21, (ECLI:EU:C:2023:537)7.93 Federación Nacional de Empresas de Instrumentación Científica, Médica, Técnica y Dental (FENIN) v European Commission, Case T-319.99, (ECLI:EU:T:2003:50), [2003] ECR II-3572.16 Football Association Premier League v QC Leisure and Karen Murphy v Media Protection Services Limited, Joined Cases C-403.08 and C-429.08, (ECLI:EU:C:2011:631) 1.58, 1.90, 2.46, 2.139–2.140, 2.148, 2.150, 2.153–2.159, 2.163, 2.167–2.168, 2.170, 2.330 France Télécom SA v European Commission, Case C-202.07 P, (ECLI:EU:C:2009:214), [2009] ECR I-2369 8.256, 8.275 Franz Völk v S.P.R.L. Ets J. Vervaecke, Case C-5.69, (ECLI:EU:C:1969:35), [1969] ECR 2952.59 Gazdasági Versenyhivatal v Budapest Bank Nyrt. and Others, Case C-228.18, (ECLI:EU:C:2020:265) 2.37 Gencor Ltd v European Commission, Case T-102.96, (ECLI:EU:T:1999:65), [1999] ECR II-7537.120–7.122 Genentech Inc v Hoechst GmbH and Sanofi-Aventis Deutschland GmbH, Case C-567.14, (ECLI:EU:C:2016:526) 2.92, 2.270–2.273, 2.276, 8.64–8.68, 8.72–8.73, 8.76, 8.80, 8.89 Genentech Inc v Hoechst GmbH and Sanofi-Aventis Deutschland GmbH, Case C-567.14, Opinion of AG Wathelet (ECLI:EU:C:2016:177)2.272–2.273 General Electric Company v European Commission (GE.Honeywell), Case T-210.01, (ECLI:EU:T:2005:456) 7.03 General Motors Continental NV v European Commission, Case 26.75, (ECLI:EU:C:1975:150), [1975] ECR 13676.208 Generics (UK) and Others v Competition and Markets Authority, Case C-307.18, (ECLI:EU:C:2020:52)  2.37, 2.81–2.83, 2.160, 3.63, 3.70, 3.76–3.78, 3.87, 6.02, 6.17, 6.74, 8.133, 8.141, 8.146, 8.149, 8.155, 8.158, 8.163, 8.165–8.193, 8.237–8.240, 8.309–8.320 Generics (UK) and Others v Competition and Markets Authority, Case C-307.18, Opinion of AG Kokott (ECLI:EU:C:2020:28) 8.173, 8.184, 8.189, 8.239 GlaxoSmithKline Services Unlimited, formerly Glaxo Wellcome plc v European Commission and Others, Case C-501.06 P, (ECLI:EU:C:2009:610), [2009] ECR I-9291 2.32, 2.34, 2.139, 2.156, 8.13, 8.115 GlaxoSmithKline Services Unlimited v European Commission, Case T-168.01, (ECLI:EU:T:2006:265), [2006] ECR II-29698.115 Goldman Sachs Group, Inc. v European Commission, Case T-419.14, (ECLI:EU:T:2018:445)2.18 Google LLC and Alphabet Inc v European Commission (Google Shopping), Case C-48.22 P, Opinion by AG Kokott (ECLI:EU:C:2024:14)6.174 Google LLC and Alphabet, Inc v European Commission (Google Android), Case T-604.18, (ECLI:EU:T:2022:541) 6.189, 6.192–6.193, 6.197 Google LLC and Alphabet, Inc v European Commission (Google Shopping), Case T-612.17, (ECLI:EU:T:2021:763) 6.51–6.52, 6.65, 6.81, 6.174–6.175 Groupe Canal + v Commission, Case C-132.19 P, (ECLI:EU:C:2020:1007) 1.58, 2.43, 2.46, 2.163, 2.165–2.166, 2.168, 2.333

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TABLE OF CASES Groupement des Cartes Bancaires (CB) v European Commission, Case C-67.13 P, Opinion of AG Wahl (ECLI:EU:C:2014:1958),2.35–2.36 GVL v Commission, Case 7.82, (ECLI:EU:C:1983:52)2.337 Hag II, Case C-10.89, (ECLI:EU:1990:359), [1990] ECR I-37111.105 Hilti AG v European Commission, Case C-53.92, (ECLI:EU:C:1994:77), [1994] ECR I-6676.183, 6.213 Hilti AG v European Commission, Case T-30.89, (ECLI:EU:T:1991:70), [1991] ECR II-014396.78, 6.183–6.184, 6.213 Hoffmann-La Roche and Others v Autorita Garante della Concorrenza e del Mercato (AGCM), Case C-179.16 (Roche.Novartis), (ECLI:EU:C:2018:25) 8.121–8.130, 8.256 Hoffmann-La Roche and Others v Autorita Garante della Concorrenza e del Mercato (AGCM), Case C-179.16 (Roche.Novartis), Opinion of AG Saugmandsgaard Oe (ECLI:EU:C:2017:714)8.130 Hoffmann-La Roche & Co. AG v European Commission, Case 85.76, (ECLI:EU:C:1979:36), [1979] ECR 461 2.92, 6.11, 6.45, 6.60, 6.63, 6.74 Honda Giken Kogyo Kabushiki Kaisha v Maria Patmanidi AE, Case C-535.13, (ECLI:EU:C:2014:2123)  1.115, 2.79 Huawei Technologies Company Limited v ZTE Corporation and ZTE Deutschland GmbH, Case C-170.13, (ECLI:EU:C:2015:477) 5.105, 5.108, 5.110, 5.121, 6.92, 6.236, 6.238–6.239, 8.312, 9.04, 9.121, 9.135–9.136, 9.138–9.145, 9.151, 9.157 Huawei Technologies Company Limited v ZTE Corporation and ZTE Deutschland GmbH, Case C-170.13, Opinion of AG Wathelet (ECLI:EU:C:2014:2391)9.124 ICAP and Others v Commission, Case T-180.15, (ECLI:EU:T:2017:795)6.22 Illumina, Inc. v European Commission (Illumina.Grail), Case T-227.21, (ECLI:EU:T:2022:447)7.37 Illumina v Commission (Illumina Grail), Case C-611.22, (ECLI:EU:C:2023:205)7.38 Illumina v Commission (Illumina Grail), Case C-611.22, Opinion of AG Emiliou (ECLI:EU:C:2024:264) 7.38 Imperial Chemical Industries Ltd v European Commission, Case 48.69, (ECLI:EU:C:1972:70), [1972] ECR 6192.10 IMS Health GmbH & Co. OHG v NDC Health GmbH & Co. KG., Case C-418.01, (ECLI:EU:C:2004:257), [2004] ECR I-5039 1.17, 1.35, 1.43, 2.108, 6.89, 6.130–6.141, 6.159–6.160, 6.163, 6.167, 6.172, 8.275, 9.106, 9.123 IMS Health GmbH & Co. OHG v NDC Health GmbH & Co. KG., Case C-418.01, Opinion of AG Tizzano (ECLI:EU:2003:537), [2004] ECR I-5039 6.141, 6.160 IMS Health Inc v European Commission (Interim Measures), Case T-184.01, (ECLI:EU:T:2001:259), [2001] ECR II-3193; [2002] 4 CMLR 111 6.131, 6.134–6.138 Intel Corporation Inc v European Commission, Case C-413.14 P, (ECLI:EU:C:2017:632) 2.68, 6.38, 6.48, 6.75 Irish Sugar plc v European Commission, Case T-228.97, (ECLI:EU:T:1999:246), [1999] ECR II-026966.46 Istituto Chemioterapico Italiano S.p.A. and Commercial Solvents Corporation v European Commission, Joined Cases 6 and 7-73, (ECLI:EU:C:1974:18), [1974] ECR 223 6.83, 6.96–6.100, 6.119, 6.145 ITT Promedia NV v European Commission, Case T-111.96, (ECLI:EU:T:1998:183)6.234–6.235, 6.239, 8.281, 9.102–9.110, 9.123–9.131 Javico International and Javico AG v Yves Saint Laurent Parfums SA (YSLP), Case C-306.96, (ECLI:EU:C:1998:173), [1998] ECR I-1983 2.69, 3.22 Kai Ottung v Klee & Weilbach A.S and Thomas Schmidt A.S, Case 320.87, (ECLI:EU:C:1989:195), [1989] ECR 1177 1.38, 2.109, 2.122, 2.247, 2.262–2.265, 2.269, 2.277, 3.111, 8.57, 8.60–8.63, 8.67–8.68, 8.76, 8.89, 8.275 Kai Ottung v Klee & Weilbach A.S and Thomas Schmidt A.S, Case 320.87, Opinion of AG Tesauro (ECLI:EU:C:1989:34), [1989] ECR 1177 2.256, 2.266, 2.269, 3.111, 5.118, 8.58–8.61, 8.84 Kanal 5 Ltd and TV 4 AB v Föreningen Svenska Tonsättares Internationella Musikbyra (STIM), Case C-52.07, (ECLI:EU:C:2008:703) 6.276, 6.282 Klaus Höfner and Fritz Elser v Macrotron GmbH, Case C-41.90, (ECLI:EU:C:1991:161), [1991] ECR I-19792.15 Konkurrensverket v TeliaSonera Sverige AB, Case C-52.09, (ECLI:EU:C:2011:83), [2011] ECR I-527 6.75, 6.293, 8.247, 8.277

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TABLE OF CASES KRKA v Commission, Case T-684.14, (ECLI:EU:T:2018:918) 8.48, 8.213 Lélos kai Sia EE and Others v GlaxoSmithKline AEVE Farmakeftikon Proionton, Joined Cases C-468.06 to C-478.06, (ECLI:EU:C:2008:504) , [2008] ECR I-7139 2.139, 2.156, 6.03, 6.46, 8.22, 8.110 Lietuvos geležinkeliai AB v European Commission, Case T-814.17, (ECLI:EU:T:2020:545)6.46 Lucazeau and Others v SACEM and Others, Cases 110.88, 241.88 and 242.88, (ECLI:EU:C:1989:326)  2.334, 5.120, 6.275 Lundbeck A.S and Lundbeck Ltd v European Commission, Case C-591.16 P, (ECLI:EU:C:2021:243)2.81, 2.108, 3.63, 3.70, 3.74–3.89, 3.94, 6.20, 8.48, 8.133, 8.136–8.164, 8.167, 8.175, 8.191 Lundbeck A.S and Lundbeck Ltd v European Commission, Case C-591.16 P, Opinion of AG Kokott (ECLI:EU:C:2020:428) 3.63, 8.48, 8.142–8.143, 8.194 Lundbeck A.S and Lundbeck Ltd v European Commission, Case T-472.13, (ECLI:EU:T:2016:449)2.35, 8.133, 8.136, 8.157, 8.159–8.160, 8.163 MasterCard, Inc and Others v European Commission, Case T-111.08, (ECLI:EU:T:2012:260)2.54 Merck & Co. Inc. v Stephar BV and Petrus Stephanus Exler, Case 187.80, (ECLI:EU:C:1981:180), [1981] ECR 20631.107 Merck v Primecrown and Beecham.Europharm, Case C-267.95, (ECLI:EU:C:1996:468), [1997] 1 CMLR 831.109–1.110 Metro SBGroßmärkte- GmbH & Co. KG v European Commission, Case 26.76, (ECLI:EU:C:1977:167), [1977] ECR 18752.53 Métropole Télévision (M6) and Others v European Commission, Case T-112.99, (ECLI:EU:T:2001:215), [2001] ECR II-2459 2.54, 2.56, 2.339, 3.150, 7.107, 7.112 Microsoft Corp v European Commission, Case T-201.04, (ECLI:EU:T:2007:289), [2007] ECR II-3601 1.17, 1.35, 1.43, 6.78, 6.80, 6.142–6.172, 6.177, 6.185–6.186, 6.190–6.191, 6.214 Ministere public v Jean-Louis Tournier, Case 395.87, (ECLI:EU:C:1989:319), [1989] ECR 25215.120, 6.211, 6.268–6.269, 6.275, 6.278, 6.282 Motosykletistiki Omospondia Ellados NPID (MOTOE) v Elliniko Dimosio, Case C-49.07, (ECLI:EU:C:2008:376), [2008] ECR I-48632.15 Nederlands Uitgeversverbond and Groep Algemene Uitgevers v Tom Kabinet Internet BV and Others, Case C-263.18, (ECLI:EU:C:2019:1111)1.104 Nederlandsche Banden-Industrie-Michelin v European Commission, Case C-322.81, (ECLI:EU:C:1983:313) 6.75 Nokia Technologies Oy v Daimler AG, Case C-182.21, [2021] OJ C 252.89.152 Nungesser KG and Kurt Eisele v European Commission (Maize Seeds), Case 258.78, (ECLI:EU:C:1982:211), [1982] ECR 2015 1.38, 2.103, 2.132–2.134, 2.136, 2.142, 2.150 NV IAZ International Belgium and others v European Commission, Joined Cases 96-102, (ECLI:EU:C:1983:310), [1983] ECR 33692.36 O2 (Germany) GmbH & Co. OHG v European Commission, Case T-328.03, (ECLI:EU:T:2006:116), [2006] ECR II-12312.48 Orde van Vlaamse Balies and Others v Vlaamse Regering, Case C-694.20, (ECLI:EU:C:2022:963)8.272 OSA (Ochranný svaz autorský pro práva k dílům hudebním os) v Léčebné lázně Mariánské Lázně, Case C-351.12, (ECLI:EU:C:2014:110) 1.90, 6.211 Oscar Bronner GmbH & Co. KG v Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co. KG. and Others, Case C-7.97, (ECLI:EU:C:1998:569) 6.91, 6.119, 6.124–6.125, 6.128–6.129, 6.173–6.176, 6.178 Oscar Bronner GmbH & Co. KG v Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co. KG. and Others, Case C-7.97, Opinion of AG Jacobs (ECLI:EU:C:1998:264) 1.17, 6.91–6.92, 6.119, 6.126–6.127 Parke Davis & Co v Probel and Others, Case 24.67, (ECLI:EU:C:1968:11), [1968] ECR 55 1.39, 6.210, 9.49 Pavel Pavlov and Others v Stichting Pensioenfonds Medische Specialisten, Joined Cases C-180.98 to C-184.98, (ECLI:EU:C:2000:428), [2000] ECR I-64512.16 Pedro IV Servicios SL v Total Espana SA, Case C-260.07, (ECLI:EU:C:2009:215) 3.09, 3.13 Penney’s Trade Mark, Re [1978] OJ L 60.192.325 Pharmon BV v Hoechst AG, Case C-19.84, (ECLI:EU:C:1985:304), [1985] ECR 22811.107 Pierre Fabre Dermo-Cosmétique SAS v Président de l’Autorité de la concurrence and Ministre de l’Économie, de l’Industrie et de l’Emploi, Case C-439.09, (ECLI:EU:C:2011:649)3.09

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TABLE OF CASES Pierre Fabre Dermo-Cosmétique SAS v Président de l’Autorité de la concurrence and Ministre de l’Économie, de l’Industrie et de l’Emploi, Case C-439.09, Opinion of AG Mazak (ECLI:EU:C:2011:113)3.09 Post Danmark A.S v Konkurrenceradet (Post Danmark I), Case C-209.10, (ECLI:EU:C:2012:172)6.38, 6.78, 6.218, 9.33, 9.151 Post Danmark A.S v Konkurrenceradet (Post Danmark II), Case C-23.14, (ECLI:EU:C:2015:651)6.40, 6.50 Pronuptia de Paris GmbH v Pronuptia de Paris Irmgard Schillgallis, Case 161.84, (ECLI:EU:C:1986:41), [1986] ECR 353 2.53, 2.181, 2.292, 5.19 Protégé International Ltd v European Commission, Case T-119.09, (ECLI:EU:T:2012:421)6.235, 9.104–9.108, 9.123 Qualcomm Inc and Qualcomm Europe Inc v European Commission, Case C-466.19 P, (ECLI:EU:C:2021:76) 9.52 Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v European Commission (Magill), Joined Cases C-241.91P and C-242.91P, (ECLI:EU:C:1995:98), [1995] ECR I-7431.17, 1.35, 1.42, 2.108, 6.12, 6.63, 6.110–6.118, 6.124, 6.128, 6.136, 6.145, 6.161, 6.163, 6.167, 6.176, 6.178, 8.246, 8.275, 9.20, 9.123 Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v European Commission (Magill), Joined Cases C-241.91P and C-242.91P, Opinion of AG Gulmann (ECLI:EU:C:1994:210), [1995] ECR I-743 6.118, 6.137 Radio Telefis Eireann (RTE) v European Commission (Magill), Case T-69.89, (ECLI:EU:T:1991:39)  6.117, 6.118, 9.20 Remia BV and others v European Commission, Case 42.84, (ECLI:EU:C:1985:327), [1985] ECR 2545  2.56, 2.292, 7.107 Royal Philips Electronics NV v European Commission, Case T-119.02, (ECLI:EU:T:2003:101), [2003] ECR II-14337.136 Sandoz Prodotti Farmaceutici SpA v European Commission, Case C-277.87, (ECLI:EU:C:1990:6), [1990] ECR I-45 2.160, 8.111 Scarlet Extended SA v Société belge des auteurs, compositeurs et éditeurs SCRL (SABAM), Case C-70.10, (ECLI:EU:C:2011:771)6.239 Sebago Inc and Ancienne Maison Dubois & Fils SA v G-B Unic SA, Case C-173.98, (ECLI:EU:C:1999:347), [1999] ECR I-4103 1.114, 2.79 Servier and Others v Commission, Case C-201.19 P, Opinion of AG Kokott (ECLI:EU:C:2022:577)  8.48, 8.96, 8.133, 8.194, 8.308–8.309 Servier SAS and Others v European Commission, Case T-691.14, (ECLI:EU:T:2018:922), [2014] OJ C 462.25 2.35, 6.229, 8.48, 8.133, 8.194–8.205, 8.227–8.236, 8.248, 8.307, 8.320 Servizio Elettrico Nazionale SpA and Others v Autorita Garante della Concorrenza e del Mercato and Others, Case C-377.20, (ECLI:EU:C:2022:379) 6.21, 6.41, 6.54, 6.59, 6.74–6.75 Silhouette International Schmied v Hartlauer Handelsgesellschaft, Case C-355.96, (ECLI:EU:C:1998:374), [1998] ECR I-4799 1.114, 2.74 Sirdar and Phildar Trade Marks [1975] 1 CMLR D932.325 SK Hynix v Commission, Joined Cases T-148.10 and T-149.10, (ECLI:EU:T:2013:358) 5.126, 6.264, 9.44 Société de Vente de Ciments et Bétons de l’Est SA v Kerpen & Kerpen GmbH und Co. KG, Case C-319.82, (ECLI:EU:C:1983:374), [1983] ECR 41732.88 Société Technique Miniere (STM) v Maschinenbau Ulm GmbH (MBU), Case 56.65, (ECLI:EU:C:1966:38), [1966] ECR 2352.49 SPRL Louis Erauw-Jacquery v La Hesbignonne SC (Plant Breeders' Rights), Case 27.87, (ECLI:EU:C:1988:183), [1988] ECR 1919 2.53, 2.103, 2.136 Stergios Delimitis v Henninger Bräu AG, Case C-234.89, (ECLI:EU:C:1991:91), [1991] ECR I-9352.51 Super Bock Bebidas, SA v Autoridade da Concorrencia, Case C-211.22, (ECLI:EU:C:2023:529)2.13, 2.37, 2.67, 2.197, 3.09 T-Mobile Netherlands BV, KPN Mobile NV, Orange Nederland NV and Vodafone Libertel NV v Raad van bestuur van de Nederlandse Mededingingsautoriteit, Case C-8.08, (ECLI:EU:C:2009:343), [2009] ECR I-45292.33

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TABLE OF CASES T-Mobile Netherlands BV, KPN Mobile NV, Orange Nederland NV and Vodafone Libertel NV v Raad van bestuur van de Nederlandse Mededingingsautoriteit, Case C-808, Opinion of Kokott AG (ECLI:EU:C:2009:110), [2009] ECR I-45292.33 Tetra Laval BV v European Commission, Case C-12.03 P, (ECLI:EU:C:2010:280), [2005] ECR I-9877.120 Tetra Pak Rausing SA v European Commission, Case T-51.89, (ECLI:EU:T:1990:41), [1990] ECR II-309 2.143, 6.02, 6.224–6.227, 8.278 Tetra Pak v European Commission, Case C-333.94 P, (ECLI:EU:C:1996:436)6.75 Teva Pharmaceutical Industries and Cephalon Inc v European Commission, Case T-74.21, (ECLI:EU:T:2023:651) 8.133, 8.206–8.209 Tiercé Ladbroke SA v European Commission, Case T-504.93, (ECLI:EU:T:1997:84)6.119–6.123 Tomra Systems ASA and Others v European Commission, Case C-549.10P, (ECLI:EU:C:2012:221) 6.53–6.54 Unilever Italia v Autorita Garante della Concorrenza e del Mercato, Case C-680.20, (ECLI:EU:C:2023:33) 6.66 United Brands Company and United Brands Continentaal BV v European Commission (United Brands), Case 27.76, (ECLI:EU:C:1978:22) 5.97, 5.118, 6.10, 6.208, 6.215, 6.276, 8.215, 9.49 UsedSoft GmbH v Oracle International Corp, Case C-128.11, (ECLI:EU:C:2012:407) 1.104, 1.117–1.119 Valve Corporation v European Commission, Case T-172.21, (ECLI:EU:T:2023:587) 1.34, 1.87, 1.90, 2.08, 2.12–2.13, 2.38, 2.40–2.46, 2.85, 2.108, 2.159, 2.169, 2.171, 2.330 Van den Bergh Foods Ltd v European Commission, Case T-65.98, (ECLI:EU:T:2003:281)6.81 Viho Europe BV v European Commission, Case C-73.95 P, (ECLI:EU:C:1996:405), [1996] ECR I-54572.17 Viho Europe BV v European Commission, Case T-102.92, (ECLI:EU:T:1995:3), [1995] ECR II-172.17 Visa Europe Ltd and Visa International Service v European Commission, Case T-461.07, (ECLI:EU:T:2011:181), [2011] ECR II-17293.70 Warner Brothers Inc. and Metronome Video ApS v Erik Viuff Christiansen, Case 158.86, (ECLI:EU:C:1988:242), [1988] ECR 26251.107 Windsurfing International Inc. v European Commission, Case 1983.83, (ECLI:EU:C:1986:75), [1986] ECR 611 2.105, 2.109, 2.122, 2.182–2.193, 2.246, 2.248–2.249, 2.252, 2.255–2.256, 2.266, 2.283, 2.288, 3.09, 3.81, 3.108, 4.43, 8.72 Windsurfing International Inc. v European Commission, Case 1983.83, Opinion of AG (ECLI:EU:1985:231), [1986] ECR 6118.72 YKK’s Complaint, Re [1978] 3 CMLR 446.202 Zino Davidoff SA v A & G Imports. Levi Strauss & Co v Tesco Plc and others, Joined cases C-414-416.99, (ECLI:EU:C:2001:617), [2001] ECR I-86911.115

EU Commission Decisions Ahold. ICA Förbundet.Canica, COMP.M.1832, Commission Decision of 6 April 2000, [2000] OJ C 16.6  7.111, 7.114 AOIP.Beyrard (1976), 76.29.EEC – IV.26.949, Commission Decision of 2 December 1975, [1976] OJ L 6.8 2.96, 2.109, 2.220, 2.246, 2.255, 2.260–2.261, 3.25, 8.53, 8.61, 8.63, 8.75 Apple.Shazam, COMP.M.8788, Commission Decision of 6 September 2018, [2018] OJ C 417.47.92 ARM.Giesecke & Devrient.Gemalto.JV, COMP.M.6564, Commission Decision of 6 November 2012, C(2012) 8106 final7.125 Aspen, AT.40394, Commission Decision of 10 February 2021, C(2021) 724 final 6.219–6.221, 6.233 AstraZeneca, COMP.37.507, Commission Decision of 15 June 2005, [2006] OJ C 332.24 6.226, 6.242, 8.28 AstraZeneca.Novartis, COMP.M.1806, Commission Decision of 26 July 2000, [2004] OJ L 110.17.122 Asus, AT.40465, Commission Decision of 24 July 2018, [2018] OJ C 338.13 2.90, 2.196 Axalto.Gemplus, COMP.M.3998, Commission Decision of 19 May 2006, (2006) D.2026827.125 Bayer Healthcare.Roche (OTC), COMP.M.3544, Commission Decision of 19 November 2004 [2005] OJ C 7.37.137 Bayer.Hüls, IV.M.751, Commission Decision of 3 July 1996, [1996] OJ 271.167.114

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TABLE OF CASES Bayer.Monsanto, COMP.M.8084, Commission Decision of 21 March 2018, [2018] OJ C 459.107.61 BBI.Boosey & Hawkes: Interim measures, IV.32.279, Commission Decision of 29 July 1987, OJ [1987] L 286.366.232 BHF.CCF.Charterhouse, IV.M.319, Commission Decision of 30 August 1993, [1993] OJ C 247.47.99 Blokker.Toys ‘R’ Us, IV.M.890, Commission Decision of 26 June 1997, C(97) 1884 final7.20–7.21 Boehringer Ingelheim, COMP.39.246 (unreported)6.257 Boussois.Interpane, 87.123.EEC – IV.31.302, Commission Decision of 15 December 1986 [1987] OJ L 50.30 2.122, 2.136, 2.255 BP.Mobil, IV.M.727, Commission Decision of 7 August 1996, [1996] OJ C 381.87.114 Breeders Rights (Maize Seed), 78.823.EEC – IV.28.824, Commission Decision of 21 September 1978, [1978] OJ L 286.23 2.122, 2.212 BskyB.Kirch Pay TV, COMP.JV.37, Commission Decision of 21 March 2000, [2000] OJ C 110.45 7.124 Campari, 78.253.EEC – IV.171, IV.856, IV.172, IV.117, IV.28.173, Commission Decision of 23 December 1977 , [1978] OJ L 138.69 2.96, 2.181, 2.322–2.323 Canon.Kodak, IV.34.796, Commission Notice, OJ [1997] C 330.10 2.144, 4.30, 9.08 Car Emissions, AT.40178, Commission Decision of 8 July 2021, [2021] OJC 458.165.78 CBEMA v ETSI, IV.34.760 (unreported) 1.64, 5.107, 9.23–9.24 Cephalon.Teva, AT.39686, Commission Decision of 26 November 2020, [2021] OJ C 32.98.133, 8.206–8.209, 8.211, 8.213 Chiquita.Fyffes plc, COMP.M.7220, C(2014) 7268 Final2.326–2.328 CISAC, COMP.C2.38.698, Commission Decision of 16 July 2008 (ECLI:EU:T:2013:188)2.336 Cisco.Tandberg (2010), COMP.M.5669, Commission Decision of 29 March 2010, C(2010) 2217 7.143–7.144 Clayton Dubilier & Rice.Iteltel, COMP.M.2077, Commission Decision of 1 September 2000, [2000] OJ C 352.77.108 Cross Border Access to pay-TV (Hollywood Studios Investigation), AT.40023, Commission Decision of 31 March 2021, [2021] OJ C 184.7 1.58, 2.163–2.164 DaimlerChrysler.DeutscheTelekom.JV, COMP.M.2903, Commission Decision of 30 April 2003, [2003] OJ L 300.627.127 Delta Chemie.DDD, 88.563.EWG – IV.31.498, Commission Decision of 13 October 1988, [1988] OJ L 309.34 2.196, 2.212 Denon & Marantz, AT. 40469, Commission Decision of 24 July 2018, [2018] OJ C 335.3 2.90, 2.196 DFB (Joint selling of the media rights to the German Bundesliga), AT.37214, Commission Decision of 19 January 2005, [2005] OJ L 134.462.342 Dow.DuPont, COMP.M.7932, Commission Decision of 27 March 2017, [2017] OJ C 353.9 1.56, 7.60, 7.63 Dow.Enichem Polyurethane, IV.M.2355, Commission Decision of 6 April 2001, [2001] OJ C 138.11  7.109, 7.118 DSM.Roche Vitamins, COMP.M.2972, Commission Decision of 23 July 2003, [2004] OJ L 82.737.123 Eastman Kodak.Sun Chemical, IV.M.1042, Commission Decision of 15 January 1998, [1998] OJ C 32.5 7.114 ETSI Interim IPR Policy, IV.35.006, OJ [1995] C 76.5 1.64, 5.107, 9.23–9.24 Eurofix-Bauco v Hilti, 88.138.EEC – IV.30.787 and 31.488, Commission Decision of 22 December 1987, [1988] OJ L 65.19 6.20, 6.183, 6.232 Facebook.WhatsApp, COMP.M.7217, Commission Decision of 3 October 2014, C(2015) 7239 final  7.30, 7.90–7.91 FAG – Flughafen Frankfurt.Main AG, 98.190.EC – IV.34.801, Commission Decision of 14 January 1998, [1998] OJ L 72.306.81 FAPL (Joint selling of the media rights to the FA Premier League), AT.38173, Commission Decision of 22 March 2006 (not published)2.342 Fentanyl, Case AT.39685, Commission Decision of 10 December 2013, [2013] OJ C 142.21  8.106–8.108, 8.133 GEC.GPTH, IV.M.1226, Commission Decision of 27 July 1998, [1998] OJ C 252.107.99 GE.Instrumentarium, COMP.M.3083, Commission Decision of 2 September 2003, [2004] OJ L 109.1  7.124, 7.141–7.142

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TABLE OF CASES GEMA, 71.224.EEC – IV.26-760, [1971] OJ L 134.152.337 General Electric. Honeywell, COMP.M.2220, Commission Decision of 3 July 2001, [2004] OJ L 48.1  7.03, 7.120 General Electric.Alstom (Thermal Power – Renewable Power & Grid Business), COMP.M.7278, Commission Decision of 8 September 2015, [2015] OJ C 139.67.57–7.59 Glaxo.Wellcome, IV.M.555, Commission Decision of 28 February 1995, [1995] OJ C 65.37.123 Google Android, AT.40099, Commission Decision of 18 July 2018, [2018] OJ C 402.196.186, 6.189–6.193 Google.DoubleClick, COMP.M.4731, Commission Decision of 11 March 2008, [2008] OJ C 184.10 7.146–7.148 Google.Motorola Mobility, COMP.M.6381, Commission Decision of 13 February 2012, C(2012)1068 9.71 Guess, AT.40428, Commission Decision of 17 December 2018, [2018] OJ C 47.52.90 GVL, 81.1030.EEC – IV.29.839, Commission decision of 29 October 1981, [1981] OJ L 370.492.337 ICI.Williams, IV.M.1167, Commission Decision of 29 April 1998, [1998] OJ C 218.57.111 IFPI Simulcasting’, 2003.300.EC – COMP.C2.38.014, Commission Decision of 8 October 2002, [2003] OJ L 107.582.335 Illumina.GRAIL, COMP.M.10188, Prior Notification, [2012] OJ C 248.6 7.65–7.73, 7.82, 7.88, 7.129–7.132 IMS Health, 2002.165.EC – COMP.D3.38.044, Commission Decision of 3 July 2001, [2002] OJ L 59.18 6.131, 6.134 Intel.McAfee, COMP.M.5984, Commission Decision of 26 January 2011, (2011) D.14077.140 J&J.Actelion, COMP.M.8401, Commission Decision of 9 June 2017, C(2017) 4099 final7.54 Kabelmetal.Luchaire, 75.494.EEC – IV.21.353, Commission Decision of 18 July 1975, [1975] OJ L 222.34 2.122, 2.231–2.235, 2.243, 8.96 Kimberly-Clark.Scott Paper, IV.M.623, Commission Decision of 16 January 1996, OJ [1996] L 183.1 7.137 KingFisher.Grosslabor, IV.M.1482, Commission Decision of 12 April 1999, [1999] OJ C 176.127.108 KNP BT.Bunzl.Wilhelm Seiler, IV.M.884, Commission Decision of 14 February 1997, [1997] OJ C 110.9 7.110 Kodak.Imation, IV.M.1298, Commission Decision of 23 October 1998, [1999] OJ C 17.27.98 Lenovo.Motorola Mobility, COMP.M.7202, Commission Decision 26 June 2014, C(2014) 44599.72 Liberty Global.Corelio.W&W.De Vijver Media, COMP.M.7194, Commission Decision of 24 February 2015, [2015] OJ C 175.117.124 Lufthansa.Menzies.LGS.JV, COMP.M.1913, Commission Decision of 29 August 2000, [2001] OJ C 127.11 7.114, 7.117 Medtronic.Covidien, COMP.M.7326, Commission Decision of 28 November 2014, C(2014) 9215 final 7.49–7.50 Microcoft, COMP.37.792, Commission Decision of 24 May 2004, [2007] OJ L 32.23 6.185, 6.214 Microsoft (ECIS), COMP.C-3.39294, Commission Decision of 25 June 2010 (unreported)6.170 Microsoft.Activision Blizzard, COMP.M.10646, Commission Decision of 15 May 2023, [2023] OJ C 285.8 7.12, 7.74–7.82 Microsoft.LinkedIn, COMPM.8124, Commission Decision of 6 December 2016, C(2016) 8408 final 7.149–7.150 Microsoft.Yahoo! Search Business, COMP.M.5727, Commission Decision of 18 February 2010, C(2010) 10777.18–7.19 Moosehead.Whitbread, IV.32.736, Commission Decision of 23 March 1990, [1990] OJ L 100.322.138, 2.181, 2.196, 2.315–2.323 Motorola (Enforcement of ITU, ISO.IEC and IEEE standard essential patents), Case COMP.C-3.39.985, Commission Decision of 29 April 2014, [2014] OJ C 344.6 1.64, 9.81, 9.84–9.96, 9.102, 9.112, 9.118, 9.139, 9.141, 9.143 Nestle.Dalgety, IV.M.1127, Commission Decision of 2 April 1998, [1998] OJ C 143.287.108 Nestlé.Ralstone Purina, COMP.M.2337, Commission Decision of 27 July 2001, [2001] OJ C 239.8 7.137 Newscorp.Telepiu’, COMP.M.2876, Commission Decision of 2 April 2003, OJ [2004] L 110.732.344, 7.124

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TABLE OF CASES Nike, AT.40436, Commission Decision of 20 March 2019, [2019] OJ C 216.42.92 Novartis.GSK (Oncology), COMP.M.7275, Commission Decision of 28 January 2015, C(2015) 538 final  1.56, 1.59, 7.55 Omnis.Microsoft, COMP.39.784, Commission Decision of 29 January 2016, C(2016) 657 final6.170 Otto.Primondo Assets, COMP.M.5721, Commission Decision of 16 February 2010, [2010] OJ C 82.24 7.122 Perindopril (Servier), COMP.39.612, Commission Decision of 9 July 2014 [2016] OJ C 393.72.35, 6.227–6.229, 8.48, 8.133, 8.227 Pernod Ricard.Allied Domecq, COMP.M.3779, Commission Decision of 24 June 2005, (2005) D.202800 7.122 Pfizer.Hospira, COMP.M.7559, Commission Decision of 4 August 2015, C(2015) 5639 final1.56, 1.59, 7.51–7.52 Philips, AT.40181, Commission Decision of 24 July 2018, [2018] OJ C 340.10 2.90, 2.196 Philips LED, Case AT.39913, Commission Decision of 25 October 2019, C(2019) 7805 final6.204, 6.232, 6.238 Pioneer, AT. 40182, Commission Decision of 24 July 2018, [2018] OJ C 338.19 2.90, 2.196 Port of Rodby Denmark, 94.119.EC, Commission Decision of 21 December 1993, [1994] OJ L55.52  6.63, 6.81 Pre-insulated Pipes, 1999.60.EC – IV.35.691E-4, Commission Decision of 21 October 1998, [1999] OJ L 24.1 5.91, 5.100 Procter&Gamble.Wella, COMP.M.3149, Commission Decision of 30 July 2003, [2003] OJ C 195.6 7.137 PRSfM.STIM.GEMA.JV, COMP.M.6800, Commission Decision of 16 June 2015, C(2015) 4061 final 7.23–7.26 Racal-Decca, IV.30.979 and 31.394, Commission Decision of 21 December 1998, [1989] OJ L 43.27 [1990] 4 CMLR 6276.200–6.201 Rambus, COMP.38.636, Commission Decision of 9 December 2009, OJ [2010] C 30.17 5.126, 6.218, 6.263, 9.36–9.42, 9.131 Raymond-Nagoya, 72.238.CEE – IV.26.813, Commission Decision of 18 July 1975, [1972] OJ L 143.39 2.122 Reuter.BASF, 76.743.EEC – IV.28.996, Commission Decision of 26 July 1976, [1976] OJ L 254.40 2.53 Rich Products.Jus-rol, 88.143.EEC – IV.31.206, Commission Decision of 22 December 1987, [1988] OJ L 69.21 2.231, 2.234–2.235, 8.96 Rio Tinto Alcan, COMP.39230, Commission Commitments Decision of 20 December 2012, C(2012) 9439 final 2.122, 2.189 Samsung (Enforcement of UMTS Standard Essential Patents), AT.39939, Commission Decision of 29 April 2014, [2014] OJ C 2891 final 1.64, 5.105, 5.110, 5.121, 9.80–9.82, 9.112, 9.120 Sanrio, AT.40432, Commission Decision of 5 July 2019, [2019] OJ C 386.242.92 Sea Containers v Stena Sealink – Interim measures, 94.19.EC – IV.34.689, Commission Decision of 21 December 1993,[1994] OJ L 15.86.101 SEB.Moulinex, COMP.M.2621, Commission Decision of 11 November 2003, [2005] OJ L 138.18 7.136–7.137 Sicasov, 1999.6.EC – IV.35.280, Commission Decision of 14 December 1998 [1999] OJ L 4.272.136 Siemens.Draegerwerk, COMP.M.2861, Commission Decision of 30 April 2003, OJ [2003] L 291.1 7.124 Solvay-Laporte.Interox, IV.M.197, Commission Decision of 30 April 1992, [1992] OJ C 165.267.98 Sony.Mubadala.EMI Music Publishing, COMP.M.6459, Commission Decision of 19 April 2014, C(2018) 7293 final7.122 Stora Enso.Assidoman.JV, COMP.M.2243, Commission Decision of 22 December 2000, [2001] OJ C 49.57.117 Telia.Sonera, COMP.M.2803, Commission Decision of 10 July 2002, [2002] OJ C 201.197.127 Tetra Pak I (BTG licence), 88.501.EEC – V.31.043, Commission Decision of 26 July 1988, [1988] OJ L 272.27, [1988] 4 CMLR 881 6.02, 6.20, 6.63, 6.222–6.223 Teva.Allergan Generics, COMP M.7746, Commission Decision of 10 March 2016, C(2016) 5639 final 7.53

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TABLE OF CASES TomTom.Tele Atlas, COMP.M.4854, Commission Decision of 14 May 2008, [2008] OJ C 237.87.84 TPS, IV.36.237, Commission Decision of 3 March 1999, [1999] OJ L 90.67.112 UEFA CL (Joint selling of the commercial rights of the UEFA Champions League), AT.37398, Commission Decision of 23 July 2003, [2003] OJ L 291.25 (UEFA CL)2.342 Union Carbide.Enichem, IV.M.550, Commission Decision of 13 March 1995, [1995] OJ C 12.37.98 Vaessen BV v Moris, 79.86.EEC – IV.C-29.290, Commission Decision of 10 January 1979, [1979] OJ L 19.322.96 Velcro. Aplix, IV.4.204, Commission Decision of 12 July 1985, [1985] OJ L 233.22 2.122, 2.136, 2.212, 2.231, 2.236–2.238, 2.246, 3.25 Video cassette recorders, 78.156.EEC – IV.29.151, Commission Decision of 20 December 1977, [1977] OJ L 47.425.92 Vodafone Group PLC.EIRCELL, COMP.M.2305, Commission Decision of 2 March 2001, [2001] OJ C 128.3 7.108, 7.110 Volvo.Renault V.I., COMP.M.1980, Commission Decision of 1 September 2000, [2000] OJ C 301.23 7.98 X.Open Group, 87.69.EEC – IV.31.458, Commission Decision of 15 December 1986, [1987] OJ L 35.36 5.92

NATIONAL AND INTERNATIONAL CASES Belgium Test-Achats contre Novartis et Roche, CONC-P.K-14.0026, Decision ABC-2023-P.K-02 (23 January 2023)8.121

China Ningbo Ketian Magnet Co Ltd v Hitachi Metals, Ltd, Ningbo Intermediate People’s Court, April 2021 6.179

EFTA L’Oréal Norge AS v Aarskog Per AS and Others, Joined Cases E-09.07 and E-10.07, [2008] EFTA Ct Rep 259 1.99, 2.76

France Novartis Pharma SAS and Roche Holding AG v Autorité de la concurrence (CA Paris, 2023)8.121

Germany FRAND Defence II, [2020] Case No KZR 35.17, Federal Court of Justice9.45 IP Bridge v HTC, [2020] Case No. 6 U 104.18, Higher Regional Court Karlsruhe9.43 Orange Book Standard, [2009] Case No KZR 39.06, Federal Court of Justice 9.51, 9.113–9.116, 9.120, 9.133–9.134 Sisvel v Haier, Case no KZR 35.17, German Federal Court of Justice 9.136–9.138, 9.140, 9.143, 9.147–9.148, 9.151 Unwired Planet v Huawei, [2019] Case No I-2 U 31.16, Higher District Court of Dusseldorf9.69–9.70

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TABLE OF CASES Unwired Planet v Samsung, [2016] Case No 4b O 120.14, LG Dusseldorf9.69

Italy Pfizer Italy, Decision of the Autorita Garante della Concorrenza e del Mercato of 11 January 2011  8.280–8.281, 9.131 Pfizer Italy, judgment of the Consiglio di Stato of 12 February 20148.281–8.284

Netherlands Koninklijke Philips Electronics N.V. v SK Kassetten GmbH & Co. KG, Infringement, FRAND, District Court The Hague, 17 March 2010, Joint Cases No. 316533.HA ZA 08-2522 and 316535.HA ZA 08-25249.116 Koninklijke Philips NV v Asustek Computers INC, Court of Appeal of The Hague, 7 May 2019, Case No 200.221.250.019.43

United Kingdom Attheraces Ltd v The British Horseracing Board [2007] EWCA Civ 38, [2007] BusLR D77, [2007] Bus LR D77, [2007] UKCLR 309, [2007] ECC 7, CA 5.118, 6.215–6.217 CMA v Flynn Pharma (Rev 3) [2020] EWCA Civ 339, [2020] Bus LR 803, [2020] 2 All ER (Comm) 891, [2020] 4 All ER 934, [2020] 4 CMLR 18 6.207, 6.221 Consumers’ Association v Qualcomm Incorporation, Case 1382.7.7.21 (CAT)9.53 Flynn Pharma Ltd v CMA [2018] CAT 11, [2018] Comp AR 3246.207 Generics.GSK.Xellia.Actavis.Merck v CMA Case nos: 1251-1255.1.12.16, supplementary judgment re. Paroxetine [2021] CAT 9 8.165–8.166, 8.184, 8.189, 8.213, 8.241–8.242, 8.250, 8.309 InterDigital v Lenovo & Motorola [2023] EWHC 539 (Pat) 5.120, 9.51 IPCom v HTC [2012] EWHC 1567 (Pat)9.118 Napp Pharmaceutical Holdings Ltd v Director General of Fair Trading [2002] CAT 1, [2002] Comp AR 13, [2002] ECC 13, (2002) 64 BMLR 1656.80 Optis & Unwired Planet v Apple [2021] EWHC 2564 (Pat) (Optis v Apple Injunctive Relief)9.137, 9.140–9.141 Optis & Unwired Planet v Apple [2023] EWHC 1095 (Ch) (Optis v Apple FRAND) 5.120, 9.51, 9.137 Paroxetine (CMA Decision, 12 February 2016) Case CE.9531-11 8.134–8.135, 8.213, 8.309 Peninsula Securities Ltd v Dunnes Stores (Bangor) Ltd [2020] UKSC 36; [2021] AC 1014; [2021] 2 P & CR 2; [2021] 1 All ER (Comm) 395; [2021] 1 All ER 1; [2020] 3 WLR 5212.102 Philips Electronics NV v Ingman Ltd and others [1998] EWHC Patents 321; [1999] FSR 1122.108 Ravenseft Properties Ltd’s Application, Re [1978] EWHC QB 1; [1978] 1 QB 12; [1979] 1 All ER 929; 249 EG 51; [1979] 2 WLR 897; [1980] QB 12 2.102, 2.105 Reckitt Benckiser, Decision No. CA98.02.2011 of the Office of Fair Trading of 12 April 2011 8.285–8.287 Royal Mail plc v Office of Communications [2019] CAT 276.40 Royal Mail plc v Office of Communications [2021] EWCA (Civ) 669, [2021] Bus LR 10456.41 Samsung Electronics Co Ltd and Samsung Electronics (UK) Ltd v Telefonaktiebolaget L M Ericsson and Others [2016] EWCA Civ 4899.65–9.68 Streetmap EU Ltd v Google Incorporated and Others [2016] EWHC 253 (Ch)6.52 UKIP v Braine & Others [2019] EWHC 3527 (QB)8.272 Unwired Planet International Ltd v Huawei Technologies Co Ltd [2015] EWHC 1198 (Pat)9.32 Unwired Planet International Ltd v Huawei Technologies Co Ltd [2017] EWHC 711 (Pat)9.51 Unwired Planet International Ltd v Huawei Technologies Co Ltd [2018] EWCA Civ 2344, [2018] RPC 20 9.51 Unwired Planet International Ltd v Huawei Technologies Co Ltd [2019] EWCA Civ 389.51

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TABLE OF CASES Unwired Planet International Ltd v Huawei Technologies Co Ltd [2020] UKSC 37; [2021] 1 All ER 1141, [2020] RPC 21, [2021] ECC 17, [2021] 4 CMLR 3, [2021] 1 All ER (Comm) 885, [2020] Bus LR 2422 5.97–5.98, 5.110, 5.114, 9.32, 9.51, 9.137, 9.140–9.141, 9.143, 9.146–9.147, 9.151 Vestel Elektronik Sanayi Ve Ticaret A.S. & Anor v Access Advance LLC & Anor [2021] EWCA Civ 440, [2021] 4 WLR 60 9.32, 9.76

United States of America Alaska Airlines, Inc v United Airlines, Inc (9th Cir. 1991) 948 F.2d 5366.99 Apple Inc v Motorola Mobility, Inc, 886 F. Supp. 2d 1061, 1086–1088 (W.D. Wisc. 2012)9.45 AT&T Corp v Iowa Utilities Board (1999) 525 US 3666.98 Brulotte v Thys Co, 379 U.S. 29 (1964) 2.280, 8.85 Certain UMTS and LTE Cellular Communication Modules and Products (Inv. No. 337-TA-1240, US ITC April 1, 2022, Final Initial Determination)9.45 Continental Automotive Systems v Nokia (Delaware, of 31 January 2023) CA No 2021-0066-NAC 9.152–9.153 Core Wireless Licensing S.A.R.L. v Apple Inc, 899 F.3d 1356, 1365 (Fed. Cir. 2018)9.45 Federal Trade Commission v Qualcomm Inc, No. 19-16122 (9th Cir., 2020)9.151 FTC v Actavis, Inc, 570 US 136 (2013)8.204 Intergraphic Corp v Intel Corp (Fed. Cir. 1999) 195 F.3d 13466.99 International Inc v Cisco Systems Inc 14 F.4th 1323 (Fed. Cir 2021)3.73 Kimble et al v Marvel Enterprises, LLC, 576 US (2015) 2.246, 2.281 Leegin Creative Leather Products Inc v PSKS Inc, 551 US 877 (2007)2.196 Rambus Incorporated v Federal Trade Commission, 522 F.3d 456 (D.C. Cir. 2008) 5.126, 6.265, 9.35, 9.43 Twin Labs v Weider Health & Fitness (2d Cir. 1990) 900 F.2d 5666.99 Verizon Communications Inc v Law offices of Curtis v Trinko LLP, 540 US 398 (2004) 1.12, 6.32, 6.92

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TABLE OF LEGISLATION EUROPEAN LEGISLATION Treaties and Agreements Agreement on a Unified Patent Court, OJ [2013] C 175/01 Art. 292.75 Charter of Fundamental Rights of the European Union Art. 169.102 Art. 17(2) 6.92, 8.168, 9.102, 9.122, 9.135 Art. 47 9.102, 9.122, 9.135 Treaty Establishing the European Economic Community 1957 (Treaty of Rome) Art. 3(f)1.23 Art. 361.36 Art. 85 2.185, 9.19 Art. 85(1) 1.37–1.38, 4.35 Art. 85(3)1.47 Art. 869.19 Art. 2221.36 Art. 2341.36 Treaty on European Union 1992 (Treaty of Maastricht)1.49 Art. 3(3)1.28 Art. 4(3)1.93 Art. 19(2)1.81 Art. 511.28 Protocol 261.90 Protocol 27 1.28, 1.89 Treaty on the Functioning of the European Union (TFEU) Art. 31.88 Art. 3(3)1.88–1.89 Art. 4(3)7.93 Art. 141.90 Art. 17(1)1.69 Art. 341.93–1.94 Art. 34–36 1.50, 1.87–1.95, 1.111, 2.06, 2.72 Art. 36 1.16, 1.94–1.95, 2.44

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Art. 371.90 Art. 591.90 Art. 931.90 Art. 101 1.06, 1.29–1.30, 1.50, 1.79, 1.87–1.95, 1.120, 2.01, 2.04, 2.07–2.08, 2.11, 2.14, 2.17–2.20, 2.40–2.46, 2.48, 2.133, 2.154–2.159, 2.300, 3.31, 5.105, 5.123, 6.02, 6.06, 6.12, 6.17, 6.26, 6.89, 6.194–6.195, 6.197, 6.267, 7.96, 7.116, 7.154, 8.12, 8.38, 8.54, 8.166, 8.172, 8.305, 8.307, 8.309, 8.311, 8.319, 9.01, 9.14, 9.19, 9.65, 9.68 Art. 101–1091.29 Art. 101(1)1.37, 2.05–2.07, 2.09, 2.12–2.14, 2.20–2.21, 2.23, 2.30–2.33, 2.37, 2.49, 2.53–2.65, 2.67, 2.84–2.86, 2.92, 2.99, 2.102, 2.105–2.108, 2.110, 2.114, 2.122, 2.127, 2.133–2.143, 2.167, 2.169, 2.173, 2.176–2.177, 2.182–2.192, 2.196–2.198, 2.200, 2.204, 2.216, 2.218, 2.221–2.224, 2.231–2.247, 2.257–2.277, 2.282–2.298, 2.310, 2.315–3.325, 2.328–2.334, 2.343–2.345, 3.01, 3.07–3.09, 3.22–3.23, 3.27, 3.45, 3.147–3.149, 3.151, 3.154, 3.163–3.164, 3.171, 3.189, 4.02–4.03, 4.05, 4.08, 4.10, 4.16–4.18, 4.28, 4.34–4.35, 4.37, 4.40–4.46, 5.01, 5.08, 5.14, 5.16, 5.19, 5.23, 5.31, 5.37, 5.40, 5.83, 5.98–5.100, 5.134, 5.139–5.142, 5.144, 6.43, 6.54, 6.202, 7.104, 8.46, 8.55–8.56, 8.58, 8.60–8.62, 8.68–8.69, 8.72–8.74, 8.78, 8.85, 8.97–8.98, 8.108, 8.111, 8.113, 8.115, 8.125, 8.129, 8.145, 8.158, 8.162, 8.167, 8.180–8.181, 8.183, 8.189, 8.192, 8.204, 8.210, 8.256, 8.275, 8.320, 9.66–9.67, 9.156 Art. 101(2) 2.88–2.93, 3.24, 3.45, 7.116

TABLE OF LEGISLATION Art. 101(3) 1.47, 2.32, 2.49, 2.53–2.55, 2.88, 2.94–2.101, 2.108, 2.110, 2.117, 2.119, 2.137, 2.142–2.238, 2.277, 2.294, 2.297, 2.310, 2.321, 2.335, 3.01, 3.07–3.09, 3.11, 3.27, 3.45, 3.48, 3.68, 3.73, 3.93, 3.96–3.97, 3.109–3.110, 3.123, 3.163–3.164, 3.178–3.179, 3.181, 3.193–3.195, 4.02–4.03, 4.05–4.06, 4.08, 4.10, 4.20, 4.30, 4.41, 5.08, 5.23, 5.49, 5.83, 5.100, 6.27, 6.77, 6.80, 7.104, 8.45, 8.72, 8.97, 8.116, 8.130, 8.189, 9.156 Art. 102 1.29, 1.31, 1.48, 1.50, 1.79, 1.87–1.95, 1.120, 2.01, 2.06, 2.143–2.144, 2.189, 2.328, 2.331–2.332, 4.22, 5.97–5.98, 6.01–6.07, 6.22–6.30, 6.38–6.43, 6.45–6.53, 6.56–6.58, 6.62–6.66, 6.74–6.77, 6.80, 6.83, 6.89, 6.101–6.102, 6.104–6.296, 7.154, 8.12, 8.111, 8.166, 8.172, 8.214, 8.240, 8.251, 8.253–8.254, 8.256, 8.267, 8.271, 8.275–8.276, 8.298, 8.305, 8.307–8.312, 8.319, 8.320, 9.01, 9.20, 9.37, 9.39–9.40, 9.43, 9.45–9.47, 9.51, 9.68, 9.77, 9.82, 9.84, 9.95, 9.103, 9.123, 9.125, 9.127, 9.131–9.133, 9.136, 9.141, 9.153, 9.155, 9.157 Art. 102(a) 6.116, 6.194, 6.198, 6.205, 6.207, 6.215, 6.271, 6.276 Art. 102(b) 6.116, 6.159–6.161 Art. 102(c) 6.34, 9.144 Art. 102(d) 6.34, 6.182 Art. 1061.90 Art. 1071.90 Art. 1081.90 Art. 1141.90 Art. 118 1.49, 1.51 Art. 2221.95 Art. 2341.95 Art. 2521.81 Art. 267 1.79, 2.100 Art. 345 1.90, 2.108

Directives Council Directive 89/552/EEC of 3 October 1989 on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning television broadcasting [1989] OJ L 298/232.167

Council Directive 93/83/EEC of 27 September 1993 on the coordination of certain rules concerning copyright and rights related to copyright applicable to satellite broadcasting and cable retransmission [1993] OJ L 248/15 2.46 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society [2001] OJ L 167/10 1.103, 2.40, 2.42–2.45 recital 292.45 Art. 62.45 Art. 92.45 Directive 2001/83/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to medicinal products for human use [2001] OJ L311/67 8.112 Directive 2004/48 of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights [2004] OJ L 157/458.168 Directive 2006/115/EC of the European Parliament and of the Council of 12 December 2006 on rental right and lending right and on certain rights related to copyright in the field of intellectual property [2006] OJ L 376/281.103 Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs [2009] OJ L 111/161.103 Art. 4(2)1.117–1.119 Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market [2014] OJ L 84/722.338 Directive (EU) 2015/2436 of the European Parliament and of the Council of 16 December 2015 to approximate the laws of the Member States relating to trade marks [2015] OJ L 336/11.114 Art. 52.79 Art. 72.79 Art. 7(1)1.114

Regulations EEC Council Regulation No 17 of 21 February 1962 First Regulation Implementing Articles 85 and 86 of the Treaty [1962] OJ 35/1118  1.37, 2.96

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TABLE OF LEGISLATION Art. 19(3)2.144 Commission Regulation (EEC) No 2349/84 of 23 July 1984 on the application of Article 85(3) of the Treaty to certain categories of patent licensing agreements [1984] OJ L 219/15 2.110 Art. 3(2)2.261 Art. 3(4) 2.262, 8.63 Commission Regulation (EEC) No 556/89 of 30 November 1988 on the application of Article 85(3) of the Treaty to certain categories of know-how licensing agreements [1989] OJ L 61/12.110 Regulation (EEC) No 1768/92 of 18 June 1992 concerning the creation of a supplementary protection certificate for medicinal products [1992] OJ L 182/16.243 Council Regulation (EC) No 40/94 of 20 December 1993 on the Community Trade Mark [1994] OJ L 11/12.72 Art. 92.79 Art. 132.79 Commission Regulation (EC) No 240/96 of 31 January 1996 on the application of Article 85(3) of the Treaty to certain categories of technology transfer agreements [1989] OJ L 31/2 2.110, 2.268–2.269 Art. 2(1)(7)8.63 Art. 2(1)(7(b))2.268 Regulation (EC) No 141/2000 of the European Parliament and of the Council of 16 December 1999 on orphan medicinal products [2000] OJ L18/18.16 Council Regulation (EC) No 6/2002 of 12 December 2001 on Community Designs [2002] OJ L 3/12.72 Regulation 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 101 and 102 [2003] OJ L 1/1 (Modernisation Regulation) 2.96, 2.98 recital 142.98 Art. 9(1)2.189 Art. 102.98 Art. 24(2)6.169 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings [2004] OJ L 24/1 (Merger Regulation) 1.29, 1.32, 7.06, 7.11–7.13 recital 87.120 recital 207.15 recital 217.97 recital 307.121 Art. 17.27 Art. 1(2)7.28 Art. 1(3)7.28

Art. 27.39 Art. 2(1)7.40 Art. 2(3)7.40 Art. 3(1)7.14 Art. 3(1)(b)7.17 Art. 3(2)7.16 Art. 4(5)7.91 Art. 6(1)(b)7.93 Art. 8(1)7.93 Art. 8(2)7.93 Art. 22 7.13, 7.32–7.38 Commission Regulation (EC) No 772/2004 of 27 April 2004 on the application of Article 81(3) of the Treaty to categories of technology transfer agreements [2004] OJ L 123/11 2.110 Art. 1(1)(i)7.102 Regulation (EC) No 1901/2006 of the European Parliament and of the Council of 12 December 2006 on medicinal products for paediatric use [2006] OJ L 378/18.16 Commission Regulation (EC) No 1033/2008 of 20 October 2008 amending Regulation (EC) No 802/2004 implementing Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings [2008] OJ L 279/37.121 Council Regulation (EC) 469/2009 of the European Parliament and of the Council of 6 May 2009 concerning the supplementary protection certificate for medicinal products [2009] OJ L 152/16.243 Regulation (EU) No 1025/2012 of the European Parliament and of the Council of 25 October 2012 on European standardisation [2012] OJ L 316/129.10 Commission Regulation No 316/2014 of 21 March 2014 on the application of Article 101(3) of the TFEU to categories of technology transfer agreements [2014] OJ L 93/17 (TTBER)  1.16, 2.110–2.113, 2.116, 2.225, 2.303, 2.312–2.313, 3.03, 3.05–3.09, 4.01, 4.05, 4.07, 4.09–4.10, 4.12, 5.01, 5.75, 5.138, 7.104, 8.48, 8.94, 8.105, 9.95 recital 73.17 recital 94.08 Art. 13.14–3.21 Art. 1(1)2.144 Art. 1(1)(i) 2.307, 3.191 Art. 1(1)(a) 3.14, 3.102–3.104, 3.108 Art. 1(1)(b) 3.06, 3.102, 3.119 Art. 1(1)(b)(i)–(vii)2.172 Art. 1(1)(c) 3.09, 3.102 Art. 1(1)(c)(i)3.120–3.123 Art. 1(1)(c)(ii)3.124 Art. 1(1)(c)(iii)3.125

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TABLE OF LEGISLATION Art. 1(1)(c)(iv)3.126–3.127 Art. 1(1)(d) 2.144, 3.20, 3.102, 3.108, 3.113, 3.117 Art. 1(1)(e) 3.20, 3.113, 3.117 Art. 1(1)(g)3.17 Art. 1(1)(h)3.14 Arts. 1(1)(j)–(m)3.20 Art. 1(1)(n) 3.20, 3.58 Arts. 1(1)(p)–(r)3.20 Art. 1(2)3.14 Art. 2 2.173, 3.22–3.26, 8.130 Art. 2(2) 2.109, 3.24 Art. 3 3.27–3.38, 6.89 Art. 4 2.117, 3.39–3.44 Art. 4(1) 2.149, 3.39, 3.42 Art. 4(1)(a) 2.255, 3.109 Art. 4(1)(b) 2.255, 3.112–3.113 Art. 4(1)(c)3.115 Art. 4(1)(d)3.132–3.134 Art. 4(2) 2.149, 3.39, 3.41–3.42, 3.99, 3.135–3.158 Art. 4(2)(a)3.136–3.139 Art. 4(2)(b)3.140–3.143 Art. 4(2)(b)(i)3.144–3.151 Art. 4(2)(b)(ii)3.152 Art. 4(2)(b)(iii)3.153 Art. 4(2)(b)(iv)3.154 Art. 4(2)(b)(v) 3.140, 3.155 Art. 4(2)(c)3.156–3.158 Art. 4(3) 3.41, 3.159–3.162 Art. 5 2.117, 3.45–3.46, 3.163–3.165, 4.03, 4.44 Art. 5(1)(a) 3.166–3.181, 5.143 Art. 5(2) 3.192–3.196, 5.144 Art. 5(2)(b)3.182–3.191 Art. 63.48–3.51 Art. 6(1)3.127 Art. 6(2)3.127 Arts. 6–113.47–3.57 Art. 73.51 Art. 8 3.35, 3.52–3.55 Art. 8(e) 3.97, 4.09 Art. 9 3.56, 3.57, 5.26 Regulation (EU) 2018/302 of the European Parliament and of the Council of 28 February 2018 on addressing unjustified geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market and amending Regulations (EC) No 2006/2004 and (EU) 2017/2394 and Directive 2009/22/EC [2018] OJ L 60/1 2.171

Commission Regulation No 2022/720 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices [2022] OJ L 134/4 (VABE) 2.113, 2.314, 3.03, 3.117, 5.04, 5.138, 8.105 Art. 2(3)5.04 Art. 2(4)5.05 Art. 4(b)(i)2.149 Art. 4(c)(i)2.149 Art. 4(d)(i)2.149 Commission Regulation No 2023/1066 of 1 June 2023 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements [2023] OJ L 143/20 (R&DBE) 3.02, 3.56, 5.25, 8.45–8.47, 8.105 recital 115.49 recital 195.69 Art. 1 5.42, 5.57 Art. 1(1) 5.53, 5.59 Art. 1(1)(3)5.67 Art. 1(1)(7)5.53 Art. 1(1)(10) 5.53, 5.59 Art. 1(1)(10)(a)5.69 Art. 1(1)(10)(b)5.69 Art. 1(1)(11)5.69 Art. 25.43 Art. 2(3)5.43 Art. 3(2)5.51 Art. 3(4)5.54 Arts. 3–45.44–5.59 Arts. 3–65.78 Art. 4 5.41, 5.53–5.54 Art. 5(1)5.56 Art. 5(2)5.59 Art. 65.60 Art. 6(1)–(4)5.62 Art. 6(4)(a)5.63 Art. 6(4)(b)5.63 Art. 75.64 Art. 8 5.65–5.72, 5.78 Art. 8(a)5.67 Art. 8(b)5.68 Art. 8(b)(i)5.69 Art. 8(b)(ii)5.69 Art. 8(b)(iii)5.69 Art. 8(b)(iv)5.69 Art. 8(c)5.70 Art. 8(d)5.70–5.71 Art. 8(e)5.70–5.71 Art. 8(f) 5.70, 5.72 Art. 8(g) 5.70, 5.72 Art. 95.73–5.78

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TABLE OF LEGISLATION Art. 9(a)5.74 Art. 9(b)5.76 Art. 10(2)(e)5.33 Commission Regulation No 2023/1067 of 1 June 2023 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of specialisation agreements [2023] OJ L 143/20 (SBE) 3.03, 3.56, 5.26, 5.81, 5.137, 8.45, 8.105 Art. 2(3)5.82 Art. 35.81

Commission Policy Documents The 2023 Article 102 Staff Policy Brief, A dynamic and workable effects based approach to abuse of dominance, March 2023 6.23, 6.37, 6.40, 6.50, 6.57, 6.80 Action for Faster Technological Integration in Europe, Green Paper on the Development of European Standardization, 8 October 1990, COM(90) 456 final 1.64, 9.13 Amendments to the Communication from the Commission – Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, 27 March 2023, C(2023) 1923 final6.06 Amendments to the Communication from the Commission – Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, 31 March 2023 [2023] OJ C 116/16.38 A Balanced IP Enforcement System Responding to Today’s Societal Challenges, 29 November 2017, COM(2017) 707 final 1.54, 1.57 Commission Communication on the single market in pharmaceuticals, 25 November 1998, COM (98) 588 final8.28 Commission Notice of 18 December 1978 concerning its assessment of certain subcontracting agreements in relation to Article 101(1) TFEU, [1979] OJ C 1/2 (Subcontracting Notice) 5.80, 5.138, 5.145 para 25.140 para 3 5.140, 5.145 section 3.35.10 Commission Notice on a simplified procedure for treatment of certain concentrations under Council Regulation (EC) No 139/2004, [2013] OJ C 366/4 para 117.83

Commission Notice on Case Referral in respect of concentrations, [2005] OJ C 567.36 Commission Notice on remedies acceptable under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings[2008] OJ C 267/1 (Remedies Notice) paras 4–67.119 para 87.121 paras 15–177.120 para 377.122 para 387.122–7.123 para 407.135 para 417.137 para 427.138 paras 61–657.124 paras 61–697.123 para 627.123 para 657.125–7.126 para 667.127 Commission Notice on restrictions directly related and necessary to concentrations, [2005] OJ C 56/24 (Ancillary Restrictions Notice 2005) 7.96 para 107.96 para 117.96 para 177.99 para 187.105 para 197.107 para 207.108 para 217.106 para 237.110 paras 23–247.110 para 267.111 para 277.101 para 287.102 para 297.103 para 307.104 para 317.101 para 367.114 para 377.117 para 387.117 para 417.118 para 427.112 para 437.113 Commission Notice on the definition of relevant market for the purposes of Community competition law, [1997] OJ C 372/5 (Market Definition Notice)7.40 Commission Notice on the definition of relevant market for the purposes of Union competition law, [2024] OJ C 1645 (Market Definition Notice) 3.28, 6.11 para 213.62 para 23(c)8.243

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TABLE OF LEGISLATION Commission’s Guidelines on Vertical Restraints, [2010] OJ C 130/1 (2010 Vertical Guidelines) 2.30 Communication to ETSI 10th General Assembly, 6 March 19919.22 Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings, [2008] OJ C 95/1 7.11, 7.15 para 927.122 para 947.122 Council Conclusions on Medicinal Products and Public Health, 29 June 2000, [2000] OJ C 218/108.28 Council Conclusions on Single Market Strategy for services and goods, 29 February 2016 (6622/16)1.20 A Digital Single Market Strategy for Europe, 6 May 2015, COM(2015) 192 final 1.51, 1.59, 1.63, 2.171 Distributors that also act as agents for certain products for the same supplier, European Commission Working Paper2.27 EU and Sport: Background and Context – Accompanying document to the White Paper on Sport, Commission Staff Working Document, Com(2007) 391 final2.340 EU Merger Control and Innovation, April 2016 Competition Policy Brief7.42 EU Strategy on Standardisation – Setting global standards in support of a resilient, green and digital EU single market, 2 February 2022, COM(2022) 31 final 5.86, 9.09, 9.163 Europe 2020 Flagship Initiative – Innovation Union, 6 October 2010, COM(2010) 546 final1.63 Executive Summary of the Pharmaceutical Sector Inquiry Report, 8 July 2009 (Sector Inquiry Executive Summary)8.04 Final Report on the E-commerce Sector Inquiry, 10 May 2017, COM(2017) 229 final2.171 Guidance on Articles 34–36 of the Treaty on the Functioning of the European Union (TFEU), [2021] OJ C 100/38 1.93, 2.06 Guidance on restrictions of competition ‘by object’ for the purpose of defining which agreements may benefit from the De Minimis Notice, 25 June 2014, SWD(2014)198 final2.64 Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain categories of cases, 26 March 2021, C(2021) 1959 final (Article 22 Communication) 7.13, 7.32–7.36

Guidance on the Commission’s Enforcement Priorities in Applying Article 102 TFEU to abusive exclusionary conduct by dominant undertakings, [2009] OJ C 45/7 (Article 102 TFEU Guidance) 1.25, 6.06, 6.22 para 66.35 para 236.35 Guidelines for Examination in the European Patent Office, March 2023 edition Part G – Patentability, 1 Patentability Requirements8.17 Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, 1 June 2023, [2023] OJ C 259, C(2023) 3445 final (Horizontal Guidelines) 2.12, 2.17, 2.52, 4.11, 5.25, 5.85, 5.87, 5.89, 8.45, 9.14, 9.21 para 45.29 para 165.32 para 525.29 para 535.29 para 54 5.31, 5.38, 5.78 para 845.56 para 855.59 paras 86–1045.60 para 995.64 para 1055.65 paras 118–1195.74 paras 129–1325.78 para 1335.78 para 134 5.33, 5.78 paras 135–1465.31 paras 138–14045.78 para 1395.35 para 1405.34 para 143 5.38, 5.78 para 144 5.33, 5.78 para 1525.78 para 1535.78 paras 289–2909.51 para 4395.90 para 4405.94 para 4415.91 para 4435.92 para 444 5.97–5.98, 5.114 para 4505.103 para 4515.104 paras 451–4525.92 paras 451–4535.104 para 4545.104 para 4555.104 para 4569.155 para 457 2.131, 5.125 para 458 5.114, 9.157 para 459 5.108, 5.115 para 4605.119–5.120

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TABLE OF LEGISLATION para 4615.120 para 4645.104 para 474 5.101, 5.123 para 4755.90 Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union (TFEU) to technology transfer agreements, [2014] OJ C 89/3 (Technology Transfer Guidelines) 2.52, 2.119, 3.04, 3.16–3.18, 4.10, 5.01, 5.05, 6.205, 8.48, 8.94 para 4 2.116, 2.276 para 4.1.12.125 para 4.2.2.12.129 para 62.104 para 92.114 para 112.114 para 12a2.114 para 12b2.114 para 199.85 para 223.32 para 253.53 para 263.31 para 273.36 para 283.58 para 29 3.60–3.61, 3.64–3.65, 3.82, 3.91 para 303.66 para 33 3.72, 3.74 para 36 3.40, 3.59, 3.193 para 37 3.60, 3.160–3.161 para 383.159 para 393.99 para 442.172 paras 44–453.191 paras 44–462.111 para 452.308 para 463.15 para 47 2.113, 2.313 paras 47–50 2.111, 3.14 para 482.112 para 492.112 para 50 2.113, 2.312 para 52 3.09, 3.16 para 533.09 paras 58–663.09 para 593.18 para 613.17 para 625.14 para 663.17 para 682.109 para 693.09 paras 79–933.95–3.97 para 81 3.34, 3.101 para 83 3.40, 3.59 para 85 3.42, 3.99, 3.159 paras 86–893.98 paras 86–903.53

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para 893.33 para 90 3.35, 3.97 para 913.54 para 923.35 para 953.09 para 97(a)2.196 paras 97–1163.102 para 97(c)(i)2.198 para 98 3.40, 3.43, 3.113 para 99 2.196, 3.106 para 1003.107 para 101 3.108, 3.133 para 1023.108 para 1033.112 para 1043.112 para 1052.198 paras 105–1153.115 para 108 3.120–3.121, 3.123 para 1093.118 para 1103.124 para 1113.125 para 1123.126 para 1133.129 para 1143.129–3.130 paras 115–1162.222 para 1163.132–3.133 para 117(a)2.196 para 117(b)2.198 para 118 2.196, 3.136 para 1192.198 paras 119–127 2.148, 3.143 para 1203.140 para 1213.144 para 1223.152 para 1233.153 para 1243.154 para 125 3.140, 3.155–3.156, 3.158 para 1263.146 para 1273.147 paras 129–132 3.166, 5.143 para 130 3.169, 3.179, 3.181 para 131 2.241, 3.167–3.168, 3.172, 8.96 para 1323.174 paras 133–1403.184 para 1343.183 para 1373.186 para 1393.184 para 1403.190 paras 141–143 3.192–3.193, 5.144 paras 142–1432.222 para 1433.196 para 1463.49 para 1473.48 paras 149–1553.51 para 1592.274 para 1832.125

TABLE OF LEGISLATION para 184 2.250, 2.257, 6.205 para 187 2.274, 2.276, 8.62 para 1882.255 para 1892.141 paras 190–1912.141 para 1932.143 para 1942.142 para 1952.143–2.144 para 1962.144 para 1982.173 para 1992.173 para 2002.148 para 201 2.141, 2.146 para 2022.173 para 2032.148 para 208 2.200, 3.131 paras 208–2153.129 para 2092.206–2.207 para 2102.208 para 2112.205 para 2122.202 para 2132.202 para 2173.125 paras 221–2252.177 paras 230–2332.214 para 2332.179 paras 234–2434.34 para 2364.35 para 2413.170 para 242 2.295, 4.37, 4.45 para 247 4.12, 4.14 paras 248–2614.15 paras 250–2554.17 para 2614.16 para 2624.18 paras 262–2644.18 para 2644.19 para 2654.20 para 2664.21 para 2674.21 para 2684.24 para 2694.25 para 2704.26 para 2714.27 para 2724.28 Guidelines on the application of Article 101(3) TFEU (formerly Article 81(3) TEC), [2004] OJ C 101/97 (Art 101(3) TFEU Guidelines)  1.48, 2.08, 2.98, 2.114, 3.150 para 18(1)2.47 paras 24–272.49 paras 28–312.53 para 292.54 para 312.54

Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings [2004] OJ C 31/5 (Horizontal Merger Guidelines)7.04 para 87.44 para 207.83 para 387.43 para 81 7.43, 7.84 Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of concentrations between undertakings [2008] OJ C 265/6 (Non-Horizontal Merger Guidelines)7.04, 7.46 para 137.43 Guidelines on the effect on trade concept contained in Articles 101 and 102 TFEU, [2004] OJ C 101/81 (Guidelines on Inter-State Trade)  2.67–2.68, 2.71, 2.87 para 42.84 paras 25–322.86 paras 73–766.03 paras 97–996.03 paras 106–1096.03 Guidelines on Vertical Restraints, 30 June 2022, [2022] OJ C 248/1 (Vertical Guidelines)  1.87, 2.19–2.30, 2.52, 2.113, 3.120, 5.06–5.21 para 475.138 para 548.113 para 725.06 para 865.18 para 875.19 paras 143–164 3.155, 5.21 paras 165–1695.21 para 1792.196 para 1972.198 paras 389–3972.191 An Industrial Property Rights Strategy for Europe, 16 July 2008, COM(2008) 465 final  1.20–1.21, 1.51 Informal guidance relating to novel or unresolved questions concerning Articles 101 and 102 of the Treaty on the Functioning of the European Union that arise in individual cases (guidance letters) C(2022) 6925 final, [2022] OJ C 381/92.98 Intellectual Property Rights and Standardization, 27 October 1992 COM(92) 445 5.89, 5.93, 9.13–9.22 para 1.1.19.15 para 1.1.49.22 para 3.1.19.13 para 4.3.49.16 para 4.49.18

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TABLE OF LEGISLATION para 5.1.19.19 para 5.1.79.20 para 5.1.109.20 para 5.1.149.20 para 6.2.19.14 Making the Most of the EU’s Innovative Potential An intellectual property action plan to support the EU’s recovery and resilience, 25 November 2020, COM(2020) 760 final9.163 Notice on agreements of minor importance which do not appreciably restrict competition under Article 101(1) of the Treaty on the Functioning of the European Union, [2014] OJ C 291/01 (De Minimis Notice)2.61, 2.68, 5.23 Art. 1(2)2.65 Art. 42.63 Art. 8(a)2.61 Art. 8(b)2.61 Art. 92.61 Art. 102.62 Notice on Patent Licensing Agreements [1962] OJ 2922 (Christmas Notice) 1.37, 2.105, 2.301 Opinion on coherent enforcement of fundamental rights in the age of big data, European Data Protection Supervisor, Opinion 8/20167.92 Pharmaceutical Strategy for Europe, 25 November 2020, COM(2020) 761 final 8.15, 8.28, 8.30 Proposal for a regulation of the European Parliament and of the Council on standard essential patents and amending Regulation (EU) 2017/1001, COM(2023) 2326.238, 9.03, 9.30, 9.159 Proposal for a unitary SPC (Supplementary protection certificates), 27 April 2023, COM(2023) 222 final 8.04, 8.10 Report from the Commission to the Council and the European Parliament, Publications Office of the European Union, 2024 (2024 Pharma Report) 8.01, 8.29, 8.33 Report on the Pharmaceutical Sector Enquiry 2009, COM(2009) 351 final (2009 Pharma Report) 1.63, 8.01, 8.17–8.18, 8.20, 8.25–8.27, 8.29, 8.33, 8.35, 8.118, 8.133, 8.279, 8.288, 8.295 Report on the Pharmaceutical Sector Enquiry 2019 (2019 Pharma Report) 8.01, 8.20, 8.29, 8.33–8.37, 8.39, 8.49, 8.273, 8.279, 8.284, 8.298 Revised draft Council Conclusions on the Single Market Strategy, 3 February 2016 (5757/16) 1.22 Setting Out the EU Approach to Standard Essential Patents, 29 November 2017, COM(2017) 712 final 1.64, 4.29–4.30, 5.86, 5.89, 5.93, 5.105, 5.118, 9.03, 9.159

A Single Market for Intellectual Property Rights – Boosting creativity and innovation to provide economic growth, high quality jobs and first class products and services in Europe, 24 May 2011, COM(2011) 287 final 1.16, 1.51 Standardisation in the European Economy, 16 December 1991, COM(91) 521 final5.89, 9.02 Towards a Dynamic European Economy, 30 June 1987, COM(87) 290 final 5.89, 9.10 White Paper on Sport, COM(2007) 391 final, 11 July 2007 2.339–2.342, 2.344

Council Policy Documents Council Conclusions on the IPR Enforcement Package, 1 March 2018, (6681/18)1.50 Council Resolution of 30 June 1988 on the development of the common market for telecommunications services and equipment up to 1992, OJ [1988] C 257/019.10

NATIONAL AND INTERNATIONAL LEGISLATION Treaties and Agreements Agreement on Trade-Related Aspects of Intellectual Property Rights 1994 (TRIPS Agreement, WTO) Art. 1(2)1.15 Art. 31b6.88

Germany Act Against Restraints of Competition s. 20(1)2.105

United Kingdom Competition Act in 19982.102 Enterprise and Regulatory Reform Act 2013 s. 25(3)1.25 Restrictive Trade Practices Act 19762.102 Statute of Monopolies 16241.15 Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022 [SI 2022/516] 5.04

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TABLE OF LEGISLATION Intellectual Property (Exhaustion of Rights) (EU Exit) Regulations 2019 [SI 2019/265]2.75

Ex ante regulation of digital markets, OECD Competition Committee Discussion Paper (2021)6.40 Health at a Glance 2019: OECD Indicators8.15 Licensing of IP Rights and Competition Law (OECD, 6 June 2019)6.98 The Role of Competition Policy in Promoting Economic Recovery – Background Note (OECD, DAF/COMP(2020)6)6.39 Roundtable on Competition, Patents and Innovation, Note by the Delegation of the European Commission (OECD, 2 June 2009, AF/COMP/WD (2009) 52)8.05 Start-ups, Killer Acquisitions and Merger Control (OECD, 2020)7.05

United States of America 15 USC 1-7, Sherman Antitrust Act, 26 Stat 209 1.23 s. 12.55 s. 26.265 35 USC 2843.73

Miscellaneous International Policy Documents ETSI IPR Policy/Guide 5.110, 9.23, 9.25–9.27, 9.59

xl

INTRODUCTION TO EU LAW AND INTELLECTUAL PROPERTY RIGHTS: SCOPE AND APPROACH

The stimulation, reward and regulation of human curiosity is never likely to be a straightforward affair. This is a primary aspect of intellectual property law and policy. Even more fraught is any attempt to identify how and when the urge to compete becomes the urge to control competition and rig the game. This is a primary aspect of competition law and policy. Sometimes the stimulation of innovation and the control of anticompetitive instincts converge. The relationship between intellectual property rights (IPRs) and competition law is a subtle, and at times troubling, affair. This relationship has evolved considerably in recent years and continues to do so. The two disciplines of intellectual property law/policy and competition law/policy exist in an arena where different policy outlooks can lead to different priorities and therefore different outcomes. The relative youthfulness of EU competition law, the drive towards market integration which is fundamental to the EU project, and the commercial and social importance of industries in which innovation and intellectual property take a central part, mean that significant questions about the roles of competition law and intellectual property law, and the way in which they do and should interact, have frequently arisen in the EU and remain to be fully explored. This book considers the way in which competition law within the EU (and more widely the EEA) is responding to these challenges. Its purpose is to identify for practitioners, and those with a practical interest in the application of the law, where answers to legal problems might be found today. Inevitably, this also means identifying areas of uncertainty and controversy, of which there are many. In discussing those areas, I have sought to draw where helpful on commentary by regulators, academics and practitioners from relevant disciplines, primarily the law (both competition and intellectual property) and economics. This is not an academic work. In this field, however, an awareness of some of the underlying theoretical and policy debates can be of great assistance when trying to discern what approach may be taken to a particular contractual provision or a course of conduct. In commercial life client concerns often do not sit squarely in any particular legal category. They do not necessarily overlap with the current areas of policy which concern the competition law authorities. The prospect of future commercial arguments, or the potential need to enforce an agreement can be the main client concern, irrespective of legal fashion. The questions that clients ask often involve issues where the only case law is very old, or where the case law is contradictory or where it has not yet developed. In such circumstances, to give meaningful guidance requires a broader understanding of the underlying focus of the law, its evolution and how particular conduct can be fitted in to the story so far. xli

INTRODUCTION

The 25 years following the entry into effect of the European competition rules under Regulation 17/62 saw a slow build-up of decisional practice, largely in relation to potentially anticompetitive agreements. The development of the law in this way was mostly made possible through the system under which potentially anticompetitive agreements could be notified to the European Commission (the Commission) for review. The law was also developed through occasional illuminating judgments from the European Court of Justice (often following a reference from a national court arising from a contractual dispute). Those judgments were notable for the way in which they placed competition law in the context of the wider concerns of the fledgling EU, most notably the concern to create a Common Market. More recently, the regular review of commercial agreements by the Commission has ceased and enforcement through infringement decisions has played the primary role in competition law enforcement by the Commission at the EU level. A more intense focus on unilateral conduct and the exercise of market power has become a feature, coupled with a more explicit role for detailed economic analysis in the day-to-day life of competition lawyers. As the European economy has changed, so have areas of policy concern, particularly in relation to innovative industries and considerations relating to the acquisition and exercise of the IPRs, which play such an important role in those industries. The European Court of Justice, meanwhile, continues to answer the questions posed to it by national courts, giving valuable guidance on fundamental legal principles and adjudicating on the questions that arise from the Commission’s enforcement practice. If each EU Competition Commissioner’s reign is to be remembered for its enforcement priorities, at the time of writing it seems likely that the interface between EU competition rules, innovation and IPRs will be a substantial part of Commissioner Vestager’s legacy. This book seeks to place recent developments in their historical and legal context to give today’s practitioners and their clients a better understanding of the evolution of the law to this point and how it may continue to develop. Although both intellectual property law and EU competition law can be perceived as rather academic disciplines, this text is written with the practitioner in mind. It is primarily about what the law is, although it will from time to time comment on what the law ought perhaps to be or may become. It is a difficult time to be advising businesses on how to seek, exercise and enforce their IPRs effectively while being certain of compliance with competition law. It is equally difficult to give clear and certain advice to those who need access to IPRs about how competition law affects the terms on which access may be granted – or not. We shall see that the traditional deference of competition law enforcement towards conduct involving intellectual property has been eroded to some extent. Nevertheless, the ways in which competition law may intervene in the acquisition or exercise of IPRs (including through licensing) remain limited, notwithstanding continuing healthy debate about where the limits are and ought to be. Given that the main areas of tension in the relationship between competition law and intellectual property law have been, and continue to be, in the application of Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), it is these provisions that form the principal subject of this text. However, an increasing focus on innovation and intellectual property in the context of merger review means that this aspect of competition law must be considered. Questions relating to the free movement of goods and the impact of Articles 34 to 36 TFEU are covered in summary, as some familiarity with this body of law is important to understand the context in which the application of competition law to IPRs operates within the xlii

INTRODUCTION

EEA. This part of the text is intended simply as a signpost to alert readers to the complexities of the issues and to indicate where more thorough and focused commentary may be found. Although reference is made to EU Member States’ competition laws, cases and judgments from time to time, this text really focuses on EU competition law. The decision of the UK to depart from the EU means that there is less focus on UK case law and practice than would have been the case five or ten years ago, although the way on which English courts have approached some particularly important issues is touched on as appropriate. The law is stated as at 30 November 2023, although I have tried to briefly refer to any particularly important developments of which I became aware after that date.

xliii

CHAPTER 1 COMPETITION AND IP LAW INTERFACE I. GENERAL PRINCIPLES 1.01 A. Introduction 1.01 1. A complex relationship 1.01 2. IP laws 1.15 3. Competition laws 1.23 4. The early deference of EU competition law to IP law 1.34 B. Recent Trends 1.45 1. The modernization of competition law and the shift to a more economics-based approach 1.46 2. The modernization and harmonization of IP law 1.49 3. The evolving role of IP in commercial practice1.54 a. New business models 1.55 b. Digital technologies 1.57 c. Competition law authorities have adapted 1.60 4. Competition law enforcement with

sectoral variations? 1.61 C. The Key Protagonists 1.69 1. The European Commission 1.69 a. DG Competition 1.72 b. DG Connect 1.73 c. DG Grow 1.74 d. DG RTD (‘Research and Innovation’)1.75 2. Council, courts and Parliament 1.76 D. IPRs in the Single Market 1.87 1. The single market imperative 1.87 2. Interplay between Articles 34–36 TFEU and 101–102 TFEU 1.88 3. Exhaustion of rights 1.96 4. Specific subject matter 1.100 5. Essential function 1.105 6. The importance of ‘consent’ 1.107 7. International exhaustion/ harmonizing initiatives 1.111

I. GENERAL PRINCIPLES A. Introduction 1. A complex relationship

Competition law and intellectual property (IP) law are closely linked. They are both 1.01 policy-driven legal disciplines which aim to nudge human behaviour in directions deemed to be likely to be beneficial rather than harmful. IP law has several possible goals as discussed below. It offers incentives, generally including a limited ability to exclude direct competition in respect of some limited activities. For example, an inventor who obtains a patent relating to an invention is entitled to prevent the production and supply of goods or services incorporating that specific invention (although not competing goods or services which do not incorporate the invention). Competition law also has various potential goals which may vary over time and in different jurisdictions. In principle, it seeks to ensure that market participants will be incen-

1

EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS

tivized to contribute towards the achievement of those goals by the operation of undistorted market competition. It punishes behaviour which restricts competition. 1.02 Despite debates about the objectives of both competition law and IP law, it is broadly accepted that both seek to protect and enhance welfare, including (or perhaps mainly) consumer welfare.1 Both policy areas have an interest in encouraging innovation as this is seen as important to enhance welfare in both the short and the longer term. In broad terms, competition law encourages vigorous market competition which is believed to act as spur to innovation while IP law imposes some limits on competition so as to incentivize innovation by protecting its results. 1.03 These different approaches operate over different timeframes; long-term incentives lie at the heart of many intellectual property rights (IPRs), while short-term competitive pressure is fundamental to most competition law obligations. Consequently, tension between the two can arise, both in individual cases, and more generally in determining the optimal balance between them. In broad terms, IP law provides a ‘carrot’. It offers rewards for innovation. IP law does not discriminate in favour of ‘useful’ types of innovation, nor does it ensure a reward to all of those who make inventions or who create new works of, for example, art, music or literature. An IPR will be available only to material or inventions which meet the relevant criteria but once those criteria are met, the right will be available (subject only to limited exceptions under the relevant IP regime2). 1.04 Not all IPRs can be exercised profitably – they are in essence a limited right to exclude. If no one wishes to utilize the matter covered by the IPR, for example because it does not cover something sufficiently interesting or useful or because there are better ways of achieving the same or a better outcome (whether technically, economically or both), the right to exclude is of limited practical value. However, at a basic level, for the system to work effectively, it is believed that successful innovators must be able in principle to benefit from their efforts. 1.05 The justification for putting in place a system whereby some consumers will pay higher prices for goods protected by IPRs than they would (all other things being equal) in the absence of the IPR rests broadly on two assumptions, one specific and one general. The first is that those whose products are displaced from, or disadvantaged on, the market owing to the introduction of new or improved products will be incentivized both to reduce prices for existing products

1 2

For a discussion of these issues from an EU perspective see Svend Albæk, Consumer Welfare in EU Competition Policy (January 2023) (https://​competition​-policy​.ec​.europa​.eu/​system/​files/​2021​-09/​consumer​_welfare​_2013​_en​.pdf – accessed 18 October 2023).

See WIPO’s introductory comments on the balance between competition law and patents which notes the safeguards built into the patent system while acknowledging the possibilities of occasional abuse (https://​www​.wipo​.int/​patent​-law/​ en/​developments/​competition​.html – accessed 5 October 2023): Within the patent system, the core principles of the system have been framed precisely with a view to ensure that the system simultaneously fosters innovation and remains consistent with fair market rules. Therefore, safeguards and boundaries have been built into the patent system to allow it to generate patents only for those inventions which are most likely to serve the public interest, but should prevent patents for those inventions that would appear not to benefit society. In particular, such safeguards and boundaries include the fact that most patent systems protect only inventions, not discoveries, the limitation of patent rights as to their contents and their duration, the availability of exceptions to the rights conferred, and the conditions of patentability which prevent grant of patents for obvious and not novel creations.

2

COMPETITION AND IP LAW INTERFACE

to compete more effectively, and to innovate further and bring improved products to compete further thus driving down prices and improving quality. The second is that, if successful innovators benefit from the rewards promised by the IP system, others will be encouraged to invest in innovation more generally, bringing about systemic benefits outside the market directly affected.3 A degree of tension between IPRs and competition law has been a feature of the EU legal land- 1.06 scape since at least the early 1960s and the seminal Consten and Grundig4 judgment of the EU Court. Since then, the relationship has evolved considerably and the attention paid to it by the wider world has sharpened, in part owing to an increased focus on the role of both innovation and competition in 21st century economies. Despite that background, it has become something of a truism to observe that because both competition law and IP law have the same overall goal of promoting consumer welfare, including through promoting innovation, there is no, or only limited, tension between them.5 Innovation is perceived to be the heartbeat of successful modern economies.6 The European 1.07 Commission (Commission) has observed: However, it is innovation which causes product markets to change as improved products and production processes are introduced, leading to greater consumer satisfaction and lower production costs. It is also a generally accepted and well substantiated point of view that innovation is the main source of increases in economic welfare. The literature shows that technological innovation, together with an increased ability on the part of the labour force, are main driving forces behind productivity gains and welfare growth. Consequently, societies in general try to spur the creation and dissemination of innovation. In case of a choice between dynamic and static efficiencies, the former will quickly outweigh the latter.7

While it would be simplistic and wrong to equate IPR with encouraging dynamic efficiencies 1.08 and to view competition law as having a laser focus on static considerations, the mechanisms 3

4 5

6

7

The links between IPR and innovation and the underlying specific policy objectives of both competition law and IP law are the subject of numerous texts and papers, both legal and economic. This is a broad summary only. See, e.g., Konstantinos Stylianou and Marios Iacovides, The Goals of EU Competition Law: A Comprehensive Empirical Investigation (published online by Cambridge University Press, 17 March 2022); Susy Frankel (ed), The Object and Purpose of Intellectual Property (Edward Elgar Publishing, 2019). Joined Cases 56/64 and 58/64 Consten SaRL and Grundig GmbH v Commission of the EEC [1966] ECR 299 (Consten and Grundig).

Commission Notice, Guidelines on the Application of Article 101 of the Treaty on the Functioning of the European Union (TFEU) to technology transfer agreements, OJ [2014] C 89/3 (Technology Transfer Guidelines), para 7; and US Department of Justice and the Federal Trade Commission, Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition, April 2007 (http://​www​.ftc​.gov – accessed 18 October 2023).

This is recognized by the European institutions. For example, one of the four key areas for priority action set out by the 2006 Spring European Council for the revised Lisbon Strategy was ‘Investing more in knowledge and innovation’. Then President of the European Commission, Jean-Claude Juncker, prioritized innovation during his time in office, e.g., in his 2017 State of the Union Address: ‘The new Industrial Policy Strategy we are presenting today will help our industries stay or become world leaders in innovation, digitisation and decarbonisation.’ This focus has continued under President von der Leyen who commented in her confirmation speech on the need for Europe to compete in innovation with the US and China among others.

Organisation for Economic Co-operation and Development (OECD), Directorate for Financial and Enterprise Affairs: Competition Committee, Roundtable on Competition, Patents and Innovation, Note by the Delegation of the European Commission (2 June 2009, DAF/COMP/WD (2009) 52), para 7 (Note to the OECD).

3

EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS

through which competition law and IP law seek to incentivize innovation and the priority placed on longer term innovation by the two policy areas unquestionably differ. In addition, as will be discussed below, the competition authorities in Europe at least have demonstrated a tendency to seek to differentiate between different IPRs when assessing how to deal with them and how much deference is due to them.8 It is from these differences that some of the difficulties explored in this book arise.9 On occasion, the EU competition authorities have sought to downplay the potential tensions. For example, the Commission’s Technology Transfer Guidelines say simply: … both bodies of law share the same basic objective of promoting consumer welfare and an efficient allocation of resources. Innovation constitutes an essential and dynamic component of an open and competitive market economy. IPRs promote dynamic competition by encouraging undertakings to invest in developing new or improved products and processes. So does competition by putting pressure on undertakings to innovate. Therefore, both IPRs and competition are necessary to promote innovation and ensure competitive exploitation thereof.10

1.09 This general theme of harmony has been a frequent refrain in the policy announcements of the EU competition authorities. In 2013, then Commissioner for Competition, Joaquín Almunia, remarked: In their different ways, both the patent system and the system that enforces competition law in the EU pursue common goals. A well-functioning IPR system can in fact promote competition by encouraging firms to invest in innovation. And both competition policy and the intellectual-property protection system do contribute to create the right framework for innovators.11

1.10 The regularity with which competition enforcers draw attention to the fact that competition law and IP share an interest in the same ultimate goal might suggest to the cynical that this is the first step towards an argument that, because the desired outcome is the same, and because competition law is more flexible than IP law, there may be good justifications to allow competition law to ‘adjust’ the outcomes of the IP system, even if only in ‘exceptional circumstances’ where IP law is (apparently) not achieving the optimal outcome.12 1.11 Indeed, notwithstanding the frequent claims that all is in harmony, tensions have arisen in practice and in theory. The deference to be paid to IP by competition enforcers and the ways

8

See, e.g., the discussion of ‘secondary’ and ‘primary’ patents in the context of the pharmaceutical sector (Chapter 8).

10

Technology Transfer Guidelines (n 5), para 7.

9

11 12

The debate between economists on the benefit of competition for innovation continues to generate significant disagreements. The differing schools of thought have been summarized on many occasions, including by the Commission. It is probably not surprising that the competition directorate has expressed a preference for views based on the work of Kenneth Arrow who argued that the pressures of competition will spur innovation over those of Josef Schumpeter who argued that encouraging competition undermines the incentives provided by the prospect of monopoly and undermines dynamic efficiencies. See, e.g., the discussion, at pp 152 and 153 of the Note to the OECD (n 7). Such views have continued to gain credibility within DG Comp. Speech/13/1042 Commissioner Joaquín Almunia, Intellectual Property and Competition Policy, 9 December 2013.

For a relatively early discussion of this issue, see: Lars Kjølbye, ‘Article 82 EC as Remedy to Patent System Imperfections: Fighting Fire with Fire?’ 2009, 32(2) World Competition 163–88 (Kjølbye) (https://​kluwerlawonline​.com/​journalarticle/​ World+​Competition/​32​.2/​WOCO2009018 – accessed 5 October 2023).

4

COMPETITION AND IP LAW INTERFACE

in which IP owners and professionals need to adjust to competition law priorities continue to evolve, and to evolve somewhat differently in different jurisdictions. This was noted by Maureen Ohlhausen during her term as one of the Commissioners at the US Federal Trade Commission when she emphasized the importance of IP as a driver of innovation and the dangers of external intervention in (particularly) the patent system. She regularly cautioned against the elevation of competition law to a position of greater importance or prominence than IP. For former Commissioner Ohlhausen, any suggestion that competition law has a role as a ‘system of regulation of intellectual property rights’13 is not acceptable. Her view was that the prospects of undermining IPRs through overenforcement of competition law was deeply concerning: Intellectual property is the foundation of a successful innovation policy. Its intersection with antitrust thus affects the new economy. Unfortunately, there has been a worrying trend as some overseas enforcers wield their antitrust laws in unprincipled fashion to dilute IPRs.14

These statements reflect a frequent theme in US case law including the seminal Supreme Court 1.12 case of Verizon v Trinko15 which caution restraint in the application of competition law when IPR is involved. Such an approach does not accept that because the two legal disciplines have similar ultimate goals it is justifiable for one to ‘trump’ the other or act as a supervising system of regulation – absent clear legislative intent.16 This book is an exploration of where the balance between these two closely intertwined policy 1.13 areas can be found in EU competition law today and how that affects the decisions that companies must take. In reading it, it is important to bear in mind that the precise boundary between the two disciplines, the optimal point of balance, is unknowable and is very likely to be differently applied over time and in different contexts. Understanding why tensions arise, notwithstanding the high-level harmony around the 1.14 ideal of improving consumer welfare, and why they may be resolved differently, requires an understanding of the broad mechanisms adopted by IP law and competition law to modify the behaviour of individuals and of companies. 2. IP laws

As early as the 16th century, England, France, some of the predecessors to modern Germany, 1.15 and the Netherlands among others all had some form of precursor to the modern patent system. In 1624, the English Statute of Monopolies provided for the grant of a monopoly for 13 Steven Anderman and Hedvig Schmidt, EU Competition Law and Intellectual Property Rights – The Regulation of Innovation (2nd edn, Oxford University Press, 17 February 2011), p 3. See also Kjølbye, ibid.

14 15 16

Statement of Commissioner Maureen K. Ohlhausen, Antitrust Guidelines for the Licensing of Intellectual Property, 13 January 2017 (and other documents referenced in that statement). Verizon Communications Inc v Law offices of Curtis v Trinko LLP, 540 US 398 (2004).

See also Speech of Makan Delrahim, then Assistant Attorney General for Antitrust at the US Department of Justice, in Beijing on 1 February 2018: … competition law enforcers should exercise humility and enforce the competition laws in a manner that best promotes dynamic competition for the benefit of consumers … [and] must give careful consideration to the interests that drive innovation, including by allowing innovators to reap the full rewards of their investment in research and development. This means that the focus of our analysis must be less on short-term pricing, and more on the innovation and growth that delivers value to consumers over the longer term.

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS

an invention for a limited period. Over the succeeding almost four centuries, sophisticated laws governing the grant, maintenance and enforcement of a variety of IPRs have evolved and most countries have adopted and enforce IPRs. IPRs are, by and large, statutory creations resulting from deliberate legislative acts. Many IPRs are the subject of international treaties or conventions and the treatment of IPRs in international trade is governed by a special regime; the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) 1994. 1.16 There is no exhaustive categorization of IPRs.17 Many EU instruments dealing with intangible property rights, such as Article 36 Treaty on the Functioning of the European Union (TFEU), talk about ‘industrial and commercial property’ while the Technology Transfer Block Exemption (TTBER) defines ‘intellectual property rights’ as including ‘… industrial property rights, in particular patents and trademarks, copyright and neighbouring rights’18 while defining ‘technology rights’ as ‘… know-how and the following rights or a combination thereof …’. It then lists seven specific rights over intangible property: patents; utility models; design rights; topographies of semiconductor products; supplementary protection certificates (principally for pharmaceutical products); plant breeders’ certificates; and software copyright. For reasons that we will discuss later, this list leaves out some rights which would normally be broadly equated with IP. The 2011 Commission Communication on creating a Single Market for Intellectual Property Rights19 identifies a ‘galaxy of IP rights’, including patents, trademarks, designs and geographical indications, copyrights and rights related to copyright. 1.17 For current purposes, a complete catalogue of IPRs is not essential.20 It is, however, important to bear in mind that different species of IPR have different attributes – some are registered, some unregistered; some are limited in time, some are not. In addition, the underlying degree of innovation, inventiveness or ‘moral right’ can differ significantly, sometimes in ways that may affect the response of competition law to those rights and how restrictions related to the exercise of those rights are likely to be viewed.21 1.18 IPRs have proliferated, particularly over the last 50 years, with many additional jurisdictions adopting IP legislation and with some new species of IP (such as the EU’s sui generis database 17

Art 1(2) of TRIPs sets out most of the commonly recognized types of intellectual property.

19

Commission Communication COM(2011) 287 final, A Single Market for Intellectual Property Rights – Boosting creativity and innovation to provide economic growth, high quality jobs and first class products and services in Europe, 24 May 2011.

18

20

Commission Regulation No 316/2014 of 21 March 2014 on the application of Article 101(3) of the TFEU to categories of technology transfer agreements, OJ [2014] L 93/17.

A brief description of various IPRs and their treatment in Europe can be found at https://​single​-market​-economy​.ec​ .europa​.eu/​industry/​strategy/​intellectual​-property​_en – accessed 20 October 2023.

21 For example, there is a widespread view among competition lawyers that the outcome in some seminal cases such as Magill (Joined Cases C-241/91P and C-242/91P Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v Commission of the European Communities [1995] ECR I-743 (ECLI:EU:C:1995:98)), IMS Health (Case C-418/01 IMS Health GmbH & Co. OHG v NDC Health GmbH & Co. KG. [2004] ECR I-5039 (ECLI:EU:C:2004:257)) and Microsoft (Case T-201/04 Microsoft Corp. v Commission of the European Communities [2007] ECR II-03601 (ECLI:EU:T:2007:289)) might have been different if the underlying IPRs had been strong patents rather than copyright or confidential information. See, e.g., the comments of Advocate General (AG) Jacobs at para 63 of his opinion in Case C-7/97 Oscar Bronner GmbH & Co. KG v Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co. KG. and Others (ECLI:EU:C:1998:264) noting that one of the ‘special circumstances’ in Magill was the fact that ‘the provision of copyright protection for programme listings was difficult to justify in terms of rewarding or providing an incentive for creative effort’.

6

COMPETITION AND IP LAW INTERFACE

right) emerging. There is now international acceptance that IPRs are important in world trade (manifest in the TRIPs agreement). However, the underlying justifications for IPRs (both overall as well as particular species of IPR) continue to be debated. A synthesis of these discussions can be found in leading textbooks on IP.22 Passionate defences of IP (particularly patents) can be found in the comments such as those of former Commissioner Maureen Ohlhausen23 of the US Federal Trade Commission. Equally heartfelt attacks come from a variety of sources including economists and academics.24 Two broad categories of justification are put forward for the creation and protection of IPRs. 1.19 The most common is that the availability of IPR encourages activities regarded as desirable, such as research, development and/or disclosure of inventions. The other broad category of justification is based on moral considerations – this type of justification is often raised in defence of literary or artistic copyright. The Commission appears to take a broadly functional approach.25 For example, the Commission’s 1.20 2008 Communication on An Industrial Property Rights Strategy for Europe states:26 Property, whether tangible or not, is crucial to the operation of a market economy. Industrial property rights such as patents, designs and plant variety rights give an incentive to produce new inventions and other innovations by awarding an exclusive right for a limited period. Such industrial property rights facilitate entry of newcomers to a market by helping to attract venture capital and enabling production to be licensed to incumbents. Trademark rights are essential for a system of undistorted competition, allowing the customer to distinguish the products and services of undertakings. Trademarks provide a highly effective means of communication. On the one hand, they serve as a medium for information and advertising, and on the other hand, as a symbol to create and represent the entrepreneurial capacity and the image of an undertaking. Without competing imitations, the producer can increase his market share, enhance profit margins and develop customer loyalty. The benefits of patent rights also extend beyond the rights holder by dissemination of knowledge. While rival companies may lose market share due to a competitor’s patents, they benefit from new technological opportunities in published inventions, reducing the need to perform reverse-engineering. This can create a virtuous circle of innovation which, in the long term, balances the initial effect of high prices during the period of market exclusivity.

The Commission’s assessment concluded:

1.21

Industrial property can therefore have a positive effect on competition when accompanied by rigorous application of competition rules to prevent abuses of rights. … Despite these benefits, industrial property rights are not an end in themselves. Policy needs to consider the trade-off between offering an exclusive right and the diffusion of new products and processes

22 23 24

25 26

See, e.g., Bently and Sherman, Intellectual Property Law (6th edn, Oxford University Press, November 2022); or Cornish, Llewelyn and Aplin, Intellectual Property: Patents, Copyrights, Trademarks & Allied Rights (10th edn, Sweet & Maxwell, October 2023). See, e,g,, Hon Maureen K Ohlhausen, ‘Patent Rights in an Era of IPR Skepticism’ (2016) 30(1–Fall) Harvard Journal of Law & Technology. Michele Boldrin and David K Levine, Against Intellectual Monopoly (1st edn, Cambridge University Press, 7 July 2008).

See also 6622/16, Council Conclusions on ‘Single Market Strategy for services and goods’, 29 February 2016), in which the Council of the European Union ‘stress[ed] the importance of Europe’s intellectual property framework to foster innovation, competitiveness and job creation’. Commission Communication COM(2008) 465 final, An Industrial Property Rights Strategy for Europe, 16 July 2008.

7

EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS in order for industrial property rights to continue to produce economic and social benefits in the future.27 (emphasis added)

1.22 Thus, while recognizing the broad functional benefits attributed to IPRs (which continues to be a theme in EU comments on IPR28), even when explaining the need for an IPR strategy for Europe, a potential role for competition law is foreshadowed. 3. Competition laws

1.23 An understanding of the benefits of vigorous competition and its evolution into policy, and then law, is a more recent development. While the common law had long developed rules relating to particular restraints of trade, and rules to regulate competition had been evolved by mediaeval guilds (in essence more protectionist than procompetition),29 modern competition law has its roots in the late 19th century ‘trust-busting’ activities in the US, and the Sherman Act which remains in force today.30 Outside the US, faith in the merits of free competition was somewhat slower to develop and then to manifest itself in the adoption of legal tools to encourage competition (or to punish anticompetitive behaviour). After the Second World War, national competition laws began to appear in Western European countries. By the late 1950s, the founding document of the European Economic Community, the precursor to today’s EU, placed competition policy firmly at the heart of the new bloc,31 with the establishment of a system to ensure that competition is not distorted being one of the main activities foreseen for the fledgling EEC. 1.24 By the early part of this century well over 100 competition law regimes existed worldwide. As competition law is based on policy choices, its precise application can vary (sometimes in surprising ways) between jurisdictions – and over time in the same jurisdiction. An example of this can be found below in the discussion of the development of EU competition law from the middle of the last century. 1.25 In many modern systems of competition law, improving consumer welfare is a core objective.32 In the case of the UK, the Competition and Markets Authority (CMA) is obliged to: ‘seek to promote competition, both within and outside the United Kingdom, for the benefit of con-

27 28

Internal footnotes omitted.

See, e.g., the conclusions in 5757/16, Revised draft Council Conclusions on the Single Market Strategy, 3 February 2016, in which the Council of the European Union stressed ‘the importance of Europe’s intellectual property framework to foster innovation, competitiveness and job creation’.

29 Sheilagh Oglivie, ‘The Economics of Guilds, Journal of Economic Perspectives’ (2014) 28(4) Journal of Economic Perspectives 169–92. 30

The Sherman Antitrust Act (Sherman Act), 26 Stat 209, 15 USC paras 1–7.

32

See above (n 1) and Speech/10/233 Commissioner Joaquín Almunia (then Vice-President of the European Commission responsible for competition policy), Competition and consumers: The future of EU competition policy, 12 May 2010: ‘All of us here today know very well what our ultimate objective is: competition policy is a tool at the service of consumers. Consumer welfare is at the heart of our policy and its achievement drives our priorities and guides our decisions.’ Note, however the important comment in the European Parliament fact sheet on competition policy: ‘The main objective of the EU competition rules is to enable the proper functioning of the EU’s internal market as a key driver for the well-being of EU citizens, businesses and society as a whole.’ (https://​www​.europarl​.europa​.eu/​factsheets/​en/​sheet/​82/​ competition​-policy – accessed 24 October 2023).

31

The Treaty of Rome, 25 March 1957, Art 3(f).

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COMPETITION AND IP LAW INTERFACE

sumers’.33 However, when dealing with competition law cases and competition law enforcers, it is important to be aware that there can be tensions within the construct of competition law itself, let alone when looking at the relationship between IP and competition law.34 For all the actual and theoretical differences which underlie particular competition law regimes, 1.26 or the enforcement priorities of different authorities, the maintenance of effective competition is generally expected to result in the following benefits which will enhance welfare: ● ● ● ● ●

greater efficiency; more choice; lower prices; better service; more innovation.

Quite where each of these ranks in any specific enforcement regime, and which takes priority, 1.27 is much more difficult to assess.35 The way in which competition law in the EU is applied reflects its status and function under 1.28 the treaties establishing the EU. It is governed by the TFEU which complements the Treaty on European Union (TEU). Article 3(3) TEU provides for the establishment of an internal market. Protocol 27 on the internal market and competition (which is annexed to the Treaties and has as the same force as a Treaty provision36) provides that the establishment of the internal market is to include a system ensuring that competition is not distorted. In practice, the role of EU competition law in helping to establish and maintain a single market throughout the EU has had a fundamental impact on its development.37 The specific provisions dealing with competition law (Arts 101–109 TFEU) are interpreted 1.29 and enforced by the relevant institutions38 in the light of the role of competition law in the overall framework of EU law.39 This book deals with the aspects of competition law of direct 33

Enterprise and Regulatory Reform Act 2013, s 25(3).

35

Executive Vice President Vestager has addressed these issues and the principles which underpin EU competition law enforcement – particularly in the context of the challenges of enforcing competition law in a digital context. See, e.g., Speech/22/6393 EVP Vestager, A Principles Based Approach to Competition Policy, 25 October 2022 (https://​ec​.europa​ .eu/​commission/​presscorner/​detail/​en/​SPEECH​_22​_6393 – accessed 24 October 2023).

34

36 37

38 39

Some have debated whether the focus on market integration within EU competition law is entirely compatible with a pure ‘consumer welfare’ standard. The Commission’s position is that market integration and consumer welfare are complementary as the creation and preservation of an open single market promotes an efficient allocation of resources for the benefit of consumers. e.g., European Commission, Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings [2009] OJ C 45/02, paras 1, 5–7. For a general discussion of the role of market integration see Pablo Ibáñez Colomo, ‘Article 101 TFEU and Market Integration’, LSE Working Papers; (2016) 12 Journal of Competition Law and Economics (https://​eprints​.lse​.ac​.uk/​ 66572/​1/​_​_lse​.ac​.uk​_storage​_LIBRARY​_Secondary​_libfile​_shared​_repository​_Content​_LSE​%20Working​%20Paper​ _Article​%20101​%20TFEU​%20and​%20Market​%20Integration​_Ibanez​_Colomo​_Article​_101​_TFEU​_and​_Market​ _Integration​_Author​.pdf – accessed 24 October 2023).

Art 51 TEU.

See discussions at para 1.87 ff below.

See para 1.69 ff for a brief description of the role of each of the relevant EU institutions in respect of competition law and policy. There are many examples of this tendency which are discussed in the chapters which follow.

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS

importance to undertakings, essentially, Articles 101 and 102 TFEU with relevant secondary legislation such as the EU Merger Regulation.40 1.30 Article 101 TFEU applies to agreements between independent undertakings. In most instances, only Article 101 TFEU is relevant to licences and other agreements relating to IP. The EU competition authorities recognize that IP licences are often procompetitive, but particular terms in such licences may be closely scrutinized for anticompetitive effects. 1.31 Article 102 TFEU prohibits abusive behaviour by dominant undertakings. The core concepts are those of dominance and abuse: only dominant undertakings can infringe Article 102 TFEU and having or acquiring a dominant position does not in itself infringe Article 102 TFEU. There must be dominance and abusive conduct before there can be an infringement. The mere ownership of an IPR does not automatically give rise to a dominant position and the exercise of IPR, even by a company holding a dominant position and even if it causes a competitor to exit the market, does not itself equate to abuse 1.32 The EU merger regime applies to ‘concentrations’: mergers, acquisitions of control and the creation of so-called ‘full function’ joint ventures which meet the turnover thresholds contained in the EU Merger Regulation. 1.33 The specific application of these provisions to IPR is considered in more detail in the chapters which follow. A broad overview of the interrelationship between competition law and IPR in the EU is below. 4. The early deference of EU competition law to IP law

1.34 In his first editorial having taken over joint editorship of the Journal of European Competition Law and Practice, respected academic Pablo Ibáñez Colomo commented in August 2017: Looking back at the past decade, it looks like authorities in Europe have become less reluctant to interfere with the exploitation of intellectual property rights, to mention one example. Pay-for-delay settlements in the pharmaceutical sector, and the use of injunctions in the context of standard-essential patents … are clear milestones in this sense.41

1.35 This perception is shared by many, although some would place the beginning of the shift earlier, perhaps starting with the Magill42 case in the early 1990s and then accelerating sharply with the IMS Health and Microsoft cases in 2004 and 2007 respectively. It is therefore worth asking whether this perception reflects reality and, if so, why. 1.36 In its infancy, EU competition law showed considerable deference to the much older systems of regulation around national IPRs, most of which long pre-dated the creation of the EU. This

40 41

42

Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation), OJ [2004] L 24/1. Pablo Ibáñez Colomo, ‘Changing Times for JECLAP, Changing Times for Competition Law’ Journal of European Competition Law and Practice, 9 August 2017. Mr Colomo recently returned to this theme in his ‘Chillin’ competition’ blog when discussing the GC’s recent judgment in Case T‑172/21 Valve Corporation v European Commission, 27 September 2023 (ECLI:EU:T:2023:587) (Valve). This case is discussed further below. Magill (n 21).

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COMPETITION AND IP LAW INTERFACE

was particularly the case in relation to unilateral conduct. Nevertheless, EU competition law has, from its earliest days, been clear that conduct relating to IP is not immune from the application of the competition rules as stated in the very first competition case to reach the Court of Justice, Consten and Grundig, decided in 1966: Articles 36, 222 and 234 of the Treaty … do not exclude any influence whatever of Community law on the exercise of national industrial property rights. … the Community rules on competition … have immediate effect and are directly binding on individuals.43 Such a body of rules, by reason of its nature described above and its function, does not allow the improper use of rights under any national trade-mark law in order to frustrate the Community’s law on cartels.44

When first given the power to enforce the competition rules in 1962, the Commission recog- 1.37 nized that an issue of significant interest to companies would be the way in which common commercial agreements, including licences of IPRs, would be affected. It sought to reassure industry by issuing its so-called ‘Christmas Notice’ in December 1962.45 This noted that granting a licence will generally increase competition and indicated that certain clauses in licences would not be prohibited by Article 85(1) (now Art 101(1) TFEU). Many of the early cases in which IPRs were considered by the Commission arose from notifications seeking individual exemptions under the notification regime provided for in Regulation 17/62.46 That enforcement regime, which applied between 1962 and 2003, meant that if restrictive provisions in a licence were not individually exempted by the Commission or did not fall within the scope of a block exemption regulation, those provisions were automatically void and unenforceable – national courts did not have the power to grant exemptions. The Commission’s approach was interventionist, as might perhaps be expected under a new 1.38 regime with a competition authority seeking to understand the landscape, obtain a wide jurisdiction and give guidance which was not overly broad.47 The Commission’s early decisions held that many provisions commonly included in licences of IPRs were potential infringements of the competition rules, putting them at risk of unenforceability if no exemption was granted.48 As will be explained further in Chapter 2, the Commission’s approach to licences of IPRs has

43

Consten and Grundig (n 4), p 345.

45

Notice on Patent Licensing Agreements, JO [1962] 2922 (withdrawn in 1984 at the time of adoption of the first Patent Licensing Block Exemption).

44

Ibid., p 346.

46 EEC Council, Regulation No 17: First Regulation implementing Articles 85 and 86 of the Treaty, 21 February 1962 (Regulation 17/62). This notice and the notification regime provided by it applied until EU Competition law was modernized in 2003. 47

48

For an early review of how patent licences were treated in Europe in the first ten or so years after Regulation 17/62, ibid., entered into force – see, e.g., Daniel Grosh, ‘Patent Licensing Agreements and Anti‑trust in the EEC: Recent Decision of the EEC Commission’ (1973) 49 Notre Dame L Rev 392. In fact, many exemptions or findings of non-infringement ‘negative clearance’ were granted during this period, but the need for individual review by the Commission and the breadth given by the Commission to the scope of the prohibition in Art 85(1) caused very significant uncertainty, which still has consequences today for agreements not covered by a block exemption. This is discussed further below in Chapter 3 dealing with licences and technology transfer.

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS

become more relaxed over recent years, perhaps prompted by judgments of the Court of Justice in cases such as Maize Seeds (Nungesser),49 and Ottung v Klee.50 1.39 Conversely, a more interventionist trend can be perceived recently in relation to the unilateral conduct of IPR owners. Competition law was applied to unilateral conduct in some early cases51 but these tended to involve specific (often quite egregious) abuses which touched on the use of IPRs rather than focusing on the exercise of IPRs as such. For example, in the very early case of Parke Davis (1968),52 the Court of Justice held that ownership of a patent is not an abuse in itself but went on to say that ‘… the utilisation of the patent could degenerate into an improper exploitation of the protection’. 1.40 There, largely, the matter rested until a series of cases during the late 1980s and early 1990s beginning with the Renault53 and Volvo v Veng54 judgments of the Court of Justice. In those two cases, involving copyright over body panels for cars, the Court adopted a fairly orthodox stance holding that, not only was the ownership of IPR outside the ambit of the competition rules (reflecting its much earlier statement in Parke Davis), but also that an obligation to grant a licence, even in return for a reasonable royalty: ‘… would lead to the proprietor … being deprived of the substance of its exclusive right, and that a refusal to grant such a licence cannot in itself constitute an abuse of a dominant position’.55 1.41 This position was further reiterated in a 1994 investigation relating to IPRs in the field of vaccines where the Commission noted: … at the current stage of EC Competition Law, it is highly doubtful whether one could impose an obligation upon a dominant firm … as a remedy to ensure the maintenance of effective competition… to share its intellectual property rights with third parties, to allow them to develop, produce and market the same products which the dominant firm is seeking to develop produce and market …56

1.42 A similar approach was taken by the AG in Magill: Where the product is one that largely meets the same needs of consumers as the protected product, the interests of the copyright owner carry great weight. Even if the market is limited to the prejudice of consumers, the right to refuse licences in that situation must be regarded as necessary in order to guarantee the copyright owner the reward for his creative effort.57

49 Case 258/78 L.C. Nungesser KG and Kurt Eisele v Commission of the European Communities [1982] ECR 2015 (ECLI:EU:C:1982:211) Maize Seeds (Nungesser). 50

Case 320/87 Kai Ottung v Klee & Weilbach A/S and Thomas Schmidt A/S [1989] ECR 1177 (ECLI:EU:C:1989:195).

52

Parke Davis, ibid., para 4.

51

53 54 55 56 57

For example, Case 24/67 Parke Davis & Co v Probel and Others [1968] ECR 55 (ECLI:EU:C:1968:11) (Parke Davis); and Case C-127/73 BRT v SABAM [1974] ECR 313 (ECLI:EU:C:1974:25). Case C-53/87 CICRA and Others v Renault (ECLI:EU:C:1988:472) (Renault).

Case C-238/87 AB Volvo v Erik Veng (UK) Ltd [1988] ECR 6211 (ECLI:EU:C:1988:477) (Volvo v Veng). Ibid., para 8.

Lederle Praxis Biological, 1994 Competition Policy Report, at p 410.

Magill (n 21), para 97 although note that ultimately the interests of the copyright owners were not the deciding factor in the specific circumstances of the case.

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COMPETITION AND IP LAW INTERFACE

By 2007 the EU authorities/courts had held in a series of cases that:

1.43

● an obligation to license might be imposed in a variety of ‘exceptional circumstances’, which were described as merely ‘sufficient’ – implying that other criteria could be identified as engaging a duty to license;58 ● a refusal to license may be anticompetitive where it affects competition in a separate downstream market – and that the ‘upstream’ market can be a hypothetical market: it suffices to show ‘the possibility of identifying a separate market’;59 ● a compulsory licence might be imposed to prevent the elimination of effective competition;60 and ● an obligation to license might be justified if, in its absence, a limitation of technical development prejudicing consumers would arise.61 The precise implications of some of these positions and how they have evolved will be discussed 1.44 in more detail below (see Chapter 6), but for current purposes it is interesting to see how far the authorities’ apparent willingness to intervene has changed in the last 25 years. B. Recent Trends Several underlying trends help to explain this evolution reflected in an increasing willingness 1.45 around the turn of the century to move away from the simpler, more formulaic approach which prevailed in the first three decades of competition policy enforcement in Europe and towards an approach based more explicitly on economic analysis and the likely effects of conduct. There have been some recent indications that the policy winds are beginning to shift again. 1. The modernization of competition law and the shift to a more economics-based approach

It is now explicitly acknowledged that economic thinking has a crucial role to play in the 1.46 formulation of competition policy, in decisions as to which legal tests are appropriate, and in the assessment of pro- and anticompetitive effects. This was not always the case in the EU or, indeed, during the early years of US antitrust law. In the EU between 1962 until the early 1990s, there was a tendency among both practitioners and the Commission to apply legalistic tests, in part intended to provide companies exposed to this new, supra-national, regime with bright line rules and clear guidance. The system of notification for negative clearance or individual exemption which was a feature of the EU regime until the end of the last millennium gave both the competition authorities and companies the opportunity to find their feet and was designed to enable a significant measure of legal certainty for those who engaged with the process. Even so, it was recognized that competition law would not be capable of achieving its objectives 1.47 simply through codification of complex legal tests. To avoid very significant over (or under) enforcement was likely to require a willingness to grapple with underlying fundamental concepts such as the nature of market power, the importance (or otherwise) of market structure 58

IMS Health CJEU (n 21), para 38.

60

Microsoft GC (n 21), paras 563, 593–594.

59 61

Ibid., para 45.

Ibid., para 647.

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS

and how corporate behaviour might affect competition. This understanding was implicit in the text of the Treaty of Rome, where the articles relating to competition law were couched in terms which invited an economic analysis (‘prevention, restriction or distortion of competition’) and which, at least in the context of the prohibition on anticompetitive agreements, explicitly invited a consideration of balancing efficiencies or benefits in the text of Article 85(3) of the EEC Treaty,62 now Article 101(3) TFEU. The impact of conduct such as the granting of limited licences, discrimination, cooperation short of mergers and full corporate concentrations, is not particularly susceptible to being appropriately regulated only through a form-based approach. Equally, of course, a legal framework which has significant commercial implications, and which involves legal consequences such as the potential unenforceability of agreements and the possibility of increasingly large fines cannot be a complete free-for-all. 1.48 Since the mid-1990s, the reality that competition issues must be analysed in an explicit economic framework has been explored in various Commission Guidelines63 as well as forming the basis for the approach taken in modern block exemption regulations. However, very real debate remains both about the way that economic theories and approaches should be incorporated into competition law policy and enforcement and about the extent to which the requirements for legal certainty and the need for a degree of clarity to guide corporate behaviour also means that a legal framework of presumptions and rules should accompany and inform the economic analysis.64 2. The modernization and harmonization of IP law

1.49 IP law has been significantly amended and harmonized since the creation of the EEC in 1957. The pace of change has accelerated as the drive to complete the single market gathered pace post-1992 and the Treaty of Maastricht.65 Article 118 of the TFEU provides explicitly: In the context of the establishment and functioning of the internal market, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure, shall establish measures for the creation of European intellectual property rights to provide uniform protection of intellectual property rights throughout the Union and for the setting up of centralised Union-wide authorisation, coordination and supervision arrangements. The Council, acting in accordance with a special legislative procedure, shall by means of regulations establish language arrangements for the European intellectual property rights. The Council shall act unanimously after consulting the European Parliament.

62 63

64

65

Treaty establishing the European Economic Community, Part Three – Policy of the Community, Title I – Common Rules, Chapter 1: Rules on Competition, Section 1: Rules applying to Undertakings, Article 85, in effect from 1 January 1958.

See, e.g., Commission Communication, Guidelines on the application of Article 81(3) of the Treaty, OJ [2014] C 101/97, and the current consultation on a revised market definition notice (Commission Press Release IP/22/6528, Competition: Commission seeks feedback on draft revised Market Definition Notice, 8 November 2022 (https://​ec​.europa​.eu/​commission/​ presscorner/​detail/​en/​ip​_22​_6528 – accessed 2 November 2023). Wouter P. J. Wils, ‘The Judgment of the EU General Court in Intel and the So-Called “More Economic Approach” to Abuse of Dominance’ (Kluwer Law International) (2014) 37(4) World Competition 405–34. See also the Commission’s recent announcement of new Article 102 TFEU Guidelines as part of its Art 102 TFEU package (https://​competition​ -policy​.ec​.europa​.eu/​antitrust/​legislation/​application​-article​-102​-tfeu​_en – accessed 18 November 2023). The Treaty on European Union (TEU), signed in Maastricht on 7 February 1992, entered into force on 1 November 1993 (Treaty of Maastricht).

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COMPETITION AND IP LAW INTERFACE

The history of harmonization of IPRs in the EU is explored in specialist textbooks. 1.50 Notwithstanding harmonization initiatives, EU IPRs in many cases continue to subsist alongside national rights and in most cases the enforcement of IP takes place in national courts with full procedural autonomy.66 This leads to additional complexities, particularly in two key and interrelated fields: (i) free movement of goods and services (Arts 34–36 TFEU) which is discussed briefly below; and (ii) the rules on the protection of competition (Arts 101 and 102 TFEU) which is more generally the subject of this book. Against that background, and as foreshadowed by Article 118 TFEU, what the Commission 1.51 would ideally like is ‘… a seamless, integrated Single Market for Intellectual Property Rights …’.67 The Commission’s 2008 IPR Strategy for Europe stated that ‘a clear regime for intellectual property rights is an essential condition for the single market and in making the “fifth freedom”, the free movement of knowledge, a reality’.68 The Commission has continued to move towards this goal. Its 2011 Communication on achieving a Single Market for IPRs69 and the subsequent launch of the Digital Single Market70 were both initiatives designed to facilitate the completion of the European single market. Some progress has been made on aspects of the programmes to complete both the Digital Single Market and the Single Market for IPRs, but much remains to be done. At the time of writing the flagship harmonization project of seeking to create a European Unitary Patent and a Unified Patent Court had finally reached fruition, with the Unitary Patent Court having heard its first cases and granted its first remedies in the autumn of 2023. The other flagship area relating to the reform of copyright has faced significant headwinds.71 Nevertheless, the Commission continues to press on, and in November 2020 adopted 1.52 a Communication setting out a proposed IP action plan72 as part of the New EU Industrial Strategy adopted in March of that year.73 This was followed in autumn 2022 by proposals to

66

67 68 69 70

71

See, e.g., 6681/18, Council Conclusions on the IPR Enforcement Package, 1 March 2018, in which the Council of the European Union notes the critical importance of strong and effective national enforcement but is constrained by principles of national judicial independence to ‘invite’ the Member States to consider and act on various ‘clarifications’ of the IPR Enforcement Directive (IPRED) put forward by the Commission. COM(2011) 287 final, (n 19). COM(2008) 465 final, (n 26). COM(2011) 287 final, (n 19).

Commission Communication COM(2015) 192 final, A Digital Single Market Strategy for Europe, 6 May 2015.

Commission Press Release IP/23/704, The European Commission referred 11 Member States to the Court of Justice of the European Union for failing to fully transpose EU copyright rules into national law, 15 February 2023 (https://​digital​-strategy​ .ec​.europa​.eu/​en/​news/​european​-commission​-referred​-11​-member​-states​-court​-justice​-european​-union​-failing​-fully​ -transpose – accessed 30 October 2023).

72 Information about the Commission’s IP initiatives can be found at https://​single​-market​-economy​.ec​.europa​.eu/​ industry/​strategy/​intellectual​-property​_en – accessed 30 October 2023. 73

Commission Press Release IP/20/416, Making Europe’s businesses future-ready: A new Industrial Strategy for a globally competitive, green and digital Europe, 10 March 2020 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​ip​_20​_416 – accessed 30 October 2023).

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS

reform the rules relating to design rights74 and in spring 2023 by detailed proposals to further reform and harmonize aspects of patents and Supplementary Protection Certificates.75 1.53 In sum, the EU’s commitment to a more streamlined and harmonized system of IPRs and of IPR enforcement across the EU has strengthened significantly over the last ten years, but much remains to be achieved. Even in those areas where unitary rights already exist (such as trademarks and design rights) they exist alongside a patchwork of national rights, some harmonized and some not, so the achievement of a true Single Market in IPRs still seems likely to take some time.76 3. The evolving role of IP in commercial practice

1.54 As the digital economy becomes a reality, those in sectors dependent on technology have re-evaluated the role of their IP.77 Changes in approach to the function, worth and valuation of IP is not limited to those in the digital economy. IPRs have become recognized as one of the principal means through which companies, creators and inventors generate returns on their investment in knowledge and creation. Studies have estimated that IPR-intensive sectors account for over 40 per cent of EU GDP, generate around 40 per cent of all EU jobs, and contribute to up to 90 per cent of EU exports.78 a. New business models

1.55 Many important sectors of the modern economy have seen significant moves away from an integrated and linear strategy which envisaged R&D followed by patenting and obtaining other IPRs for the purpose of manufacture, supply and protecting the resultant products and services. One example is Qualcomm’s decision to focus on the upstream inputs for telecoms standards and to make much of its money from royalties. Similar routes have been followed by others in related sectors while in the life sciences field, it has for some time been common for much basic

74 75 76 77

78

Commission Press Release IP/22/7216, Intellectual property: New rules will make industrial designs quicker, cheaper and more predictable, 29 November 2022 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​ip​_22​_7216 – accessed 30 October 2023).

Commission Press Release IP/23/2454, Intellectual property: Harmonised EU patent rules boost innovation, investment and competitiveness in the single market, 27 April 2023 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​ip​_23​_2454 – accessed 30 October 2023).

Those with an interest in this issue will wish to consult specialist texts, including Annette Kur, Thomas Dreier and Stefan Liginbuehl (eds), European Intellectual Property Law (2nd edn, Edward Elgar Publishing, 2019); and Guy Tritton, Tritton on Intellectual Property in Europe (6th edn, Sweet & Maxwell, 22 September 2022).

See the 2012 Opinion of the European Economic and Social Committee, Single Market for Intellectual Property Rights (INT/591-EESC-2012-143): Intellectual Property Rights (IPR) must persevere in their traditional role of driving innovation and growth. The protection system which the Commission intends to develop needs to preserve this conventional aspect without shifting entirely towards a purely asset and finance-based approach, although it must be acknowledged that the market capitalisation of the biggest multinationals is now based largely on their portfolio of intangible rights and licences, the value of which must be entered on the balance sheet in accordance with the International Financial Reporting Standards (IRFS).

Commission Communication COM(2017) 707 final, A Balanced IP Enforcement System Responding to Today’s Societal Challenges, 29 November 2017.

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COMPETITION AND IP LAW INTERFACE

research, and significant early development, to be carried by undertakings who ultimately do not manufacture or market the final product.79 Elsewhere the competitive importance of innovation, and how to measure the extent of compe- 1.56 tition in innovation and in R&D, has emerged as a significant theme. Leading individuals from the Commission have spoken at length about innovation in products and in business models.80 In the field of merger control the potential impact of a concentration on innovation has become an increasingly important aspect of the consideration of the competition implications of the merger. This has been a recurring theme in the Commission’s review of mergers in fields such as biosimilars;81 oncology;82 and agrochemicals83 among others. In making such assessments, IP has played an important role, underpinning the Commission’s factual investigation of the position and importance of the parties through techniques such as analysing and comparing early-stage patent filings and using forward citation analysis to gauge the importance of individual patents or portfolios of patents. b. Digital technologies

Legal protection for intangible assets is increasingly important in the digital age, where much 1.57 information can be reproduced at almost zero variable cost and without any degradation in quality. The Commission’s 2017 Communication on IP Enforcement84 identified some of the challenges that the digital revolution poses to the IP regime in Europe: ‘… the digital revolution also exposes the EU’s IP system to greater risks. The on-line environment allows for a much wider and quicker proliferation of IP-infringing goods and content, and makes it often more difficult for consumers to distinguish infringing goods and content from genuine and legal ones.’ These challenges also affect competition law enforcement as the digital delivery of services, 1.58 and attempts by companies to maximize the value of national IPRs by segmenting markets along national lines, pose further challenges at the intersection of copyright, exhaustion and competition law as demonstrated by recent cases such as FAPL v QC Leisure,85 Valve86 and the investigation into the licensing activities of the major Hollywood studios.87 79 80 81

See, e.g., McKinsey & Company, New frontiers in pharma R&D investment (February 2010) and PricewaterhouseCoopers, Pharma 2020: Challenging business models – which path will you take? (February 2009).

Speech by Commissioner Vestager, Competition: The mother of invention, at European Competition and Consumer Day, 18 April 2016.

Case No M.7559 – Pfizer/Hospira, Commission Decision of 4 August 2015 (https://​ec​.europa​.eu/​competition/​mergers/​ cases/​decisions/​m7559​_20150804​_20212​_4504355​_EN​.pdf – accessed 18 November 2023).

82 Case No M.7275 – Novartis/GSK (Oncology), Commission Decision of 28 January 2015 (https://​ec​.europa​.eu/​ competition/​mergers/​cases/​decisions/​m7275​_20150128​_20212​_4158734​_EN​.pdf – accessed 18 November 2023). 83 Case No M.7932 – Dow/DuPont, Commission Decision of 27 March 2017 (Dow/DuPont) (https://​ec​.europa​.eu/​ competition/​mergers/​cases/​decisions/​m7932​_13668​_3​.pdf – accessed 18 November 2023). 84

COM(2017) 707 final (n 78).

86

Valve (n 41).

85

87

Joined Cases C-403/08 and C-429/08 Football Association Premier League v QC Leisure and Karen Murphy v Media Protection Services Limited (ECLI:EU:C:2011:631) (FAPL v QC Leisure (No 2)). See the settlement reached with Paramount (Case AT.40023 – Cross border access to pay-TV, Commission Decision of 7 March 2019) subsequently challenged on other grounds in C-132/19 P Groupe Canal + v Commission (ECLI:EU:C:2020:1007), discussed in Chapter 2.

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS

1.59 The explosion in the use of digital technology in goods and services has also been a significant factor in the rapid growth in the purchase and sale of portfolios of IPRs, both in the telecoms sector (where outright sales of all or part of patent portfolios have been common for some time88) and in other innovation-based sectors, such as pharmaceuticals, where there has been a marked increase in corporate transactions involving significant IPR transfers, as well as substantial in-licensing and out‑licensing activity.89 The Commission has emphasized the importance of IPRs in the digital economy: ‘In the digital economy, standard essential patents (standards that are based on patents as proprietary rights) are an increasingly important feature in standardisation and an important element of the business model for many industries in terms of monetising their investment in research and innovation.’90 c. Competition law authorities have adapted

1.60 As corporations’ strategic use of IPR (and other intangible property) has increased, it is unsurprising that competition authorities have started to take a closer look at the implications of this behaviour. Those tasked with enforcement rarely take a narrow view of their own jurisdiction and, inevitably, developments in the ways in which IP is utilized by businesses has been reflected in increased interest on the part of competition authorities. This can be easily seen in the number of authorities that have adopted or revised guidelines on the application of competition law to IP in the last ten years.91 4. Competition law enforcement with sectoral variations?

1.61 During the early years of enforcement, EU competition law developed across sectors in a broadly similar way as fundamental concepts evolved and were applied. With the greater focus on the completion of a single market during the 1990s and subsequently, the evolution of mainstream competition law was accompanied by a distinct shift towards the liberalization of sectors which had previously been served by State-owned providers. This liberalization programme was sectoral, beginning with air transport and telecommunications and then moving on to energy (electricity and gas). Once markets had been opened to competition, they were subject to a mixture of regulation (ex-ante) and competition (ex-post) enforcement resulting in sector-specific competition approaches. There has also been evidence of differences in the application of competition law in areas of the economy which have never been the subject of sector-specific liberalization. This is not to say that the competition rules that apply in different sectors such as mobile telephony, pharmaceuticals or computing are substantively different, but the application of those rules and the competition concerns which are paramount can differ 88 89

https://​www​.theguardian​.com/​technology/​2011/​jul/​01/​nortel​-patents​-sold​-apple​-sony​-microsoft – accessed 8 October 2023.

See, e.g., Pfizer/Hospira (n 81), and Novartis/GSK (Oncology) (n 82). Other examples of in-licensing deals are the Bayer/ PeptiDream licensing agreement of November 2017, and the AstraZeneca/Ionis Pharmaceuticals licensing agreement of April 2018.

90 COM(2015) 192 final (n 70), p 15. This observation and its implications for those who own and utilize standard essential patents continues to play an important role in both patent and competition law as discussed in Chapters 5 and 9 below. 91 See, e.g., the Japan Fair Trade Commission’s amended Guidelines for the Use of Intellectual Property under the Antimonopoly Act, which were published on 21 January 2016 and which clarified the position of standard essential patent owners. See also the Korea Fair Trade Commission’s amended Review Guidelines on Unfair Exercise of Intellectual Property Rights, published on 23 March 2016, and the US Department of Justice’s amended Antitrust Guidelines for the Licensing of Intellectual Property, published on 12 January 2017.

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from sector to sector. For this reason separate chapters of this book are devoted to two specific sectors where the interrelationship between IP and competition law is key: life sciences and technology, media and telecommunications (TMT).92 Sectoral variations in enforcement are in part a recognition that the issues that arise can be very 1.62 different. For example, in his seminal work on antitrust law, Posner distinguished between the effects of patent protection in the pharmaceutical sector (which he considered to work well) and in the telecoms sector (where he was more sceptical of the value of patents and of their 20-year term).93 Adapting this thinking, it is argued that innovation works differently in (at least) these sectors and the optimum balance of legal rules to spur maximum innovation and maximum commercialization of inventions is unlikely to be reflected in the current ‘one size fits all’ patent system. For those who view competition law as a ‘system of regulation of intellectual property rights’,94 the perception that the system of IPR rewards and incentives is not well-adapted to all the circumstances and needs of all sectors of the modern economy is an almost irresistible temptation to intervene. Faced with evolving technologies and business models, as well as debate about how best to 1.63 encourage innovation and to ensure that the benefits of innovation are shared, governments have sought to influence the outcomes.95 Competition authorities are also liable to be influenced by the zeitgeist, resulting in more intervention in sectors which are perceived to be important. One good example of this might be the effect of the EU’s enlargement into Southern and Eastern Europe on perceptions of the pharmaceutical industry. Joining the EU gave rise to increased focus on the cost of originator-supplied pharmaceuticals in countries with a limited tradition of patent protection in the pharmaceutical sector, flourishing generic companies and significantly constrained healthcare budgets. The combination of significant pressure from new Member States plus a general tightening of national budgets across Europe during and following the Great Financial Crisis arguably contributed significantly to the Commission’s increased interest in competition enforcement in the pharmaceutical sector and its decision to launch a sector enquiry in January 2008.96 The results of that enquiry,97 and insights obtained

92

Indeed in a couple of sectors legislative initiatives have been proposed or adopted to deal with particular challenges in sectors which were never state-owned but where some degree of regulation of market behaviour to preserve or enhance competition is regarded as necessary alongside competition law enforcement. For example, the Commission has proposed a regulation dealing with standard essential patents (https://​single​-market​-economy​.ec​.europa​.eu/​publications/​ com2023232​-proposal​-regulation​-standard​-essential​-patents​_en – accessed 4 November 2023) and adopted a new regime to deal with digital gatekeepers (https://​commission​.europa​.eu/​strategy​-and​-policy/​priorities​-2019​-2024/​europe​ -fit​-digital​-age/​digital​-markets​-act​-ensuring​-fair​-and​-open​-digital​-markets​_en – accessed 4 November 2023).

93 Posner, Antitrust Law (2nd edn, University of Chicago Press, December 2001). 94

Anderman and Schmidt (n 13).

96

Commission Decision of 15 January 2008 initiating an inquiry into the pharmaceutical sector pursuant to Article 17 of Council Regulation (EC) No 1/2003 (Case COMP/D2/39.514).

95 Just a few examples include: Commission Communication COM(2010) 546 final, Europe 2020 Flagship Initiative – Innovation Union, 6 October 2010; Commission Communication COM(2009) 442 final, Reviewing Community Innovation Policy in a Changing World, 2 September 2009; and COM(2015) 192 final (n 70).

97

Final Report on the 2009 Pharmaceutical Sector Enquiry, COM(2009) 351 final, adopted 8 July 2009 (https://​data​ .consilium​.europa​.eu/​doc/​document/​ST​-12097​-2009​-ADD​-1/​en/​pdf – accessed 29 November 2023).

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through parallel enforcement activity,98 ushered in a decade or more of increased competition law intervention in the pharmaceutical sector. 1.64 Pace of technological change has also been an important factor, perhaps prompting authorities into action where in the past they might have been more conservative, and leading them towards more novel theories of harm. An example might be the Commission’s interest in the IP regime surrounding standardization in general99 and the licensing of standard essential patents in particular,100 culminating in Google/Motorola101 and Samsung102 decisions in 2014 and subsequent policy discussions103 in the context of the development of smart devices and the Internet of Things. 1.65 Just as it is often unclear which technology will succeed and which will not, competition authorities may be equally unsure about the impact of an intervention in fast-moving markets. The difficulty in predicting the impact of a particular course of business conduct combined with the difficulty of predicting the impact of any regulatory intervention leads to risks of both overenforcement (a Type I error) and underenforcement (a Type II error). In fast evolving markets this dilemma may be particularly acute. To a significant extent, the actual policy response to that dilemma flows not from economics, or even competition policy, but more from the overall ideological persuasion of society and of those who are appointed to enforce the rules.104 1.66 If a particular society believes that a market mechanism will, more often than not, result in a better outcome for consumers, underenforcement by regulators tends to be the default enforcement choice and robust evidence of actual harm to competition will generally be required before enforcement authorities will act. On the other hand, if scepticism about the efficacy of the market in resolving concerns prevails, greater enforcement activity and an acceptance of the risks of overenforcement is more likely, with enforcement authorities being more willing to act against conduct where there is a plausible possibility of harm to competitors without requiring evidence of actual significant harm. 1.67 Over the last 30 years, EU competition law has been broadly perceived to be more inclined towards intervention than the US, where the agencies have since the 1970s taken a more ‘laissez-faire’ approach. The EU authorities were criticized for this in some quarters, particularly the US and in markets in which innovation (or serial innovations) was important. More 98

Case C‑457/10 P AstraZeneca AB and AstraZeneca plc v European Commission (ECLI:EU:C:2012:770).

99 Commission Green Paper on the Development of European Standardization: Action for Faster Technological Integration in Europe, COM(90) 456 final, 8 October 1990 (particularly para 92). 100 Case IV/35.006 ETSI Interim IPR Policy, OJ [1995] C 76/5; Case IV/34.760 CBEMA v ETSI.

101 Case AT.39985 – Motorola – Enforcement of GPRS Standard Essential Patents, Commission Decision of 29 April 2014, OJ [2014] C 344/06.

102 Case AT.39939 – Samsung – Enforcement of UMTS Standard Essential Patents, Commission Decision of 29 April 2014, OJ [2014] C 2891 final.

103 Competition Policy Brief, Standard-essential patents, June 2014; Commission Communication COM(2017) 712 final, Setting out the EU Approach to Standard Essential Patents, 29 November 2017. In 2023 the Commission proposed a regulation dealing with standard essential patents (https://​single​-market​-economy​.ec​.europa​.eu/​publications/​com2023232​ -proposal​-regulation​-standard​-essential​-patents​_en – accessed 30 October 2023). 104 For a discussion of some of these considerations in a broader context see Angus Deaton, Economics in America: An Immigrant Economist Explores the Land of Inequality (Princeton University Press, 3 October 2023).

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recently, the broader policy debate surrounding the optimal or desirable level of competition enforcement in emerging technical fields or in markets in high tech sectors in which IP, or other forms of intangible property (such as data) are important, has shifted. The Commission (led by Commissioner Vestager and former Director-General for Competition Johannes Laitenberger) continues to explore the need for greater intervention in ‘new economy’ markets and for explicit consideration of ‘fairness’ in competition policy and enforcement and a similar tendency has also been seen on the part of the US antitrust enforcement agencies at both federal and state level.105 What this means for IP and for those who are active in markets which are evolving rapidly is unclear. In the light of the above and given the importance of institutions in developing competition 1.68 law, it is now worth introducing the key institutions responsible for competition enforcement in Europe. C. The Key Protagonists 1. The European Commission

The Commission is an increasingly familiar actor on the world stage, yet its internal struc- 1.69 ture and workings tend to be familiar only to those who deal with it on a day-to-day basis, meaning that a brief introduction may be useful.106 The Commission is the executive of the EU and is responsible for promoting the general interests of the Union and taking initiatives to achieve that goal.107 Article 17 of the TFEU sets out the general obligations and powers of the Commission which include: ● proposing legislation; ● ensuring the application of Treaties and supporting measures/legislation; and ● overseeing the application of EU law (including by taking decisions). The Commission is led by a team of Commissioners, known as the ‘College’. Currently there 1.70 are 27 Commissioners, one from each current Member State. The Commission is in principle a non-political body, and each Commissioner takes an oath of office to represent the general interest of the EU rather than the interests of his or her home jurisdiction. Each major policy 105 Speech of Director-General Laitenberger, Competition at the Digital Frontier, Malta, 24 April 2017; Speech of Commissioner Vestager, Helping People Cope with Technological Change, Paris, 21 November 2017. This consideration has also led to an explicit recognition of the potential for competition policy and enforcement to deliver ‘fairer’ outcomes – see, e.g., Commissioner Vestager’s remarks in Speech/22/6203, Competition: The rules of the game, 13 October 2022 at the Schwarzkopf foundation: ‘… Today, we live in a digital age, and this is creating a new kind of challenge for keeping markets fair.’ (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​SPEECH​_22​_6203 – accessed 4 November 2023). In the US also, a sea change in antitrust enforcement followed the election of President Joe Biden which led to, among other things, the FTC’s action against Amazon: https://​www​.ftc​.gov/​news​-events/​news/​press​-releases/​2023/​09/​ ftc​-sues​-amazon​-illegally​-maintaining​-monopoly​-power – accessed 4 November 2023).

106 For an internal view of the roles of the institutions see: https://​european​-union​.europa​.eu/​institutions​-law​-budget/​ institutions​ - and​ - bodies/ ​ s earch ​ - all ​ - eu ​ - institutions ​ - and ​ - bodies/​ e uropean​ - commission​ _ en​ # :​ ~ :​ t ext​ = ​ C omposition​ ,responsible​%20for​%20which​%20policy​%20area – accessed 4 November 2023. For more detailed descriptions, a number of texts and commentaries provide greater detail about all the institutions of the EU. See, e.g., Steiner and Woods, EU Law (15th edn, Oxford University Press, 27 July 2023); Koen Lenaerts and Piet Van Nuffel, European Union Law (3rd edn, Sweet & Maxwell, 26 April 2011). 107 Art 17(1) TFEU, OJ [2008] C 115/25.

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area is the responsibility of a Directorate General or ‘DG’ under the overall direction of one or more Commissioners. The Commission President decides which of the Commissioners is responsible for each individual policy area. The Commission has around 32,000 employees, including translators, split across the Directorates General and Commission services, including the EU’s Legal Service (which plays an important role in competition matters). 1.71 The Commission is central to the development and enforcement of EU competition law. This function is exercised by the DG of Competition, fondly known as ‘DG Comp’. The structure and remit of DG Comp is discussed in more detail below. Many other aspects of the Commission’s work are also relevant to the developing relationship between IP and competition law, and to undertakings working in sectors where IP is important. The most relevant other DGs are also described briefly below. a. DG Competition

1.72 As well as a description of DG Competition, a brief description of other relevant DGs or Commission Services follows: ● Responsibilities and structure: DG Competition is responsible for competition policy development in the EU and for the enforcement of the competition rules. Under the ultimate leadership of a Commissioner, the Director General of Competition is the executive head of the DG, supported by three Deputy Directors General (responsible for antitrust, mergers and State aid respectively). Within DG Comp officials are divided into units dealing with particular types of work (e.g., Cartels; Policy and Strategy) or industries/sectors (e.g., Basic Industries; Transport etc). An organization chart showing the internal structure of DG Comp and the most important individuals is on the Commission website.108 DG Comp is currently led by Danish Commissioner Margarethe Vestager who was at the time of writing in her second term at the head of DG Comp as well as having responsibility for setting the strategic direction to achieve the overall priority of creating a ‘Europe Fit for the Digital Age’. ● Chief Economist: The Chief Competition Economist and the economics team provide economic input and advice to DG Comp. This involves assistance in enforcement actions and during court cases as well as in the formulation of policy. This has been increasingly important as the role of economics in competition enforcement has grown larger. The appointment of the Chief Economist has more recently been the subject of controversy and some political pressure. In 2023, the Commission’s preferred candidate for the role withdrew in the light of some political discontent with the appointment caused in part by the fact that the candidate was not an EU national.109 ● Legal Service: The Legal Service is not part of DG Comp.110 It is independent of all of the directorates-general. Its role is to act as the internal legal adviser of the Commission, ensuring that the Commission’s decisions comply with EU law, and representing the 108 https://​competition​-policy​.ec​.europa​.eu/​system/​files/​2023​-07/​organisation​-chart​-dg​-comp​_en​.pdf October 2023.

–

accessed

30

109 Politico, Macron slams EU Commission for hiring American economist, 18 July 2023 (https://​www​.politico​.eu/​article/​ macron​-scott​-morton​-appointment​-not​-coherent​-with​-eu​-sovereignty​-ambitions/​ – accessed 30 October 2023).

110 An organizational chart of the current structure of the Legal Service can be found at: https://​commission​.europa​.eu/​ system/​files/​2023​-10/​organisation​-chart​-legalservice​_en​_1​.pdf – accessed 4 November 2023.

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Commission in Court. One unit within the Legal Service is primarily responsible for competition law and merger issues. b. DG Connect

DG Connect is responsible for the Commission’s initiatives in content, technology and 1.73 communications networks. Its interests overlap with those of DG Comp particularly on issues affecting the digital economy and underlying technologies such as the development of mobile communications standards and the Internet of Things. DG Connect was, at the time of writing, led by Thierry Breton, Commissioner for the Internal Market. It is significantly involved in projects such as the initiative relating to standard essential patents. c. DG Grow

DG Grow is responsible for major policy areas which often touch on issues of interest to DG 1.74 Comp, in particular, the internal market and industry. Its responsibilities include intellectual property, and it has primary responsibility for the Commission’s Intellectual Property Action Plan. It continues to be closely involved in all aspects of Commission policy related to IPRs.111 Like DG Connect, it is currently led by French Commissioner Thierry Breton. d. DG RTD (‘Research and Innovation’)

This DG is primarily responsible for EU initiatives and policy relating to science, research and 1.75 innovation. It has close connections with many of the sectors which are also of interest to DG Comp, DG Grow and DG Connect. Its interactions with those DGs tends to be primarily on policy issues including in the context of preparing Europe for the digital era and driving and incentivizing research and innovation. 2. Council, courts and Parliament

The European Council is the key player in determining the overall priorities of the EU and in 1.76 setting its political direction. It comprises the heads of government of each of the 27 Member States, the President of the Commission and the President of the Council. The Council is not a legislative body. However, the conclusions reached by the Council have a very significant influence on the EU’s policy agenda, not least by setting deadlines for particular initiatives or decisions. The way in which the Council operates is rather complex, perhaps understandably given its role and institutional make up. A description can be found on the Council’s website.112 The Court of Justice of the European Union (CJEU) is the collective term for the EU’s judicial 1.77 body which consists of two separate courts, each with its own specific jurisdiction: the lower tier is the General Court (GC);113 the upper tier is the Court of Justice (in practice the Court of Justice is usually referred to as the CJEU, and that practice is followed in this text).114

111 A summary of the IPR initiatives in which it is involved can be found at: https://​single​-market​-economy​.ec​.europa​.eu/​ industry/​strategy/​intellectual​-property​_en – accessed 30 October 2023. 112 https://​www​.consilium​.europa​.eu/​en/​european​-council/​how​-the​-european​-council​-works/​– accessed 30 October 2023. The EU Parliament has also created a useful summary: https://​www​.europarl​.europa​.eu/​factsheets/​en/​sheet/​23/​the​ -european​-council – accessed 30 October 2023. 113 Known as the Court of First Instance before the entry into force of the Lisbon Treaty.

114 Known as the European Court of Justice before the entry into force of the Lisbon Treaty.

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1.78 The CJEU is critical to the development of EU law and fundamental to the way in which competition law is enforced within the EU. It ensures that EU law is respected by all the EU Member States and by the EU institutions. It interprets the law and is responsible for a consistent application of EU law throughout the EU. 1.79 In competition matters, the GC hears direct appeals against Commission decisions under Articles 101 and 102 TFEU. It has the power to review Commission decisions on both the law and the facts: it can assess the evidence, annul a contested decision and alter the amount of any fine that has been imposed. The CJEU hears appeals from the GC on points of law only. It also deals with points of law referred to it by national courts or tribunals under Article 267 TFEU (preliminary references – discussed further below). 1.80 The EU Courts sit in panels of three, five or 15 judges, depending on the importance and complexity of the case. Only one agreed judgment is given. Neither dissenting nor supporting individual judgments are provided. 1.81 The CJEU is almost always assisted in competition cases by an independent Advocate General or ‘AG’, drawn from a panel of 11.115 The AGs submit reasoned Opinions in open court – these are not binding on the CJEU, but often provide a more detailed analysis of the legal issues than can be found in the CJEU judgments. AG Opinions are often highly influential, both in the specific case and in developing and explaining the law more generally, particularly in view of the nature of the single agreed judgments given by the EU Courts. 1.82 The EU Courts are the ultimate guardians of EU law. On matters of EU law, the CJEU is supreme. Where a national court is uncertain about an aspect of EU law, it can request a ruling on that issue from the CJEU. References for a preliminary ruling involve a cooperative process. The national court refers a question (or questions) of EU law to the CJEU, which answers the question(s) and sends the case back to the national court for a final decision. The national court will apply the CJEU’s interpretation of the law to the concrete facts of the specific case. The procedure is designed to ensure consistency in the application of EU law. References for preliminary rulings are always heard by the CJEU (rather than the GC). Judgments on preliminary references are often short, as they do not engage in factual analysis. 1.83 A brief overview of the way in which the CJEU works can be found on the EU website.116 1.84 The European Parliament’s influence on competition law and policy is, as with the Council, indirect. The European Parliament has a legislative, advisory and supervisory role. Unlike the other EU institutions, members of the Parliament are directly elected by individual voters in the Member States. 1.85 Members of the Parliament can, and do, ask questions of the Commission about competition law issues on behalf of their constituents (or other interested parties such as businesses). Questions in the EU Parliament can raise the profile of a particular topic or course of behav115 Art 19(2) TEU, Art 252 TFEU and Council Decision 2013/336/ЕС.

116 https://​european​-union​.europa​.eu/​institutions​-law​-budget/​institutions​-and​-bodies/​search​-all​-eu​-institutions​-and​ -bodies/​court​-justice​-european​-union​-cjeu​_en – accessed 30 October 2023.

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iour both within the EU institutions and also more broadly. Two Parliament committees have a specific interest in competition policy: the economic and monetary affairs committee; and the internal market and consumer protection committee. More information about the role and operations of the European Parliament can be found on 1.86 its website.117 D. IPRs in the Single Market 1. The single market imperative

Tensions between IPR regimes and competition law in the EU are compounded by the over- 1.87 arching drive, fundamental to the entire EU project, of completing the internal single market. The idea that internal barriers to trade within the EU should be dismantled and that goods, services, workers and capital should have freedom of movement is a crucial element in the evolution of EU competition policy.118 However, this focus on supra-national flows of goods and services sits uneasily with the existence of national IPRs: despite progress towards harmonization and the grant of IPRs at an EU level, the grant and enforcement of many IPRs are still governed by the substantive and procedural laws of each Member States. This had led to a body of case law and of legislation under both the free movement parts of the TFEU (Arts 34–36)119 and the competition articles (Arts 101 and 102) seeking to balance the existence (and exercise) of national IPRs with the creation and maintenance of a single market. 2. Interplay between Articles 34–36 TFEU and 101–102 TFEU

Articles 34–36 and 101–102 TFEU must be considered in the overall context of EU law. They 1.88 are tools intended to achieve the aims and objectives of the EU as set out in Article 3 TFEU. Article 3(3) TFEU is particularly relevant to both IP and competition law, as well as to the rules on free movement, providing: The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance.

As mentioned above, Article 3(3) TFEU is supported by protocol 27120 which provides that 1.89 Article 3(3) TFEU includes ‘a system ensuring that competition is not distorted’. Articles 101 and 102 TFEU and other EU competition provisions are thus integral to, and strongly influenced by, the EU’s single market objective. This overarching context must always be borne in mind when analysing the potential impact of EU competition law on any given agreement or

117 https://​www​.europarl​.europa​.eu/​about​-parliament/​en – accessed 27 October 2023.

118 See, e.g., Commission Notice, Guidelines on Vertical Restraints, 2022/C248/01 of 30 June 2022 (Vertical Guidelines). See also, e.g., cases such as: Joined Cases C‑468/06 to C‑478/06 Lélos kai Sia EE and Others v GlaxoSmithKline AEVE Farmakeftikon Proïonton [2008] ECR I7139, 65–66 (ECLI:EU:C:2008:504) or, more recently, Valve (n 41).

119 More detailed discussion of the EU rules on free movement can be found in dedicated publications such as Peter J. Oliver (ed), Oliver on the Free Movement of Goods in the European Union (5th edn, Hart Publishing, 2 September 2010); and Christopher Stothers, Parallel Trade in Europe (1st edn, Hart Publishing, 2 April 2007).

120 Protocol (No 27) on the internal market and competition, OJ [2008] C 115/309.

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course of conduct. In this respect, EU competition law differs significantly from many other systems designed to control anticompetitive conduct. 1.90 Articles 34–36 TFEU deal with the removal of barriers to trade within the EU. They are fundamental to the establishment and maintenance of the single market. They are directed towards governments, preventing barriers to trade being established or supported by Member States (including through the activities of Member State courts in enforcing national IPRs in ways which may affect parallel trade). Articles 101 and 102 TFEU (together with provisions relating to State aid and those which deal with the conduct of State monopolies121) complement Articles 34–36 TFEU. The competition provisions of the Treaty are directed towards undertakings and prevent the erection or maintenance of barriers to trade by businesses. For example, a licence agreement between two companies which prohibited all trade outside a particular licensed territory, granted the licensee complete exclusivity within that territory, and obliged the parties to prevent third parties engaging in parallel trade would be prohibited. There are many other examples of cases in which conduct relating to IPRs has been held to infringe Articles 101 and/or 102 TFEU in part or in whole because it involved undermining the single market.122 1.91 Even within the EU, many IPRs are granted under national law. Enforcement of most IPRs123 is carried out initially in national courts (subject to the role of the EU Courts in interpreting the scope of various harmonized rights). To permit the enforcement of national IPRs against products imported into the relevant national territory from elsewhere in the EU would contradict a fundamental objective of the EU: frictionless cross-border trade. To strike a balance between the two conflicting policies, the EU institutions have developed the doctrine of ‘EU exhaustion of rights’ and a series of other rules to deal with situations where IPRs could be used as a shield against parallel trade. In essence, once an IPR owner has consented to the sale of a product,124 incorporating its IPR on the market anywhere in the EU, it cannot use a national IPR to prevent further sales of that product within the EU. The evolution of the exhaustion principle is explained briefly below. 1.92 Notwithstanding some initial lack of clarity about the extent to which the doctrine of Community exhaustion applied to EFTA countries who are members of the EEA, it is now clear that the position throughout the EEA is the same. Rights in respect of products initially placed on the market anywhere in the EEA with the consent of the IP owner are exhausted and, in respect of harmonized rights, the application of any national doctrine of international exhaustion to products placed on the market outside the EEA is precluded.

121 Arts 37, 106 and 345 TFEU for public undertakings and Arts 14, 59, 93, 106, 107, 108 and 114 TFEU for public services, services of general interest and services of general economic interest; Protocol No 26 on services of general interest. 122 See, e.g., Consten and Grundig (n 4); FAPL v QC Leisure (No 2) (n 85); Case C‑351/12 Ochranný svaz autorský pro práva k dílům hudebním o.s. v Léčebné lázně Mariánské Lázně a.s (ECLI:EU:C:2014:110); and Valve (n 41).

123 All IPRs were initially enforced in national courts until the Unified Patent Court began operation in mid-2023 (https://​ www​.unified​-patent​-court​.org/​en – accessed 27 October 2023). 124 Similar, but more complex rules apply to intangibles such as copyright protected works. See Case 78/70 Deutsche Grammophon v Metro SB (ECLI:EU:C:1971:59); and Case 262/81 Coditel v Ciné-Vog Films (ECLI:EU:C:1982:334).

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Article 34 TFEU prohibits all ‘quantitative restrictions and measures having an equivalent 1.93 effect on imports between Member States’.125 The entitlement of an IP proprietor to institute national proceedings against an importer is, on its face, a measure which may restrict imports. The aspects of national law on which that right is based conflicts with Article 34 TFEU. Member States have a duty to refrain from activities which jeopardize the achievement of the objectives of the Union.126 As national courts are a part of the Member State, they are obliged to refrain from enforcing national IPRs in a way which would jeopardize the objective of establishing an internal market. As interpreted by the CJEU, Article 34 does not affect the legislation of the Member States which governs the existence of IPRs. This includes national rules on acquisition, ownership, transfer and expiry of IPRs. Article 36 TFEU provides that the prohibition contained in Article 34 TFEU will not apply 1.94 if a national measure is ‘justified on grounds of … the protection of industrial and commercial property’, provided it does not constitute ‘a means of arbitrary discrimination or a disguised restriction on trade between Member States’. Article 36 TFEU can therefore be relied upon in national IP enforcement proceedings where those actions fall squarely within the ambit of Article 36 TFEU127 and are not discriminatory or a disguised restriction on trade. In the past, the CJEU has sought to reach a coherent solution to the problems arising from 1.95 the need to reconcile Articles 34 and 36 TFEU and the rules relating to IPR with those under Articles 101 and 102 TFEU by distinguishing between the ‘existence’ and the ‘exercise’ of IPRs.128 In many ways this is an artificial distinction and recent cases have moved away from it, focusing on allowing IPR owners to protect the specific subject matter of their IPRs in order to achieve their essential function, as discussed below. 3. Exhaustion of rights

‘Exhaustion’ is a legal concept which limits an IP proprietor’s right to control or prevent the 1.96 distribution of a product which is protected by an IPR. In essence, the doctrine means that once a rights owner has consented to the placing of a protected product on the market, whether by placing it on the market itself, or by authorizing another to do so, the IPR has been ‘exhausted’ and can no longer be enforced. A third party may purchase the protected product, which has been placed on the market in one country by the IP proprietor itself or with its consent and sell it in another (so-called ‘parallel trade’) if the second country recognizes the doctrine of exhaustion. As a result, the IP proprietor cannot bring proceedings against the importer under the domestic IP law of the country of importation. The concept of ‘exhaustion’ is not a new one and has formed part of legal systems relating to IPRs for many years. What is fairly novel, in the context of the EU, is its regional nature, in that it applies regionally to a selected group

125 More information is available in, e.g., the Commission’s Guide on Articles 34–36 of the Treaty on the Functioning of the European Union (TFEU), OJ [2021] C 100/38 (https://​eur​-lex​.europa​.eu/​legal​-content/​EN/​TXT/​PDF/​?uri​=​CELEX:​ 52021XC0323(03)​&​rid​=​9 – accessed 30 October 2023). 126 Art 4(3) TEU.

127 Note that as Art 36 TFEU is regarded as a derogation from the fundamental principle of free movement established in Art 34 TFEU, and reflecting the core objective in Art 3 TFEU, it has been interpreted strictly. 128 See, e.g., Consten and Grundig (n 4), at p 345: ‘Articles 36, 222 and 234 of the Treaty … do not exclude any influence whatever of Community Law on the exercise of national industrial property rights.’ (Emphasis added.)

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of countries. The way in which exhaustion of rights has evolved can be traced through the case law. A few of the key cases are discussed below. 1.97 The foundational case on exhaustion of IPRs in the EU is Centrafarm v Sterling Drug.129 Sterling Drug Inc (a US company) held a patent for a pharmaceutical product in both the UK and Holland. The trademark ‘Neagram’ covering that pharmaceutical product belonged to the Sterling Winthrop Group (a UK subsidiary) in the UK and Winthrop BV (a Dutch subsidiary) in Holland. Each subsidiary marketed the drug in its respective territory. 1.98 Centrafarm, a Dutch company, started to import Neagram into the Netherlands from the UK, where it was considerably cheaper than in the Netherlands. Sterling Drug brought an action against Centrafarm claiming infringement of its Dutch patent and Winthrop BV brought a corresponding action under its Dutch trademark. 1.99 The CJEU was asked to give guidance. It emphasized that the derogation available under Article 36 safeguards only the ‘essential content’ of an IPR. It cannot be applied to enable an IP owner effectively to partition the internal market for its own gain. It held that the essential content or ‘specific subject matter of a patent’ is the exclusive right of first marketing of the protected product, as opposed to the right to control the marketing of the product on an exclusive and permanent basis: it is the ‘exclusive right to use an invention with a view to manufacturing industrial products and putting them into circulation for the first time, either directly or by the grant of licences to third parties’.130 The specific subject matter of an IPR includes the right to oppose infringements as constrained by the principle of exhaustion. Therefore, once an IP owner (or licensee or connected company) has sold the protected goods or consented to their sale in the EU, it is prevented from using the IPR to stop further commercialization of goods within the EU: those rights are ‘exhausted’. The EU is treated as one market, irrespective of the existence of separate national IPRs, and the EU exhaustion principle applies throughout that market.131 4. Specific subject matter

1.100 The ‘specific subject matter’ of an IPR is difficult to describe in abstract terms, and much easier to identify by example. As with patents, discussed immediately above, the specific subject matter of a trademark is the right to first marketing of the trademarked product by the trademark proprietor or with his consent (e.g., by a licensee or sister company of the proprietor).132 Once a trademarked product has been placed on the market in one Member State, by the proprietor or with his consent, the rights of the proprietor to prevent further dealing in the Community are ‘exhausted’. The proprietor cannot prevent the subsequent circulation of the product in the EEA. 129 Case 15/74 Centrafarm BV and Adriaan de Peijper v Sterling Drug Inc [1974] ECR 1147 (ECLI:EU:C:1974:114) (Centrafarm v Sterling Drug); Case 16/74 Centrafarm BV and Adriaan de Peijper v Winthrop BV [1974] ECR 1183 (ECLI:EU:C:1974:115) (Centrafarm v Winthrop). 130 Centrafarm v Sterling Drug, ibid.

131 Note that the same principle applies throughout the EEA: Joined Cases E-09/07 and E-10/07 L’Oréal Norge AS v Aarskog Per AS and Others [2008] EFTA Ct Rep 259, judgment of the EFTA Court of 8 July 2008, but the situation is different where international (extra-EEA) exhaustion is concerned: see para 1.113 ff below. 132 Centrafarm v Winthrop (n 129).

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The position for other IPRs such as design rights and geographical indications is, broadly 1.101 speaking, similar. The specific subject matter of a copyright protected work will depend on the type of work 1.102 being protected. Where the copyrighted work is incorporated into a tangible article then the first placing on the market in the EEA by the rights holder or with their consent will exhaust that right. Since the development of the principle of exhaustion by the CJEU, the legal regime applying 1.103 to various IPRs has been harmonized within the EU. All EU legislation harmonizing an IPR provides for regional (EU) exhaustion. This applies, for example, to trademarks and design rights. In the area of copyright and related rights, harmonizing measures have been adopted in some areas such as, for example in respect of computer programs,133 written works134 and audiovisual works.135 The effect of this legislation has been to ensure free movement of affected copyrighted goods throughout the EU once they have been placed on the market by the owner or with the owner’s consent. The CJEU continues to clarify other aspects of the exhaustion principle and its application 1.104 outside the precise ambit of the relevant harmonizing legislation such as, for example, in respect of copies of computer programs136 and e-books.137 5. Essential function

This is a concept that has been particularly developed in the context of trademarks. As discussed 1.105 above, the specific subject matter of a trademark is the right to put a trademarked product into circulation on the market for the first time so as to prevent third parties taking advantage of the mark’s reputation. The scope of the right which is protected has been determined by the CJEU in the light of the ‘essential function’ of a trademark. The CJEU has held that a trademark’s ‘essential function’ is to guarantee the origin of a product to the consumer.138 A trademark guarantees that a product has been manufactured by, or under the supervision 1.106 of, a specific undertaking which is responsible for the quality of the product. The information is important to the customer, who will tend to associate certain qualities with certain brand names, and equally to the manufacturer who wishes to foster brand loyalty. The CJEU has accepted that a trademark proprietor may prevent the use of the trademark where it is likely to impair the guarantee of origin. Thus, while the right to prevent further dealing in the product

133 Directive 2009/24/EC of the European Parliament and of the Council of 23 April 2009 on the legal protection of computer programs, OJ [2009] L 111/16. 134 Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society, OJ [2001] L 167/10. 135 Directive 2006/115/EC of the European Parliament and of the Council of 12 December 2006 on rental right and lending right and on certain rights related to copyright in the field of intellectual property, OJ [2006] L 376/28. 136 Case C-128/11 UsedSoft GmbH v Oracle International Corp (ECLI:EU:C:2012:407) (UsedSoft v Oracle).

137 Case C-263/18 Nederlands Uitgeversverbond and Groep Algemene Uitgevers v Tom Kabinet Internet BV and Others (ECLI:EU:C:2019:1111). 138 Case C-10/89 Hag II [1990] I-3711 (ECLI:EU:1990:359), para 14, with references to previous case law.

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will have been exhausted by first marketing, the right to ensure that the mark is not tampered with remains intact (although this is also subject to limitations). 6. The importance of ‘consent’

1.107 A key question in determining whether an IPR owner’s right to prevent infringement has been exhausted is whether the IPR owner has ‘consented’ to the placing of an imported product on the single market. In summary, the views of the CJEU are: ● The grant of a licence under compulsion is not sufficient to amount to consent.139 ● Consent cannot be given where no IP protection exists in one territory (or it has expired) and a third party makes the product in that territory and seeks to export it into a territory where there is protection. The proprietor is entitled to stop a third party who endeavours to market the protected product in the protected territory.140 ● Where the scope of an IPR differs between Member States, consent to use one aspect of the IPR may not exhaust all aspects. For example, before the harmonization of aspects of copyright law, a copyright owner could prevent the rental of a video cassette in a Member State where this is permissible if the cassette was previously lawfully sold in another Member State where no rental right existed.141 This rationale applies in particular where the IPR in question has an intrinsic ongoing element (in this case a right to royalties from rental). The question has been decided differently where there is no such ongoing right, and there is merely a difference in the scope of IP protection in different Member States.142 1.108 Where a proprietor places a product on a market where there is no IP protection, or consents to someone else placing the product on that market, the right to first marketing has been exhausted. The IPR cannot be used to prevent further commercialization of that product. 1.109 The meaning of ‘consent’ was raised squarely in Merck v Primecrown.143 The proprietors of a patent which read on to a pharmaceutical product argued that they were ethically and/or legally obliged to market their products in certain Member States where patent protection did not exist and, therefore, had not freely consented to sale in those jurisdictions. The CJEU dismissed the arguments which relied on ethical obligations but accepted that a true legal obligation to market a product was incompatible with free consent. The CJEU also held that, as a matter of fact, no such legal obligation existed in the circumstances of that case. 1.110 In Merck v Primecrown, the parties had also argued that, owing to the low price set for pharmaceuticals in some Member States by government agencies, they were unable to decide the conditions under which their products were placed on the market and, therefore, had not freely consented to their sale. The CJEU also rejected this argument: it accepted that price controls imposed by Member States might distort competition and conditions of trade but held that this

139 Case C-19/84 Pharmon BV v Hoechst AG [1985] ECR 2281 (ECLI:EU:C:1985:304).

140 Case 341/87 EMI Electrola GmbH v Patricia Im- und Export and Others [1989] ECR 79 (ECLI:EU:C:1989:30).

141 Case 158/86 Warner Brothers Inc. and Metronome Video ApS v Erik Viuff Christiansen [1988] ECR 2625 (ECLI:EU:C:1988:242).

142 Case 187/80 Merck & Co. Inc. v Stephar BV and Petrus Stephanus Exler [1981] ECR 2063 (ECLI:EU:C:1981:180).

143 Case C-267/95 Merck v Primecrown and Beecham/Europharm [1997] 1 CMLR 83 (ECLI:EU:C:1996:468) (Merck v Primecrown).

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could not justify a derogation from the principle that goods must be able to move freely from one Member State to another. 7. International exhaustion/harmonizing initiatives

The EU doctrine of exhaustion of rights comes from Articles 34–36 TFEU. These rules apply 1.111 only to the free movement of goods between EU144 States. The doctrine does not apply to goods originating from a third country even if there is a free trade agreement in force between the EU and that particular country.145 Some Member States traditionally recognized the doctrine of ‘worldwide’ or ‘international’ 1.112 exhaustion. Under that doctrine once a product has been placed on the market anywhere in the world by the proprietor of an IPR or with his consent, the proprietor loses the right to prevent the subsequent import of that product into any country recognizing international exhaustion. There has been tension between the EU and international doctrines of exhaustion. In the inter- 1.113 ests of harmonizing the laws of the Member States, supremacy has been given to the EU doctrine of exhaustion. The ability of individual Member States to continue to apply the doctrine of international exhaustion has, in some cases, been precluded through harmonizing legislation. For example, when the Trade Mark Directive146 was adopted, the directive expressly provided 1.114 for Community/EU wide exhaustion but it said nothing about international exhaustion. It was unclear whether this left the question of how to deal with exhaustion of rights in respect of products originally placed on the market outside the EU to the discretion of each Member State (as previously) or harmonized the laws of the Member States at the level of EU exhaustion only. This was clarified by the Silhouette case.147 The CJEU ruled that the Trade Mark Directive precludes EU Member States from applying the principle of worldwide exhaustion when a proprietor seeks to enforce a trademark against a product imported into that Member State from a non-EU country. The result was that a trademark owner was entitled to prevent a retailer selling trademarked goods imported without its consent into Austria from outside the EU. In Sebago, the CJEU held that the rights conferred by a trademark are exhausted only if the specific goods in question are put on the EU market with the consent of the trademark proprietor.148 The Court made clear that Article 7(1) of the Trade Mark Directive precluded Member States from allowing international exhaustion and that exhaustion applied only to 144 And EEA.

145 For a brief description of the position on exhaustion between the EU and UK post-Brexit see: https://​www​.bristows​.com/​ news/​exhaustion​-of​-intellectual​-property​-rights​-in​-the​-uk​-post​-brexit​-asymmetry​-to​-continue​-indefinitely/​ – accessed 30 October 2023; https://​www​.gov​.uk/​government/​consultations/​uks​-future​-exhaustion​-of​-intellectual​-property​-rights​ -regime/​uks​-future​-exhaustion​-of​-intellectual​-property​-rights​-regime​-summary​-of​-responses​-to​-the​-consultation – accessed 30 October 2023. For a longer discussion of exhaustion in its historical context, see https://​gowlingwlg​.com/​ getmedia/​5a663a23​-df9c​-4ea9​-bc4e​-1eca0af97879/​Exhaustion​-of​-intellectual​-property​-rights​-in​-the​-UK​-210921​.pdf​ .xml – accessed 30 October 2023. 146 Directive (EU) 2015/2436 of the European Parliament and of the Council of 16 December 2015 to approximate the laws of the Member States relating to trade marks (Text with EEA relevance), OJ [2015] L 336/1.

147 Case C-355/96 Silhouette International Schmied v Hartlauer Handelsgesellschaft [1998] ECR I-4799 (ECLI:EU:C:1998:374) (Silhouette). 148 Case C-173/98 Sebago Inc and Ancienne Maison Dubois & Fils SA v G-B Unic SA [1999] ECR I-4103 (ECLI:EU:C:1999:347) (Sebago).

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subsequent dealings in individual products and not to dealings in other products of the same type. Consent to further dealing must relate to each individual item of the product in respect of which exhaustion is pleaded. 1.115 The doctrines of Community exhaustion and international exhaustion were further explored in the Davidoff, Levi and Honda cases.149 In dealing with these references from the English court, the CJEU reiterated its ruling in Sebago that Member States may not provide for international exhaustion of an IPR in domestic law once the law relating to the relevant IPR had been harmonized.150 1.116 The Court has also made clear that the trademark proprietor’s consent to marketing within the EU of goods placed on the market outside the territory must be unequivocal, and that implied consent could not be inferred from mere silence of the trademark proprietor.151 1.117 The doctrine of exhaustion has implications for the distribution right in the context of software licensing, as demonstrated in the case of UsedSoft v Oracle.152 Here, the CJEU ruled that the owner of copyright in software cannot prevent a perpetual licensee who has downloaded the software from the internet from selling the ‘used’ licence, provided that the originally downloaded copy is deleted or rendered unusable at the time of resale. Adopting a broad interpretation of Article 4(2) of the Software Directive (Directive 2009/24), the CJEU held that for a copyright holder’s distribution right over a copy of software to be exhausted (so that the copyright holder can no longer oppose the resale of that copy), the transaction between it and its customer must amount to a ‘sale of a copy’ of the program. 1.118 The Court also held that downloading a copy of software and concluding a licence agreement permitting use of that copy for an unlimited period in return for payment amounted to a ‘sale’ for the purposes of Article 4(2). The judgment made clear that the term ‘sale of a copy’ in Article 4(2) covers all situations in which a right to use a copy of a computer program is granted for an unlimited period in return for payment; any such ‘sale’ will trigger the exhaustion provisions of the Software Directive. The copyright holder cannot then oppose resale of that copy, regardless of restrictions in the licence agreement on further transfers. It does not matter whether the computer program is made available in material form (e.g., a CD or DVD) or by way of download; in either event the transaction is a ‘sale’. 1.119 The Court stressed that an original acquirer who resells a tangible or intangible copy of a computer program for which the copyright holder’s right of distribution is exhausted under Article 4(2) must make the original copy unusable at the time of its resale to avoid infringing the exclusive right of reproduction of a computer program.

149 Joined cases C-414-416/99 Zino Davidoff SA v A & G Imports; Case C-415/99 Levi Strauss & Co v Tesco Plc and others [2001] ECR I-8691 (ECLI:EU:C:2001:617) (Davidoff/Tesco). Case C-535/13 Honda Giken Kogyo Kabushiki Kaisha v Maria Patmanidi AE, Reasoned Order of the CJEU of 17 July 2014 (ECLI:EU:C:2014:2123), available only in French and Greek). 150 Davidoff/Tesco, ibid., para 32. 151 Ibid., para 55.

152 UsedSoft v Oracle (n 136).

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The harmonization of various IPR within the EU continues and the detail is unlikely to be of 1.120 interest to most readers. Nevertheless the scope of harmonized rights and the potential effects of exhaustion or other IPR specific issues for the application of Articles 101 and 102 TFEU153 mean that some awareness of the current position is worthwhile. A useful starting point is the Commission’s webpage summarizing the position in respect of the EU’s 2020 IP action plan.154

153 See the discussion of Valve (n 41), in Chapter 2 at paras 2.12 and 2.40 ff.

154 https://​single​-market​-economy​.ec​.europa​.eu/​industry/​strategy/​intellectual​-property​_en –accessed 27 October 2023.

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CHAPTER 2 ARTICLE 101 TFEU AND IP LICENSING I. ARTICLE 101 TFEU AND LICENSING OF IP – GENERAL PRINCIPLES 2.04 II. ARTICLE 101(1) TFEU – AN OVERVIEW 2.05 A. Agreements, Concerted Practices/ Unilateral Conduct 2.06 B. Undertakings 2.15 1. Economic undertakings 2.15 2. Economic activity 2.16 3. Independent undertakings 2.17 4. Principal/agent 2.19 C. Object or Effect of Restricting Competition 2.31 1. Object restrictions 2.32 2. Effects restrictions 2.47 3. Ancillary restraints 2.53 4. Extent of necessary effect on competition – de minimis2.59 5. Effect on trade – a question of jurisdiction2.66 a. IPR as an entry barrier – the relevance of exhaustion 2.72 b. The height of the barrier posed by IPRs 2.81 III. ARTICLE 101(2) TFEU AND THE CONSEQUENCES OF INFRINGEMENT 2.88 IV. ARTICLE 101(3) TFEU 2.94 V. RESTRICTIVE CLAUSES IN LICENCE AGREEMENTS2.102 A. Existence/Exercise/Specific Subject Matter2.104 B. Exclusivity 2.129

C. D. E. F. G.

H. I.

J. K.

1. Manufacturing exclusivity 2.142 2. Sales restrictions/exclusivity 2.145 3. Exclusivity in the courts 2.151 Tying and Bundling/Quality Control Obligations2.174 Restrictions on Prices or Customers 2.195 Field of Use Restrictions 2.200 Non-compete Obligations 2.211 Disincentives for the Licensee to Develop/ Exploit Own Technology/Grant Back Requirements2.219 Royalty Payments on Unpatented/Partially Patented Products 2.245 Post-Expiry Royalties 2.257 1. Introduction 2.257 2. The early approach of the Commission2.259 3. The Court of Justice Rules 2.263 4. The Commission’s approach in the 2014 Technology Transfer Guidelines2.274 5. The approach to post-expiry royalties in the US 2.278 No Challenge Clauses 2.282 Application of Article 101 TFEU to Different Types of IPR Licences 2.300 1. Patent licences/knowhow licences 2.301 2. Trademark licences 2.311 3. Copyright/design right licences 2.329

2.01 This chapter considers the application of competition law to commercial agreements affecting intellectual property rights (IPRs), excluding joint ventures and corporate transactions affecting market structure (concentrations). The focus is the application of Article 101 of the Treaty on the Functioning of the European Union (TFEU). The (relatively rare) application of Article 102 TFEU to the terms of intellectual property (IP) licences is discussed at Chapter 6. 2.02 IP is intangible but in common with any other item of property it can be exploited in different ways. The owner of IPRs may choose to exploit those rights itself, manufacturing and selling products protected by its rights and enforcing those rights where necessary. In practice, owners of IPRs often involve third parties in the exploitation of their IPR to increase efficiency and the return on the investment made in the underlying innovation and in obtaining IPRs. They do 34

ARTICLE 101 TFEU AND IP LICENSING

this either by assigning the IPRs outright in return for a payment, or by permitting others to exploit the IPRs through licensing. Licensing can occur in various contexts including, for example: research and development 2.03 collaborations; mergers and joint ventures; settlement agreements; and technology transfer arrangements. The principles which apply to technology transfer arrangements apply broadly to other IP agreements, so it is on such arrangements that this chapter first focuses. When applying the underlying principles some nuances apply to licences of different types of IP. The rules which apply to technology transfer agreements do not necessarily apply in the same way to all IP agreements.

I. ARTICLE 101 TFEU AND LICENSING OF IP – GENERAL PRINCIPLES Article 101 TFEU applies to agreements between independent undertakings. For most compa- 2.04 nies and most transactions, it is only Article 101 TFEU which is relevant to licences and other agreements relating to IP. Licences of IP are within the scope of the prohibition in Article 101 TFEU in the same way as other agreements. It is recognized that IP licences are often procompetitive, but the provisions of such licences may be scrutinized for anticompetitive effects. The way in which Article 101 TFEU applies to IP is discussed below, following an overview of Article 101 TFEU and its application.

II. ARTICLE 101(1) TFEU – AN OVERVIEW Article 101(1) TFEU prohibits:

2.05

● agreements or concerted practices between undertakings or associations of undertakings; ● which have as their object or effect the prevention, restriction or distortion of competition within the EU/EEA; and ● which may affect trade between EU/EEA Member States. A. Agreements, Concerted Practices/Unilateral Conduct Article 101(1) TFEU applies to cooperation between undertakings. The underlying principle 2.06 is that each market participant must determine its own policy and decide independently how it wishes to compete.1 Unilateral conduct is covered, if at all, only by Article 102 TFEU.2 Understandings, oral agreements and ‘gentlemen’s agreements’ are all covered by Article 2.07 101(1) TFEU. The mere fact that an agreement remains in draft, has formally expired, or is 1 2

See e.g., Joined Cases 40/73 to 48/73 (and others) Coöperatieve Vereniging ‘Suiker Unie’ UA and others v Commission of the European Communities [1975] ECR 01663 (ECLI:EU:C:1975:174) (Suiker Unie), para 173.

As discussed at paras 1.87 ff and 2.53, unilateral attempts to enforce IPRs through litigation to maintain barriers between EU Member States will often fail because of Arts 34–36 TFEU and the effects of the doctrine of exhaustion (see European Commission (Commission) I Notice, Guide on Articles 34–36 of the Treaty on the Functioning of the European Union (TFEU), OJ [2021] C 100/38 (Arts 34–36 TFEU).

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still subject to negotiation does not mean that Article 101 TFEU cannot apply. Whether the cooperation is described as an agreement, decision, or concerted practice is irrelevant; the key distinction is between behaviour which is collusive and that which is not. 2.08 Case law confirms the importance of these concepts. In Bayer (Adalat),3 the General Court (GC) said that an agreement under Article 101 TFEU: ‘centres around the existence of a concurrence of wills between at least two parties, the form in which it is manifested being unimportant so long as it constitutes the faithful expression of the parties’ intention’.4 Without that concurrence of wills, conduct cannot be prohibited by Article 101 TFEU. In Adalat, the GC overturned a Commission Decision finding that Bayer had infringed Article 101 TFEU. The GC held that, in the circumstances of the case, no ‘concurrence of wills’ sufficient to establish the existence of even a tacit agreement had been established by the Commission. That judgment was upheld on appeal to the CJEU.5 The relevance of that judgment has recently been further considered in Valve6 in which the Commission’s approach to the application of the concepts of agreement and concerted practice was contested by the applicant in the context of copyright licensing. 2.09 A concerted practice is a subspecies of arrangement which can be prohibited under Article 101(1) TFEU. A concerted practice can arise from conduct which is not sufficiently well developed or articulated to be an agreement as such. It is a nebulous concept, which has given rise to a good deal of heartache for advisers (and companies) over the years. The courts revert regularly to two early cases to explain the concept. 2.10 The first explains that concerted practices are ‘a form of coordination between undertakings which, without having reached the stage where an agreement properly so-called has been concluded, knowingly substitutes practical cooperation between them for the risks of competition’.7 2.11 The second explains that Article 101 TFEU prohibits: any direct or indirect contact between … [independent] operators, the object or effect whereof is either to influence the conduct on the market of an actual or potential competitor or to disclose to such a competitor the course of conduct which they themselves have decided to adopt or contemplate adopting on the market.8

2.12 The Commission has briefly summarized the position in its Horizontal Guidelines.9 Although the concepts of agreement and concerted practice are distinct, nothing turns legally on whether 3 4 5 6

7 8 9

Case T-41/96 Bayer AG v Commission of the European Communities [2000] ECR II-3383 (ECLI:EU:T:2000:242) (Bayer (Adalat)).

Bayer (Adalat), ibid., para 69. See also Commission Communication, Guidelines on the application of Article 101(3) TFEU (formerly Article 81(3) TEC), OJ [2004] C 101/97 (Art 101(3) TFEU Guidelines), para 15.

Joined Cases C-2/01 P and C-3/01 P Bundesverband der Arzneimittel-Importeure eV and Commission of the European Communities v Bayer AG [2004] ECR I-23 (ECLI:EU:C:2004:2). Case T‑172/21 Valve Corporation v European Commission, 27 September 2023 (ECLI:EU:T:2023:587) (Valve).

Case 48/69 Imperial Chemical Industries Ltd v Commission of the European Communities [1972] ECR 619 (ECLI:EU:C:1972:70), para 64. Suiker Unie (n 1), p 425.

Commission Communication, Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, OJ [2023] C 259 (Horizontal Guidelines), para 14.

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anticompetitive collusion arises from one or the other. The critical element is a degree of consensus, concurrence of wills, or acquiescence. The key point in practice is to remember that Article 101(1) TFEU might apply in unexpected circumstances. For example, in Valve,  the appellant argued before the GC that it was acting merely as a service provider, implementing technical measures to prevent unauthorized access to video games in particular Member States (‘geo-blocking’) and was not participating in the market. It also argued that the Commission had misapplied the case law on ‘tacit acceptance’ in a vertical context. As ever, the facts are important, but the principal take away is that the Court confirmed earlier case law discussing the establishment of a concurrence of wills in some detail.10 The GC confirmed that: ● for there to be an ‘agreement’ within the meaning of Article 101(1) TFEU, undertakings need only to have expressed their joint intention to conduct themselves on the market in a specific way;11 ● the main objective of the prohibition laid down in Article 101(1) TFEU is to ensure that competition remains undistorted within the common market; ● the full effectiveness of that prohibition requires that the active contribution of an undertaking to a restriction of competition is caught even if that contribution does not relate to an economic activity forming part of the relevant market on which that restriction comes about or is intended to come about;12 ● Article 101(1) TFEU refers to all agreements and concerted practices which, in either horizontal or vertical relationships, distort competition, irrespective of the market on which each of the parties operates. Only the commercial conduct of one of the parties need be affected by the terms of the arrangements;13 ● the existence of an ‘agreement’ or a ‘concerted practice’ is based on the expression of the concurrence of wills of two parties on the principle of a restriction of competition, irrespective of the form in which that concurrence of wills is manifested;14 ● The Commission cannot, however, hold that apparently unilateral conduct forms the basis of an agreement within the meaning of Article 101(1) TFEU, if it does not establish the existence of an acquiescence, express or implied, in that conduct on the part of the other undertakings involved.15 The CJEU was equally clear in Super Bock16 that all that is required is for the parties involved 2.13 to have expressed their joint intention to conduct themselves in a specific way and that, while a statement of purely unilateral policy by one entity to a contract cannot in itself establish an agreement or concerted practice, ‘… an act or conduct which is apparently unilateral will constitute an agreement, within the meaning of Article 101(1) TFEU, where it is the expression of the concurrence of wills of at least two parties, the form in which that concurrence is expressed

10 11 12 13 14 15 16

Valve (n 6), paras 41–81 for general principles and paras 82–157 for a consideration of the specific facts relating to each agreement or concerted practice identified. Ibid., para 43. Ibid., para 45. Ibid., para 46. Ibid., para 54. Ibid., para 55.

Case C‑211/22 Super Bock Bebidas, SA v Autoridade da Concorrência (ECLI:EU:C:2023:529) (Super Bock).

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not being by itself decisive’.17 Many forms of evidence or indicia may be used in deciding whether a concurrence of wills is present so as to give rise to collusion and all relevant factors must be considered.18 2.14 An outright assignment of IPRs is not within the scope of the prohibition in Article 101(1) TFEU as an assignment amounts to the substitution of one rights owner for another and generally does not involve continuing contractual obligations. However, if the assignment goes beyond a straightforward transfer and involves continuing links between the parties, any such continuing obligations can be caught by Article 101(1) TFEU and the principles which apply to licences of IPRs will be relevant. In the context of mergers and joint ventures, IP aspects may be dealt with under Article 101 TFEU or may be regarded as ancillary to the main transaction, and therefore acceptable if the principal transaction is acceptable. These issues are also explored in Chapter 7 below. B. Undertakings 1. Economic undertakings

2.15 EU competition law applies to the conduct of undertakings. Undertakings are entities engaged in economic activity. Whether an entity is acting as an economic undertaking can change from function to function within the same entity: ‘[t]he classification of an … economic activity must be carried out separately for each activity exercised by a given entity’.19 Individuals may be undertakings in some contexts (e.g., when acting as a professional in business) but not in others (e.g., when acting purely as a shareholder): ‘the concept of undertaking encompasses every entity engaged in an economic activity regardless of the legal status of the entity and the way in which it is financed’.20 2. Economic activity

2.16 The Courts have held that ‘any activity consisting in offering goods or services on a given market is an economic activity’.21 They have also held that certain activities are by their nature not economic. These include activities related to the exercise of public power or authority or activities which are provided on the basis of ‘solidarity’. Even where a body is acting as a purchaser in a market this does not mean that it is necessarily engaging in an economic activity. Where a body is procuring goods or services for purposes ancillary to a non-economic activity, the procurement and related conduct is also not to be regarded as an economic activity for the purposes of EU competition law.22

17 18

Super Bock, ibid., paras 44–53. Valve (n 6), paras 56 and 57.

19 Case C-49/07 Motosykletistiki Omospondia Ellados NPID (MOTOE) v Elliniko Dimosio [2008] ECR I‑4863 (ECLI:EU:C:2008:376), para 25.

20 21

22

Case C-41/90 Klaus Höfner and Fritz Elser v Macrotron GmbH [1991] ECR I-1979 (ECLI:EU:C:1991:161), para 21.

Joined Cases C-180/98 to C-184/98 Pavel Pavlov and Others v Stichting Pensioenfonds Medische Specialisten [2000] ECR I-6451 (ECLI:EU:C:2000:428), para 75.

Case T-319/99 Federación Nacional de Empresas de Instrumentación Científica, Médica, Técnica y Dental v Commission of the European Communities [2003] ECR II-357 (ECLI:EU:T:2003:50) (FENIN).

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3. Independent undertakings

As a matter of national law (e.g., in England and Wales), companies within the same corporate 2.17 group may all have separate legal personalities and be capable of entering into agreements with each other. This approach is not reflected in Article 101 TFEU. Where legal entities are so closely related that they approach the market as a single economic force, Article 101 TFEU does not apply to agreements between them. Such agreements are treated as an internal convenience, rather than an agreement between independent economic operators. The Commission states: ‘[if] … a company exercises decisive influence over another company they form a single economic entity and, hence, are part of the same undertaking … [as would] … sister companies, that is to say companies over which decisive influence is exercised by the same parent company’.23 The key issue is autonomy. If one party to an agreement does not have independence of deci- 2.18 sion making, it will not be regarded as autonomous, but will be treated as a part of a single economic entity with all of those who are similarly controlled or lacking in autonomy.24 4. Principal/agent

Similar reasoning applies to agreements between a principal and agent where the relationship 2.19 is one of ‘genuine’ agency. While not likely to be relevant to technology transfer agreements, other types of IP licence may arise in the context of agency so it is worth being aware of the Commission’s approach to when such arrangements may be outside the scope of the Article 101 TFEU prohibition. As with many other competition law concepts, what matters is the actual quality of the relationship, rather than its legal characterization. The Commission’s Vertical Guidelines25 define an agent as: a legal or natural person vested with the power to negotiate and/or conclude contracts on behalf of another (the principal), either in the agent’s own name or in the name of the principal, for the: • purchase of goods or services by the principal; or • sale of goods or services supplied by the principal.26

The most recent version of the Vertical Guidelines aims to give greater clarity to the concept of 2.20 agency than was the case in the previous version. If advising on an arrangement which might be categorized as an agency it is sensible to review all of Section 3.2 in the Vertical Guidelines. It is worth paying particular attention to the Commission’s warning: As [… the treatment of agents …] constitutes an exception to the general applicability of Article 101 of the Treaty to agreements between undertakings, the conditions for categorising an agreement as an agency agreement that falls outside the scope of Article 101(1) of the Treaty should be interpreted narrowly. For example, it is less likely that an agency agreement will be categorised as falling outside the scope of Article 101(1) of the Treaty where the agent negotiates and/or concludes contracts on 23 Horizontal Guidelines (n 9) para 11; and see also Case T-102/92 Viho Europe BV v Commission of the European Communities [1995] ECR II-17 (ECLI:EU:T:1995:3), as upheld on appeal Case C‑73/95 P [1996] ECR I-5457 (ECLI:EU:C:1996:405).

24 25 26

For a further recent discussion of this issue, in which the EU Courts held that a financial investor was part of the same undertaking as a company in which it had invested, see Case T-419/14 The Goldman Sachs Group, Inc. v European Commission, judgment of 12 July 2018 (ECLI:EU:T:2018:445). Commission Notice, Guidelines on Vertical Restraints, 2022/C248/01 of 30 June 2022 (Vertical Guidelines). Vertical Guidelines, ibid., para 29.

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS behalf of a large number of principals. The qualification given to their agreement by the parties or by national law is not material for this categorisation.27

2.21 Only agreements between principals and their ‘genuine’ agents fall outside the scope of the prohibition in Article 101(1) TFEU. The Vertical Guidelines provide that the most important characteristic of a genuine agency agreement is that the agent does not bear financial or commercial risk for contracts negotiated on behalf of the principal (or that such risks are borne by the agent only to an insignificant extent). Risk must be assessed on a case-by-case basis and the relationship will be analysed on its substance, rather than its form.28 2.22 Three types of relevant risk are identified in the Vertical Guidelines: contract specific risks; risks related to market specific investments; and other related activity risks. 2.23 In essence, the position in the Vertical Guidelines is that if an agent takes on any significant risk: relating to the contracts concluded on the principal’s behalf; or arising from sunk investments necessary to negotiate the particular type of contract at issue; or otherwise required by the principal to be borne at the agent’s own risk on the affected market, there is a significant likelihood that that relationship will not be categorized as a genuine agency relationship for the purposes of Article 101(1) TFEU. When it comes to assessing the significance of any risk, the Commission indicates that this is best done by reference to the commission received by the agent in return for its services. 2.24 The Commission’s approach has arguably not always been entirely consistent with that of the European Courts. This was reflected in the DaimlerChrysler case29 where the GC annulled a finding by the Commission that DaimlerChrysler had entered into agreements with distributors to restrict parallel trade and limit competition in the leasing and sale of cars. It had been argued on behalf of DaimlerChrysler that those supplying its cars to end-users were, in fact, agents rather than distributors. The Commission had held that there was no genuine agency because of the level and range of risks accepted by the sales outlets. The GC disagreed with the Commission, pointing to three factors: 1. The minimal commercial freedom of the sales outlets (their authority was limited to negotiating sales: once a customer agreed to purchase, the order was passed to Mercedes’ central office); 2. The low level of real risk accepted by the sales outlets (no genuine price risks were borne but only minor variations resulting from discounts, promotional and repair work which was found not to expose agents to genuine commercial risks: this is indicative of a more relaxed approach than might be expected from a reading of the Vertical Guidelines); and 3. The fact that the agents were integrated into Mercedes’ business. This criterion did not appear in the Vertical Guidelines at the time, although it was present in some decisions and judgments which pre-dated those guidelines. It was not conclusive alone. If ‘integration’ is an important factor in establishing an agency relationship, it could give rise to difficulties in 27 28

Ibid., para 30, with internal citation to Case 311/85 ASBL Vereniging van Vlaamse Reisbureaus contre ASBL Sociale Dienst van de Plaatselijke en Gewestelijke Overheidsdiensten (ECLI:EU:C:1987:418), para 20. Vertical Guidelines, ibid., paras 31–32.

29 Case T-325/01 DaimlerChrysler AG v Commission of the European Communities [2005] ECR II-3319 (ECLI:EU:T:2005:322).

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ARTICLE 101 TFEU AND IP LICENSING

cases where a single agent acts for a number of different principals or acts in some instances on its own behalf. The treatment of ‘agents’ who act for multiple principals has been given more prominence in the most recent Vertical Guidelines, see discussion below. In addition to being helpful in clarifying how ‘genuine agents’ can be identified, the 2.25 DaimlerChrysler judgment is also a useful reminder that Commission Vertical Guidelines are not definitive. The subsequent CEPSA case, decided by the CJEU,30 did not address quantification of risk in detail. The most recent Vertical Guidelines contain more detail than previously about the level of 2.26 risk that is consistent with an agency arrangement,31 setting out a number of non-exhaustive indications of circumstances or conditions which need to be fulfilled if an arrangement is to be treated as a genuine agency relationship and reiterating that it is the economic reality of the relationship between agent and principal which is ultimately determinative.32 Before adopting the most recent Vertical Guidelines, the Commission published a working 2.27 paper on agency33 considering in particular how a relationship should be assessed if the same undertaking acts as both independent distributor and as agent in respect of goods supplied by the same upstream undertaking. Those responding sought greater clarity than had previously been the case and this issue is now dealt with specifically in the Vertical Guidelines. The Vertical Guidelines confirm that it is possible for one party to act as both agent and inde- 2.28 pendent distributor for the same supplier as long as it is possible to distinguish between the activities and risks that are covered by the agency and those relating to the distribution relationship (e.g., by clearly identifying the goods and services that are covered by each) in order to spot any restrictions of competition. The Vertical Guidelines also stipulate that the choice between the two types of function must be left to the distributor/agent, and not be imposed on it.34 The Vertical Guidelines note the increased difficulty of distinguishing between agency activi- 2.29 ties and others where a reseller is involved in both capacities for the same supplier. Inevitably, these difficulties will be greater if both types of downstream supply are undertaken in the same relevant product market, and particularly if the distinctions between the products subject to the agency arrangement and those being supplied by way of independent distribution are insignificant. In such circumstances, there is a concern that pricing obligations (in particular) imposed on the agent for products sold under the agency agreement, which are not covered by Article 101(1) TFEU, will spill over into the way in which the products being sold independently by way of distribution are priced.35 One of the reasons for the greater focus on agency relationships in the revised Vertical 2.30 Guidelines is the growth and increased importance of the platform economy since the previous 30

Case C-217/05 CEPSA Estaciones de Servicio SA v LV Tobar [2006] ECR I-11987 (ECLI:EU:C:2006:784).

32

Ibid., para 34.

31 33 34 35

Vertical Guidelinesi (n 25), para 33.

European Commission Working Paper, Distributors that also act as agents for certain products for the same supplier. Vertical Guidelines (n 25), para 36.

More detail on the approach to be taken when the same party is active as both agent and distributor in ibid., paras 37–40.

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS

Vertical Guidelines were adopted in 2010.36 While not necessarily particularly relevant to IPR licensing arrangements, it is worth being aware of the Commission’s general position that ‘Agreements entered into by undertakings active in the online platform economy generally do not meet the conditions to be categorised as agency agreements that fall outside the scope of Article 101(1) of the Treaty.’37 C. Object or Effect of Restricting Competition 2.31 Article 101(1) TFEU will be infringed if an agreement restricts competition by ‘object’ or ‘effect’ as described at paragraph 19 of the Article 101(3) TFEU Guidelines.38 The distinction is significant: in summary, if an agreement or provision is in the ‘object’ category, it is presumed to infringe Article 101(1) TFEU without it first being necessary to show anticompetitive effects. All other agreements outside that category may be prohibited by Article 101(1) TFEU only if likely anticompetitive effects are identified. 1. Object restrictions

2.32 Understanding which restrictions may be considered to be object restrictions is important in practice. Where an agreement contains one or more provisions restrictive by object, a court or competition authority does not need to establish likely adverse effects on competition to establish an infringement of Article 101(1) TFEU;39 at least the provisions which are restrictive by object will be illegal, void and unenforceable, potentially exposing the parties to very substantial fines unless the agreement satisfies the exception criteria in Article 101(3) TFEU.40 While it is theoretically possible for an agreement which is restrictive of competition by object to satisfy the Article 101(3) TFEU exception criteria,41 this is difficult in practice. An agreement which contains an object restriction cannot benefit from the safe harbour provided by the Commission’s De Minimis Notice.42 2.33 The ‘bright line’ approach to object restrictions is said to be justified by considerations of legal certainty and of the appropriate allocation of resources.43 This suggests that identifying a restriction by object should, in principle, be fairly straightforward. Object restrictions are said to be restrictions that ‘by their very nature have the potential to restrict competition within the meaning of Article 101(1)’.44 There has been a perceived tendency on the part

36

Commission’s Guidelines on Vertical Restraints, OJ [2010] C 130/1 (2010 Vertical Guidelines).

38

Article 101(3) TFEU Guidelines (n 4).

37 39 40 41 42

43 44

Vertical Guidelines (n 25), para 46.

For example, Joined Cases C-501/06 P and others GlaxoSmithKline Services Unlimited, formerly Glaxo Wellcome plc v Commission of the European Communities and Others [2009] ECR I-9291 (ECLI:EU:C:2009:610) (Glaxo (Spain)), para 55.

Case C-209/07 Competition Authority v Beef Industry Development Society Ltd and Barry Brothers (Carrigmore) Meats Ltd [2008] ECR I-8637 (ECLI:EU:C:2008:643) (Irish Beef), paras 21 and 39. Glaxo (Spain) (n 39). See para 2.64.

For example, see Case C-8/08 T-Mobile Netherlands BV, KPN Mobile NV, Orange Nederland NV and Vodafone Libertel NV v Raad van bestuur van de Nederlandse Mededingingsautoriteit [2009] ECR I‑4529 (T-Mobile), Opinion of Kokott AG (ECLI:EU:C:2009:110), para 43. For example, see T-Mobile, ibid., judgment of 4 June 2009 (ECLI:EU:C:2009:343), para 29.

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ARTICLE 101 TFEU AND IP LICENSING

of the Commission (upheld by the EU Courts) to extend the scope of ‘object’ restrictions, for example in cases such as T-Mobile where the operators of mobile telephony networks exchanged information about how much they might pay for certain services. While exchanges of information generally must be analysed to see if they have an effect on competition, the Court of Justice held in T-Mobile that information exchange between competitors ‘is tainted with an anti-competitive object if the exchange is capable of removing uncertainties concerning the intended conduct of the participating undertakings’.45 This view was later reflected in the Commission’s Horizontal Guidelines.46 In Glaxo (Spain), the GC had disagreed with the Commission about the ‘object’ categorization 2.34 of an indirect export ban in the pharmaceutical industry. The GC held that, given the context in which that industry operated, and as there were no obvious disadvantages for consumers from the operation of the indirect export ban in question, the conduct did not give rise to a restriction by object. The Court of Justice reversed this finding, holding that restrictions on parallel trade are restrictions by object, and that it is not necessary to show harm to consumers for this to be the case.47 The apparent expansion of ‘object’ restrictions, and increased reliance on this categorization of 2.35 conduct by the Commission in its enforcement practice, was considered by Advocate General (AG) Wahl and the Court of Justice in Cartes Bancaires.48 The AG considered the benefits of having a category of restrictions where the burden on the regulator is lower. He acknowledged that this could be beneficial but warned that benefits are likely to be realized ‘only if recourse to the notion of restriction by object is clearly circumscribed’, noting that otherwise, ‘this could lead to the inclusion in the object category of conduct where the harmful effects on competition are not clearly established’. The AG also remarked that the distinction between ‘object’ and ‘effect’ violations does not depend on the subjective intent of a company or its employees and cautioned that excessive weight should not be placed on statements of individuals within companies when deciding whether an agreement had the object of restricting competition.49 While the Court of Justice did not go quite so far in its judgment as the Opinion, it largely 2.36 followed the AG and held that the object category should be applied restrictively and reserved for agreements which give rise to a ‘sufficient degree of harm’. Although the parties’ intent to restrict competition will be a relevant consideration (if it can be established), intent is not a pre-condition, and agreements can be restrictive ‘by object’ even if it can be shown that the

45

T-Mobile, ibid., para 43.

47

Glaxo (Spain) (n 39).

46

Horizontal Guidelines (n 9), paras 373–376 and the following section.

48 Case C-67/13 P Groupement des Cartes Bancaires (CB) v European Commission [2014] 5 CMLR 22 (ECLI:EU:C:2014:2204); Opinion of AG Wahl on 27 March 2014 (ECLI:EU:C:2014:1958), paras 24–155. 49

This followed a number of ‘object’ decisions in which the Commission had placed significant weight on statements made by companies or by employees, apparently to bolster a conclusion that an agreement or conduct was anticompetitive by object. See, e.g., Case T-472/13 H. Lundbeck A/S and Lundbeck Ltd v European Commission (ECLI:EU:T:2016:449); and Case COMP/39.612 – Perindopril (Servier), Commission Decision of 9 July 2014 (Servier Commission Decision); and T-691/14 Servier SAS and Others v European Commission OJ [2014] C 462/25 (ECLI:EU:T:2018:922).

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS

parties wanted to achieve other objectives and that a desire to restrict competition was not the goal of the arrangement.50 2.37 The distinction between object and effect restrictions is evolving and can be difficult to identify with certainty, particularly in novel or unusual cases. The Court of Justice judgment in the Budapest Bank case, seeks to explain how a ‘by object’ infringement may be identified in practice.51, 52 The judgment confirms that a restriction by object can never be established in the abstract;53 each inquiry is case-specific and the agreement must be assessed in its legal and economic context using a two-step assessment:54 ● Evaluate the content and nature of the agreement to determine whether experience indicates that the category of agreement in question is, by its very nature, harmful to competition. ● If so, assess the economic and legal context, taking into account: the nature of the goods or services affected; the real conditions of competition on, and the structure of, the markets in question; and, where relevant, the parties’ intention. 2.38 As a rule of thumb, it is wise to approach at least agreements which directly or indirectly fix prices (vertically or horizontally), share or limit markets (horizontally), or impose export bans (horizontally or vertically) with caution. These are classic ‘object’ restrictions. Any agreement or arrangement which contains a direct or indirect restriction of this nature requires very careful consideration (as is demonstrated by the discussion of Valve55 and other cases relating to copyright below). Nevertheless, the final categorization of an agreement as ‘by object’ or otherwise will depend on the overall context including its content; the surrounding economic and market context; and the way it operates in practice. 2.39 It might be thought that if the category of object restrictions is limited, and if such restrictions are by their very nature anticompetitive, it should be reasonably easy to identify them and that it 50 51

52

53

For example, Joined Cases 96-102 and others NV IAZ International Belgium and others v Commission of the European Communities [1983] ECR 3369 (ECLI:EU:C:1983:310). Case C-228/18 Gazdasági Versenyhivatal v Budapest Bank Nyrt. and Others (ECLI:EU:C:2020:265).

There are a number of recent cases in the pharmaceutical sector which have provided examples of how to identify ‘by object’ restrictions in practice, including Case C-307/18 Generics (UK) and Others v Competition and Markets Authority (ECLI:EU:C:2020:52) (Paroxetine CJEU). These are discussed below in Chapter 8 that deals specifically with the pharmaceutical sector.

See also Super Bock (n 16), in which the CJEU considered these issues in the context of vertical Resale Price Maintenance arrangements and reviewed the relevant case law.

54 In Super Bock, ibid., para 41, the CJEU was very careful to distinguish between hardcore clauses listed in a block exemption and ‘by object’ restrictions: as the Commission observed in its written observations before the Court, the concepts of ‘hardcore restrictions’ and of ‘restriction by object’ are not conceptually interchangeable and do not necessary overlap. It is therefore necessary to examine restrictions falling outside that exemption, on a case by case basis, with regard to Article 101(1) TFEU. As a consequence, even a restriction of competition which is ‘hard core’, according to a particular block exemption regulation must be assessed in its context ‘to ascertain whether that agreement presents a sufficient degree of harm for competition’ to be qualified as a ‘by object restriction’ (paras 42 and 35–37). 55

The GC in Valve (n 6), agreed with the Commission that agreements between the operator of a platform for the streaming of video games and five video games publishers setting up geographical activation and run-time restrictions and providing geo-blocked keys to restrict passive sales of certain video games within the EEA amounted to restrictions of competition by object; paras 158–223 of the judgment discuss this issue and the case is further discussed below at paras 2.40–2.46.

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will be unusual to find a ‘new’ object restriction. This is not necessarily the case. Novel forms of conduct may be restrictive by object and even recognized forms of conduct may, when correctly analysed in their legal and economic context, be found to be restrictive by object. Novelty was raised as a defence to a finding of restriction by object in Valve.56 This case is a very 2.40 interesting recent example of the interplay between competition law, IP and the single market objective, particularly in the context of the digital economy. The case concerned arrangements between the operator of a platform for the streaming of video games and five video games publishers. These involved setting up geographical activation and run-time restrictions and providing geo-blocked keys which limited passive sales of certain video games within the EEA. The appellant (Valve, the platform operator) argued that the decision was the first time that technical measures (as envisioned by the Copyright Directive57) had been considered in the context of Article 101 TFEU and that (among other things) the Commission had not properly considered whether existing case law relating to parallel imports was sufficient ‘experience’ of adverse effects on competition to categorize such a new form of conduct as restrictive by object. Having recited the existing case law on object restrictions, the GC reiterated that agreements 2.41 with the object of restricting parallel trade (including on the basis of geographic location), of making the interpenetration of national markets more difficult, or of restricting passive sales were likely to be regarded as restrictive by object unless ‘other circumstances falling within its economic and legal context support the conclusion that such agreements are not liable to harm competition’.58 The GC found that the purpose of the geo-blocking was to prevent parallel trade and was covered by existing experience about such conduct, irrespective of the form of the arrangement or how it was implemented. The GC then considered the specific context of the geo-blocking arrangements instituted by 2.42 Valve, including IP considerations and the relevance of the Copyright Directive.59 The appellants had argued that the Commission had: ● misapplied the distinction between existence and exercise of an IPR; ● misapplied the rules as to exhaustion of copyright; ● undermined the effectiveness of the Copyright Directive. The GC held that the Commission had correctly taken the IP issues into account before holding 2.43 that Valve’s conduct was a restriction by object, referring to both Deutsche Grammophon60 and Coditel 261 as clear authority that the exercise of an IPR may infringe Article 101(1) TFEU where it ‘… appears to be the object, the means or the consequence of an agreement … notwithstanding the fact that it may constitute a legitimate expression of that right authorising its holder, inter alia, to oppose any unauthorised use’. The GC was very clear that even if the IPR 56

Ibid., paras 165–184.

58

Valve (n 6), para 177.

57

59 60

61

Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society, OJ [2001] L 167/10 (the Copyright Directive). Ibid., para 185 ff.

Case 78/70 Deutsche Grammophon v Metro SB (ECLI:EU:C:1971:59) (Deutsche Grammophon), paras 6 and 10.

Case 262/81 Coditel SA, Compagnie générale pour la diffusion de la télévision, and others v Ciné-Vog Films SA and others [1982] ECR 3381 (ECLI:EU:C:1982:334) (Coditel 2), para 17.

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS

in question was exploited in the form of a service, or a right to exhibit or view, rather than in physical form, the exercise of the right to prohibit that exploitation ‘… could distort competition and be caught by the prohibition laid down in Article 101 TFEU … where that exercise could constitute a disguised restriction on trade between Member States’.62, 63 2.44 In the light of that finding, the GC concluded that the issue of exhaustion or non-exhaustion of the copyright in question was irrelevant because Article 101 TFEU could be infringed if an ‘un-exhausted’ right was exercised so as to be liable to constitute a disguised restriction of trade between Member States. On the same basis, the GC held that other arguments based on exhaustion and free movement, including whether the commercial barrier created by the exercise of an IPR was artificial for the purposes of Article 36 TFEU must also fail.64 2.45 The GC then considered the relevance of the Copyright Directive, which the Commission had not dealt with explicitly in the decision (although Valve had raised it in its reply to the Statement of Objections). Having found that the Commission had given extensive consideration to the interrelationship between competition law and copyright, the GC held that: the mere fact that recital 29 and Article 6 of the Copyright Directive provide for the possibility of adopting ‘technological measures’ does not preclude such measures from being taken [perhaps ‘caught or prohibited’ might be a better translation] under Article 101 TFEU when they are the object, the means or the consequence of conduct which infringes that article. Moreover, Article 9 of that directive expressly states that the provisions of that directive are not to affect the application of the law on restrictive practices and unfair competition.

2.46 The GC went on to hold that the position adopted by the Court in FAPL v QC Leisure,65 namely that: additional measures aimed at ensuring compliance with the territorial limitations on the exploitation of those licences, and in particular the obligation to take measures making it impossible to access the protected subject matter from outside the territory covered by the licence agreement concerned, may have an anti-competitive object and be caught by Article 101 TFEU

was applicable in other similar commercial and competitive situations and that its application was not limited to cases within the specific regime of the Satellite Broadcasting Directive66 relevant in FAPL v QC Leisure.67 The GC referred to the judgment of the CJEU in FAPL v QC Leisure setting out the specific subject matter and function of copyright and its interrelationship with the single market objective and Article 101 TFEU, stating: … the Court of Justice emphasised that copyright is intended only to ensure for the right holders concerned protection of the right to exploit commercially the marketing or the making available of the protected subject matter, by the grant of licences in return for payment of remuneration; it does not

62

Citing C-132/19 P Groupe Canal + v Commission (ECLI:EU:C:2020:1007) (Canal + CJEU), para 52.

64

Ibid., para 194.

63 65 66 67

Valve (n 6), para 192.

Joined cases C-403/08 and C-429/08 Football Association Premier League v QC Leisure and Karen Murphy v Media Protection Services Ltd (ECLI:EU:C:2011:631) (FAPL v QC Leisure (No. 2)), paras 141–143.

Council Directive 93/83/EEC of 27 September 1993 on the coordination of certain rules concerning copyright and rights related to copyright applicable to satellite broadcasting and cable retransmission (OJ [1993] L 248/15). See also Canal + CJEU (n 62), paras 51, 53 and 54.

46

ARTICLE 101 TFEU AND IP LICENSING guarantee the right holders concerned the opportunity to demand the highest possible remuneration or to engage in conduct such as to lead to artificial price differences between the partitioned national markets. Such partitioning and such an artificial price difference to which it gives rise are irreconcilable with the fundamental aim of the Treaty, which is completion of the internal market.68

2. Effects restrictions

Deciding whether an agreement has the effect of restricting competition requires assessment 2.47 of two fundamental issues: ● Does the agreement restrict actual or potential competition that would have existed without the agreement (in the IP context, in particular, this is essentially an assessment of whether the agreement will affect inter‑brand competition);69 and/or ● Does the agreement restrict actual or potential competition that would have existed in the absence of particular contractual restraints (essentially, will the agreement affect intra‑brand competition)?70 Competition lawyers and economists talk about this as identifying the ‘counterfactual’. The 2.48 Commission’s guidance on the application of Article 101 TFEU states that the analysis must be realistic, considering the actual legal, economic, technical and market context in which the agreement is concluded and operates.71 An agreement which is not anticompetitive by object will infringe Article 101(1) TFEU only 2.49 if it is capable of having appreciable anticompetitive effects that would not have arisen without that agreement. Not all restrictions affecting a company’s commercial behaviour or the way in which it competes will give rise to concerns under Article 101(1) TFEU.72 The Article 101(3) TFEU Guidelines are a useful introduction to the Commission’s approach.73 Conducting an ‘effects’ analysis is fact-intensive and can be complex, depending as it does 2.50 on the overall context. As long ago as 1967 the Court of Justice was already pointing out the importance of circumstances and facts to an effects analysis: it would be pointless to consider an agreement, decision or practice by reason of its effect if those effects were to be taken distinct from the market in which they are seen to operate … an agreement cannot be examined in isolation … from the factual or legal circumstances causing it to prevent, restrict or distort competition.74

68

Valve (n 6), para 204, citing FAPL v QC Leisure (No. 2)) (n 65), paras 108–115 and 145.

70

Ibid., para 18(2).

69 71

72 73 74

Article 101(3) TFEU Guidelines (n 4), para 18(1).

Ibid., para 17; see also cases such as Case T-328/03 O2 (Germany) GmbH & Co. OHG v Commission of the European Communities [2006] ECR II‑1231 (ECLI:EU:T:2006:116), and Joined Cases T-374/94 and others European Night Services v Commission of the European Communities [1998] ECR II-3141 (ECLI:EU:T:1998:198) (European Night Services). See, e.g., the very early Case 56/65 Société Technique Minière (S.T.M.) v Maschinenbau Ulm GmbH (M.B.U.) [1966] ECR 235 (ECLI:EU:C:1966:38), para 250.

Article 101(3) TFEU Guidelines (n 4), paras 24–27. For a more detailed discussion of the concept of effects, see Pablo Ibáñez Colomo, ‘Anticompetitive Effects in EU Competition Law’ (2021) 17 Journal of Competition Law & Economics, available at https://​ssrn​.com/​abstract​=​3599407 or http://​dx​.doi​.org/​10​.2139/​ssrn​.3599407. Case 23/67 SA Brasserie de Haecht v Consorts Wilkin-Janssen [1967] ECR 407 (ECLI:EU:C:1967:54), p 415.

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS

2.51 Factors likely to be relevant to an agreement’s effect on competition might include: ● the structure of the market (is it fragmented so that individual agreements are unlikely to have a significant impact; or is it concentrated so that restrictions are more likely to affect competition); ● the absolute and relative market power of the parties and others (which is perhaps another way of considering issues of structure); ● the nature of the product and the market (is it innovative and emerging, changing dynamically and therefore reducing the likely effect of restrictions; or is it established and mature where entry is less likely, making restrictions affecting current competitive conduct more likely to be effective and to affect consumers); ● nature of purchasers (are they powerful and capable of constraining the conduct of suppliers; or are they weak and fragmented); ● existence of barriers to entry (are there inhibiting factors such as for example, IPRs or regulations which reduce constraints from outside the market by making entry more difficult; or are there only limited barriers meaning new competitors can easily enter); ● level of trade (does the contract affect intermediate/industrial purchasers where the impact of restrictions may be absorbed or reduced owing to competition in the supply chain; or does the contract affect direct supply to end-users); and ● other factors such as whether there are many other similar agreements in the market which might cumulatively have a negative effect, for example by multiplying foreclosure effects.75 2.52 The relevance of these overall factors to the assessment of the likely anticompetitive effects of agreements is emphasised by the fact that similar factors are mentioned in each of the Commission’s Guidelines for common commercial arrangements.76 3. Ancillary restraints

2.53 Some contractual restrictions do not affect competition even though they appear to restrict the freedom of action of an undertaking. This may be the case if an overall transaction is procompetitive and the particular restriction is necessary to enable the parties to give full effect to the arrangement.77 One example of such a restriction is a restrictive covenant on the sale of a business.78 Certain limitations in a franchising network also fall into this category, as might some restrictions in particular types of licence.79 Restrictions of this nature are referred to as ‘ancillary’ and they will not be prohibited under Article 101(1) TFEU. Restrictions that are properly categorized as ‘ancillary’ do not, therefore, need to be assessed under Article 101(3) TFEU to be enforceable. 75

Case C-234/89 Stergios Delimitis v Henninger Bräu AG [1991] ECR I-935 (ECLI:EU:C:1991:91), para 27.

77

Article 101(3) TFEU Guidelines (n 4), paras 28–31.

76

78 79

Horizontal Guidelines (n 9); Vertical Guidelines (n 25); Commission Notice, Guidelines on the application of [Article 101] of the Treaty on the Functioning of the European Union (TFEU) to technology transfer agreements, OJ [2014] C 89/3 (Technology Transfer Guidelines). 76/743/EEC: Commission Decision of 26 July 1976 relating to a proceeding under Article 85 of the EEC Treaty (IV/28.996 – Reuter/BASF), OJ [1976] L 254/40; Case 26/76 Metro SBGroßmärkte‑ GmbH & Co. KG v Commission of the European Communities [1977] ECR 1875 (ECLI:EU:C:1977:167).

Case 161/84 Pronuptia de Paris GmbH v Pronuptia de Paris Irmgard Schillgallis [1986] ECR 353 (ECLI:EU:C:1986:41) (Pronuptia); and, in the field of IP, Coditel 2 (n 61) and Case 27/87 SPRL Louis Erauw-Jacquery v La Hesbignonne SC [1988] ECR 1919 (ECLI:EU:C:1988:183) (Erauw-Jacquery (Plant Breeders Rights)).

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An ancillary restriction must be: ‘directly related and necessary to the implementation of 2.54 a main non-restrictive transaction and proportionate to it’.80 The essential question is whether ‘without the restriction the main non-restrictive transaction would be difficult or impossible to implement’.81 It is important to remember that the ancillary restraints concept does not involve a balancing of pro- and anticompetitive effects or the assessment of efficiencies. That balancing exercise, and the overall assessment of efficiencies, is undertaken under Article 101(3) TFEU.82 The difference between assessing whether a restriction is ancillary (and therefore not caught by 2.55 the Article 101(1) TFEU prohibition at all); and undertaking an Article 101(3) TFEU analysis (to determine whether a provision which falls within the scope of Article 101(1) TFEU prohibition nonetheless benefits from the automatic exception under Article 101(3) TFEU) can be difficult to discern. However, the distinction is important conceptually within the overall structure of Article 101 TFEU: if the ‘balancing’ of efficiencies against anticompetitive effects were to be undertaken as part of the initial analysis of whether or not a particular provision fell within the scope of the prohibition in Article 101(1) TFEU, this could deprive Article 101(3) TFEU of much of its purpose, bringing the EU system much closer to the ‘rule of reason’ approach which operates in the United States under Section I of the Sherman Act.83 The EU Courts have resisted efforts to move in that direction.84 A useful rule of thumb is that a restriction may be ancillary if a restriction of that type is 2.56 objectively necessary for any procompetitive transaction of the type in question to operate at all. The question is then whether the particular restriction satisfies the tests: that it should be directly linked to the implementation of a particular type of procompetitive transaction; that the restriction as drafted should be necessary; and that the restriction should be proportionate in helping to achieve the objective of such transactions. On the other hand, an Article 101(3) TFEU ‘balancing’ analysis is required if it is the economic 2.57 context of a particular agreement that is the justification for the inclusion of the provision.85 The two analyses are similar in that the test of ‘necessity’ is an objective one, rather than the subjective view of the parties to the agreement. Each of the underlying concepts discussed above is explored further below. For in-depth 2.58 analysis, a number of excellent general competition law textbooks and other resources can be consulted.86 80 Article 101(3) TFEU Guidelines (n 4), para 29. See also Case T-111/08 MasterCard, Inc and Others v European Commission (ECLI:EU:T:2012:260), para 77. 81

82 83

84 85 86

Article 101(3) TFEU Guidelines, ibid., para 31.

Case T-112/99 Métropole Télévision (M6) and Others v Commission of the European Communities [2001] ECR II-2459 (ECLI:EU:T:2001:215) (Métropole Télévision), para 107. The Sherman Antitrust Act (Sherman Act), 26 Stat 209, 15 USC paras 1–7.

There is a good discussion of this issue in, e.g., Faull and Nikpay (eds), The EU Law of Competition (3rd edn, Oxford University Press, 20 March 2014), para 3.303 and following. Cases in which the application of the rule of reason under Art 101(1) TFEU have been rejected include Métropole Télévision (n 82), paras 72–77. See, e.g., the discussion of Case 42/84 Remia BV and others v Commission of the European Communities [1985] ECR 2545 (ECLI:EU:C:1985:327) (Remia) in the GC’s judgment in Métropole Télévision, ibid., para 110.

Some examples: Antonio Bavasso and Louise Tolley (eds), Competition Law Handbook (23rd edn, Butterworths, 23 November 2017); Bellamy and Child, European Union Law of Competition (8th edn, Oxford University Press, 20

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4. Extent of necessary effect on competition – de minimis

2.59 To infringe Article 101(1) TFEU, a restriction of competition must be appreciable (more than ‘de minimis’). The European Courts have made this clear since the very earliest cases, holding: ‘An agreement falls outside the prohibition in Article [101(1)] when it has only an insignificant effect on the markets, taking into account the weak position which the persons concerned have on the market of the product in question.’87 2.60 If the object of the agreement is to restrict competition (e.g., to fix prices, limit production, share markets or limit parallel trade), there is no need to demonstrate that it will have appreciable effects.88 2.61 To help in identifying circumstances in which appreciable effects are unlikely to arise and to provide some certainty, the Commission’s De Minimis Notice89 explains that agreements are unlikely to be prohibited by Article 101(1) TFEU where: ● the participants operate at the same level of production (‘horizontal’ agreements) and the aggregate market shares of the parties do not exceed 10 per cent on any relevant market;90 ● the participants operate at different economic levels (‘vertical’ agreements), and the market share of each of the parties does not exceed 15 per cent in any relevant market;91 or ● where the agreement is ‘mixed’, having elements that are both horizontal and vertical, or where it is not possible to categorize the agreement as one or the other, the 10 per cent threshold applicable to horizontal agreements will apply.92 2.62 Where competition in a relevant market is restricted by the cumulative effect of parallel agreements entered into by different suppliers or distributors, these market share thresholds are reduced to 5 per cent for parties to both horizontal and vertical agreements.93 Even where parallel networks of similar agreements do exist in a given market, a sufficient cumulative effect is likely to exist only if 30 per cent or more of the relevant market is affected by agreements which have similar foreclosing effects. 2.63 Agreements between small- and medium-sized enterprises (i.e., those with a turnover of up to €50 million and no more than 250 employees) generally fall outside the scope of the prohibition in Article 101(1) TFEU even if the above thresholds are exceeded.94 2.64 The most recent De Minimis Notice contains a useful summary of the case law. It makes clear that agreements which have as their object the prevention, restriction or distortion of competi-

87 88

89 90 91 92 93 94

December 2018); Van Bael and Bellis, Competition Law of the European Union (6th edn, Wolters Klumer, February 2021; and Faull and Nikpay (n 84). Case C-5/69 Franz Völk v S.P.R.L. Ets J. Vervaecke [1969] ECR 295 (ECLI:EU:C:1969:35), paras 5–7.

Case C-226/11 Expedia v Autorité de la concurrence [2013] 4 CMLR 14 (ECLI:EU:C:2012:795) (Expedia).

Commission Communication, Notice on agreements of minor importance which do not appreciably restrict competition under Article 101(1) of the Treaty on the Functioning of the European Union, OJ [2014] C 291/01 (De Minimis Notice). De Minimis Notice, ibid., Art 8(a). Ibid., Art 8(b). Ibid., Art 9.

Ibid., Art 10.

Ibid., Art 4, note 5.

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tion within the single market do not benefit from the safe harbour. This reflects the judgment in Expedia.95 The Notice also states that the Commission will not apply the safe harbour to agreements containing any of the restrictions that are listed as ‘hardcore restrictions’ in current or future Commission block exemption regulations. The De Minimis Notice is accompanied by Commission guidance setting out examples of restrictions ‘by object’ and ‘hardcore’ restrictions.96 An agreement is not necessarily within the scope of the prohibition in Article 101(1) TFEU 2.65 simply because the market share thresholds in the De Minimis Notice are exceeded. These are intended to provide a ‘safe harbour’ to give companies and their advisers some comfort in assessing the applicability of the Article 101(1) TFEU prohibition to agreements between entities who have low market shares or those which are, objectively, small. Both the De Minimis Notice itself97 and the case law of the EU Courts make clear that, where an agreement is between parties whose market shares exceed the limits in the De Minimis Notice, it is then necessary to analyse the actual or potential effects on competition of the specific agreement and identify why and how it is caught by Article 101(1) TFEU.98 A similar approach is taken under the various block exemption regulations which are discussed below in Chapters 3, 4 and 5: a failure to satisfy market share thresholds which means that an agreement does not fall within the safe harbour provided by a block exemption does not mean that it necessarily infringes Article 101(1) TFEU (or that it cannot be individually exempted under Article 101(3) TFEU). 5. Effect on trade – a question of jurisdiction

The EU competition rules apply only to conduct that ‘may affect trade between Member 2.66 States’. This is a question of jurisdiction. If conduct does not affect interstate trade, it may still be prohibited under the national competition regime of one or more Member States, or that of a third country, but it is not subject to EU competition law. The Commission has issued guidelines99 which largely synthesize and re-state the principles 2.67 established in previous case law100 on when there is a sufficient effect on trade between Member States to engage the jurisdiction of the EU. The fact that an agreement covers only part of the territory of one Member State does not in itself mean that the agreement does not affect interstate trade and therefore falls outside the prohibition in Article 101(1) TFEU. This is a question of fact to be assessed in the light of a combination of all relevant factors, none of which separately may be decisive; the complete legal and economic context must be considered.101

95

Expedia (n 88).

97

De Minimis Notice (n 89), para I.2.

96

98

99

Commission Communication SWD(2014)198 final, Guidance on restrictions of competition ‘by object’ for the purpose of defining which agreements may benefit from the De Minimis Notice, 25 June 2014 (https://​eur​-lex​.europa​.eu/​legal​-content/​ EN/​TXT/​PDF/​?uri​=​CELEX:​52014XC0830(01) – accessed 27 November 2023). European Night Services (n 71), para 102.

Commission Notice, Guidelines on the effect on trade concept contained in Articles [101 and 102 TFEU], OJ [2004] C 101/81 (Guidelines on Inter-State Trade).

100 See most recently Super Bock (n 16), paras 59–65. 101 Ibid., paras 61–63.

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2.68 As the application of the ‘effect on trade’ criterion largely serves to allocate jurisdiction between the Commission and the National Competition Authorities, it is rarely a critical element of competition analysis in practice. However, it may be relevant when the conduct under review relates either to undertakings located outside the EU or to restrictions primarily affecting conduct outside the EU. In both of those cases, the key criterion is whether the agreement or provision is likely to have an immediate and substantial effect on trade between Member States.102 This rule applies irrespective of the physical location or legal/jurisdictional character of any or all undertakings involved in the conduct. As explained in the Guidelines on Inter-State Trade this question is separate from the question of whether there is an appreciable effect on competition.103 2.69 In licensing arrangements, the question whether an arrangement might have an impact on interstate trade might arise in various ways. For example, a licence for a territory outside the EU might impose an express obligation on the licensee to sell only in its home jurisdiction; or a licence for a territory inside the EU might impose an absolute ban on sales outside the EU. In both situations, the key question is whether, in all the legal and economic circumstances of the licence, the limitation contained in the agreement risks actually preventing trade that could have taken place within the EU and between EU Member States in the absence of that restriction.104 2.70 Relevant factors will include whether the market in the EU is such that trade from outside could be expected in the products in question – for example, if the EU market is oligopolistic meaning that there may be an appetite for alternative sources of supply and/or there is an appreciable difference in the prices within the EU and those elsewhere and/or import duties and transport costs are low. Barriers to entry including legal and technical barriers are relevant to the analysis. 2.71 The CJEU has held that a contract imposing prohibitions relating to territories outside the EU which could theoretically affect competition with the EU will be within the scope of the prohibition in Article 101(1) TFEU if an appreciable effect on competition within the EU and an appreciable effect on trade between Member States can be foreseen. The test to be applied is whether it is possible to foresee that the conduct in question may influence trade between Member States. The influence foreseen may be actual or potential; direct or indirect and must be established with a sufficient degree of probability on the basis of objective legal or practical factors. As the necessary effect must be appreciable, the prohibition in Article 101(1) TFEU will not be engaged if the products affected by the provision account only for a small percentage of the market for those products in the EU.105 a. IPR as an entry barrier – the relevance of exhaustion

2.72 One factor that may affect the practical likelihood of trade into the EU from third countries and then potentially trade between Member States is the existence of barriers to entry such as 102 Case C-413/14 P Intel Corporation Inc v European Commission (ECLI:EU:C:2017:632).

103 Guidelines on Inter-State Trade (n 99), which refers the reader to the De Minimis Notice (n 89).

104 Case C-306/96 Javico International and Javico AG v Yves Saint Laurent Parfums SA (YSLP) [1998] ECR I-1983 (ECLI:EU:C:1998:173). 105 See Guidelines on Inter-State Trade (n 99), paras 108–109.

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IPRs, given the likely costs and risks of importing into territories where applicable IPRs exist. Within the EU, the existence of national IPRs is likely to be irrelevant to the question of effect on trade because of the doctrine of exhaustion. As explained above, Articles 34–36 TFEU and legislation establishing harmonized Community Rights, such as Community Trade Marks106 or Community Design Rights,107 have created a doctrine of Community Exhaustion.108 This provides that, if a product has been placed on the market within the EU by the IP owner or with his consent, the IP owner can no longer exercise national IPRs to prevent that product from circulating freely within the EU, and any attempt to do so by agreement may fall within the scope of the prohibition in Article 101(1) TFEU. If the arrangement relates to imports from outside the EU of products which are protected by 2.73 IP within the EU, the position becomes more complex. It will be important to analyse which rights exist, where they may be exercised and how/whether any relevant doctrine of exhaustion applies to assess on a practical basis the likelihood that intestate trade may occur. For harmonized IPRs, the exhaustion position is relatively straightforward:

2.74

● If a product is initially put on the market outside the EU, this does not exhaust the IP owner’s rights to oppose further dealing with the EU unless the owner has consented to the specific product in question being placed on the market within the EU.109 ● If a product has been placed on the market within the EU by the IPR owner or with the proprietor’s consent, it can then circulate freely within the EU whether or not it is subsequently exported to a third country and subsequently reimported. For IPRs which are not harmonized (such as those patents which currently remain unharmo- 2.75 nized national rights110), the position is somewhat different: ● A product which has been placed on the market with consent in the EU can circulate freely within the EU, whether or not it is subsequently exported to a third country. ● A product which has been placed on the market outside the EU may be the subject of national infringement proceedings to enforce the relevant national right unless: the right owner has consented to the product being put on the market in the EU; or the country of importation where the enforcement proceedings take place recognizes a form of international exhaustion or a similar concept.111 106 Council Regulation (EC) No 40/94 of 20 December 1993 on the Community Trade Mark. 107 Council Regulation (EC) No 6/2002 of 12 December 2001 on Community Designs. 108 Arts 34–36 TFEU (n 2), and para 1.87 et seq.

109 Case C-355/96 Silhouette International Schmied v Hartlauer Handelsgesellschaft [1998] ECR I-4799 (ECLI:EU:C:1998:374). This has given rise to reference to the establishment of Fortress Europe, as IPRs can legitimately be deployed to prevent ‘grey’ trade from outside the EU.

110 Note that European Unitary Patents are subject to a Community exhaustion regime as set out in Art 29 of the Agreement on a Unified Patent Court, OJ [2013] C 175/01: The rights conferred by a European patent shall not extend to acts concerning a product covered by that patent after that product has been placed on the market in the European Union by, or with the consent of, the patent proprietor, unless there are legitimate grounds for the patent proprietor to oppose further commercialisation of the product. 111 The vexed question of exhaustion between the UK and EEA countries after the UK’s departure from the EU is outside the scope of this text and is governed by The Intellectual Property (Exhaustion of Rights) (EU Exit) Regulations 2019. These were originally intended as a ‘holding’ position but now seem likely to remain in force for some time. For a brief

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2.76 As explained above, it is now clear that the position throughout the EEA is the same. Rights in respect of products initially placed on the market anywhere in the EEA with the consent of the IP owner are exhausted and, in respect of harmonized rights, the application of any national doctrine of international exhaustion to products placed on the market outside the EEA is precluded.112 2.77 If a product which is the subject of an unharmonized IPR is imported without consent into a Member State which recognizes the doctrine of international exhaustion of rights for that species of IPR, that product has not been placed on the market with consent. While the rights owner cannot oppose import to, or further dealing in, the country which recognizes international exhaustion, in principle it should be able to do so in Member States which recognize only national or Community exhaustion. 2.78 In such circumstances, as a matter of practice, even IPRs which are subject to international exhaustion in some Member States will create some barriers to free circulation within the EU. The practical question is whether such barriers are sufficient to preclude an appreciable effect on interstate trade by limiting trade which might otherwise have occurred. In principle, provisions in a licence covering territories outside the EU are less likely to have an effect on interstate trade if the licensed product can be excluded from the single market or from free circulation within the single market using IPR. As with customs tariffs, the possibility of IPR infringement proceedings may be a significant practical barrier inhibiting sales. 2.79 To summarize, when considering whether a contractual restriction in an IP licence which affects trade to or from a non-EU country might be likely to have the necessary appreciable effect on trade between Member States, it is relevant to consider as part of the matrix the nature of the IPR in question and the operation of the rules on exhaustion. If the product is ever put on the market within the EU with the consent of the IP proprietor, relevant IPR cannot be exercised to prevent further circulation. If the product113 has not been placed on the market in the EU by the IP proprietor or with its consent and the IPR in question is harmonized, then the preclusion of international exhaustion and the adoption of Community-only exhaustion in harmonizing legislation means that a prohibition on export into the EU is in practice less likely to affect interstate trade.114

discussion of the issue, see: https://​www​.bristows​.com/​news/​exhaustion​-of​-intellectual​-property​-rights​-in​-the​-uk​-post​ -brexit​-asymmetry​-to​-continue​-indefinitely/​ – accessed 4 November 2023.

112 Joined Cases E-09/07 and E-10/07 L’Oréal Norge AS v Aarskog Per AS and Others [2008] EFTA Ct Rep 259, judgment of the EFTA Court of 8 July 2008.

113 Note that exhaustion relates only to specific individual goods, not to an entire category of good (Case C-173/98 Sebago Inc and Ancienne Maison Dubois & Fils SA v G-B Unic SA [1999] ECR I-4103 (ECLI:EU:C:1999:347)). 114 Case C-535/13 Honda Giken Kogyo Kabushiki Kaisha v Maria Patmanidi AE, Reasoned Order of the CJEU of 17 July 2014 (ECLI:EU:C:2014:2123), available only in French and Greek), noting also that neither GATT nor TRIPs dealt with the question of exhaustion: … Articles 5 and 7 of Directive 89/104 [the Trade Mark Directive], as well as Articles 9 and 13 of Regulation 40/94 [the Trade Mark Regulation], have the meaning that the proprietor of a trade mark may prohibit the first supply on the market within the EU and the EEA, without his consent, of genuine products bearing its trade mark. Reported on The IPKat (ipkitten.blogspot.com) on 13 August 2014, courtesy translation in The IPKat by Maria Kilimiris (Patronos & Kilimiris, Athens).

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If the product has not been placed on the market in the EU by the IPR proprietor or with its 2.80 consent, but is imported without consent into a Member State which continues to recognize international exhaustion for the IPR in question, and is not precluded from doing so by harmonizing legislation, the IPR owner cannot exercise its rights to prevent dealing in that Member State but can do so in respect of Member States which do not recognize international exhaustion. If only one Member State recognizes international exhaustion, trade between Member States is rendered less likely by the continued existence of unexhausted rights in the other Member States. If more than one Member State recognizes international exhaustion, an appreciable effect on trade between Member States may be more likely because of the possibility of trade between those Member States which recognize international exhaustion which cannot be challenged through IP enforcement proceedings in those countries. b. The height of the barrier posed by IPRs

As to the question of the height of barriers to entry created by IPRs, in Paroxetine115 and sub- 2.81 sequently in Lundbeck,116 the CJEU considered the question of barriers to entry when assessing whether two undertakings were potential competitors. This is, as noted above, a different and distinct issue from the interstate trade aspect of Article 101(1) TFEU, but there are similarities in the tests applied. In Lundbeck, the CJEU held that when assessing potential competition ‘it must be determined whether there are real and concrete possibilities of the former joining that market and competing with one or more of the latter’117 (emphasis added). It further held that, in making that assessment, substantive factual considerations are relevant. The CJEU stated that where agreements keep undertakings off the market the key question is whether, in the legal and economic context of that market, entry would have been a concrete prospect in the absence of the agreements in question. In Lundbeck, the CJEU considered whether the existence of IPRs (in that instance patents covering processes for the manufacture of a product) were insurmountable barriers to entry such that the prospect of potential competition was not ‘real and concrete’. In summary, the CJEU repeated the position it had taken in Paroxetine that a process patent 2.82 did not amount to an insurmountable barrier to entry. It reiterated that the statutory presumption of patent validity did not prejudge the actual position on validity for the purposes of competition law and that that presumption shed no light on the question of infringement. The Court went on to hold that it is not for a competition authority to review the strength or otherwise of a patent or to take a view on the likely outcome of patent litigation. Once the Court had established that process patents were not in themselves insurmountable barriers to entry, all relevant factual considerations had to be assessed including the capability and readiness of any given party to enter.118 This judgment dealt only with patents having certain characteristics and in a particular industry 2.83 context. Commentators have questioned whether a similar approach would be taken to other patents, much less other IPRs. It is possible that less complex species of IPRs whose scope,

115 Paroxetine CJEU (n 52).

116 Case C-591/16 P H. Lundbeck A/S and Lundbeck Ltd v European Commission (ECLI:EU:C:2021:243) (Lundbeck CJEU).

117 Ibid., para 54.

118 Ibid., paras 57–59.

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impact and potential for enforcement may be clearer might be regarded as both more difficult to circumvent and more likely to deter trade – particularly if the market likely to be affected is less valuable and the risks of enforcement action relatively higher. These questions remain to be addressed. 2.84 Bearing in mind the Commission’s caution in paragraph 4 of the Guidelines on Inter-State Trade119 that the test for assessing the possibility of interstate trade is distinct from that relating to other aspects of Article 101(1) TFEU (including whether there is likely to be an appreciable effect on competition), it should not be assumed that the competition authorities will take the same view as to the efficacy of IPRs as barriers to entry for the purposes of assessing the likely impact of an arrangement on interstate trade. However, it is important to be aware of the possibility that in some circumstances the existence of IPRs within the EU which could be exercised in the Courts of one or more Member States to seek to prevent trade in products imported from outside the EU may not of itself be sufficient to establish that interstate trade is not capable of being affected by an agreement relating to those IPRs or products covered by those IPRs. 2.85 In addition, even if the applicable IPRs are not exhausted, the case law is clear that an agreement to exercise an IPR in a way which is liable to infringe competition law is capable of being caught by the prohibition in Article 101(1) TFEU120 if the other requirements of that provision are met. As the GC has observed: It follows that the question of whether or not the intellectual property right is exhausted does not in itself preclude the application of Article 101 TFEU or the conduct at issue from constituting a restriction by object where the exercise of that right is liable to constitute a disguised restriction on trade between Member States.121

2.86 Given that: (i) at least some IPRs are not automatically regarded as insurmountable barriers to entry (for the purposes of assessing potential competition at least and, applying a similar test, possibly also for the purpose of assessing interstate trade); and that (ii) the existence of a valid IPR does not of itself preclude the application of Article 101(1) TFEU to agreements relating to the exercise of that IPR, those advising on licences which are intended to take effect outside the EU should consider all of the relevant factors set out in the Guidelines on Inter-State Trade before concluding that the agreement is not going to fall under the jurisdiction of EU competition law because relevant IPR exists within the EU. The applicable factors are set out in paragraphs 25 to 32 of that notice. The second half of paragraph 32 is particularly worth considering if an agreement contains explicit provisions relating to trade into the EU: If there are absolute barriers to cross-border trade between Member States, which are external to the agreement or practice, trade is only capable of being affected if those barriers are likely to disappear in the foreseeable future. In cases where the barriers are not absolute but merely render cross-border activities more difficult, it is of the utmost importance to ensure that agreements and practices do not further hinder such activities. Agreements and practices that do so are capable of affecting trade between Member States.122 (emphasis added)

119 Guidelines on Inter-State Trade (n 99). 120 Valve (n 6), paras 191 et seq. 121 Ibid., para 193.

122 Guidelines on Inter-State Trade (n 99), para 32.

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Having said all of the above, it is notable that the Guidelines on Inter-State Trade does 2.87 not refer to IPRs or to licences of IPR at all. The discussion focuses primarily on horizontal arrangements and on distribution agreements, which may suggest that the Commission recognizes, at least implicitly, that the existence of IPRs within the EU means that licences limited to non-EU territories are less likely to affect trade within the EU than other arrangements where no such legal barriers exist. It is also worth reviewing the discussion beginning at paragraph 106 of the Guidelines which considers agreements and practices which do not have the object of restricting or distorting trade within the EU and reiterates the importance of looking at such agreements in their overall context.

III. ARTICLE 101(2) TFEU AND THE CONSEQUENCES OF INFRINGEMENT Article 101(2) TFEU provides that if an agreement contains provisions within the scope of 2.88 the prohibition in Article 101(1) TFEU (which are not excepted by the application of Article 101(3) TFEU) the objectionable clauses will be void and unenforceable; if the agreement cannot operate without such clauses, the entire agreement will be unenforceable.123 In addition, the parties may be subject to administrative infringement proceedings by the 2.89 Commission or the relevant National Competition Authority. The consequences of such investigations can include the imposition of fines, an order to bring an end to the infringing conduct, and other administrative remedies. A party adversely affected by the operation of the agreement has a right to bring proceedings for an injunction and damages in national courts.124 In practice, it is rare for the Commission to initiate infringement proceedings against common 2.90 types of commercial agreement unless the agreement in question is likely to have a serious impact on competition across a number of Member States. Agreements which contain hardcore restrictions or which are in priority sectors are an exception, as can be seen from the spate of investigations a few years ago into Most Favoured Nation provisions in agreements between hotels and online booking platforms125 and, more recently, the Commission’s renewed interest in Resale Price Maintenance, where this was perceived to touch on the use/abuse of price monitoring software or algorithms126 or to affect the use of e‑commerce solutions within selective distribution networks.127 123 The effect on the contract as a whole of the application of competition law to individual provisions of a contract is a matter for national law, applying national concepts of severability. Case C-319/82 Société de Vente de Ciments et Bétons de l’Est SA v Kerpen & Kerpen GmbH und Co. KG [1983] ECR 4173 (ECLI:EU:C:1983:374), paras 11–12.

124 Case C-453/99 Courage Ltd v Bernard Crehan and Bernard Crehan v Courage Ltd and Others [2001] ECR I-6297 (ECLI:EU:C:2001:465).

125 See, e.g., CMA press release, CMA launches enforcement action against hotel booking sites, 28 June 2018 with similar investigations taking place in jurisdictions all over Europe and the issue continuing to be litigated in the Courts of the Member States (see, e.g., the judgment of the German Federal Supreme Court in 2021. The press release can be found at: https://​www​.bundesgerichtshof​.de/​SharedDocs/​Pressemitteilungen/​DE/​2021/​2021099​.html – accessed 22 March 2023). 126 Cases AT.40465 – Asus, AT. 40469 – Denon & Marantz, AT.40181 – Philips, AT. 40182 – Pioneer, Commission Decision of 24 July 2018, as discussed further at (n 266).

127 Case AT.40428 – Guess, Commission Decision of 17 December 2018 (https://​ec​.europa​.eu/​competition/​antitrust/​cases/​ dec​_docs/​40428/​40428​_1205​_3​.pdf – accessed 18 October 2023).

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2.91 National Competition Authorities are also generally reluctant to commence investigations into ‘normal’ commercial agreements, taking the view that issues which can be dealt with in an inter-partes dispute before a court should be left to judicial enforcement, conserving the resources of the competition authorities for enforcement activities with a wider public interest or greater market effect. 2.92 The general reluctance to become involved in applying Article 101(1) TFEU to licensing arrangements means that there have been no significant Commission decisions in the field of technology licensing under Article 101 TFEU in the last 25 years or so.128 In the EU context, the law has developed either through the medium of Commission Technology Transfer Guidelines129 or through cases before the CJEU following a reference under Article 267 TFEU.130 When this situation is compared with the wealth of Commission decisions and Court judgments in the period from early 1970s to 1996, the difference is striking. 2.93 While it is undoubtedly true that the notification system in place before modernization and the adoption of new-style block exemptions in the late 1990s and early 2000s131 was unsustainable and took up far too many of the Commission’s resources, it is regrettable that there has been only limited application of the broad principles to the many issues in the area of IP licensing that remain unclear. This is particularly unfortunate when Europe is focusing its efforts on encouraging the development of a knowledge economy. Benign neglect coupled with apparently permissive overall attitudes may seem sufficient; however, in practice, some of the uncertainties inherent in the self-assessment model, combined with the tensions arising from the structure and interpretation of Article 101 TFEU, can give rise to significant difficulties and inefficiencies in licence negotiation and conclusion.

IV. ARTICLE 101(3) TFEU 2.94 Article 101(3) TFEU provides an ‘exception’ or ‘defence’ for agreements otherwise infringing Article 101(1) TFEU. The Article 101(3) TFEU exception will apply only if an agreement satisfies four cumulative conditions: ● it contributes to improving the production or distribution of goods or to promoting technical or economic progress; ● consumers are allowed a fair share of the resulting benefit; ● it contains only indispensable restrictions; and ● it does not substantially eliminate competition on the relevant market.

128 Other than in special contexts such as the pharma ‘pay for delay’ cases, where the licensing aspect was a corollary of the main issues of interest to the authorities. There were also a number of Commission investigations into sales of licensed merchandising across the EU (AT.40432 – Sanrio, AT.40436 – Nike). 129 Technology Transfer Guidelines (n 76) and their predecessors.

130 See. e.g., Case C-567/14 Genentech Inc v Hoechst GmbH and Sanofi-Aventis Deutschland GmbH (ECLI:EU:C:2016:526) (Genentech v Hoechst) and Case 85/76 Hoffmann-La Roche & Co. AG v Commission of the European Communities [1979] ECR 461 (ECLI:EU:C:1979:36).

131 See discussion at para 2.110 below.

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Each of these conditions requires careful analysis in the economic and factual context of any 2.95 agreement before the parties can be confident (or even reasonably confident) that the agreement is within the scope of the exception provided by Article 101(3) TFEU. If any one of them is not satisfied the Article 101(3) TFEU exception does not apply. The original enforcement regime in Regulation 17/62132 gave only the Commission the power 2.96 to exempt agreements from the prohibition in Article 101(1) TFEU.133 The Commission exercised this power initially by granting individual exemptions, applying the conditions set out in Article 101(3) TFEU to specific agreements it was asked to consider through a formal ‘notification’ process. This gave the Commission the opportunity to gain significant experience in reviewing and assessing many common types of IP licence, leading to a number of decisions applying Articles 101(1) and 101(3) TFEU in the licensing context.134 By the early 1980s, the system of individual notification and exemption was supplemented by 2.97 block exemption regulations. National courts still were not able to apply Article 101(3) TFEU directly. If a provision fell within the scope of the prohibition in Article 101(1) TFEU, it was void and unenforceable unless it satisfied the requirements for block exemption or benefitted from an individual exemption granted by the Commission.135 On 1 May 2004, the Modernisation Regulation came into force, implementing a completely 2.98 new enforcement framework for the competition rules.136 Under the ‘modern’ regime, there is no route through which companies can seek an individual exemption decision from the Commission.137 Undertakings must assess for themselves whether an agreement is: (a) anti-

132 EEC Council, Regulation No 17: First Regulation implementing Articles 85 and 86 of the Treaty, 21 February 1962 (Regulation 17/62).

133 Regulation 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles [101] and [102], OJ [2003] L 1/1 (the Modernisation Regulation) came into force on 1 May 2004. It provides a modernized framework for application of Arts 101 and 102 TFEU. As a result it is no longer possible to obtain individual exemptions and the national courts and authorities have power to apply Arts 101 and 102 TFEU directly in individual cases. 134 For example, Davidson Rubber Co Agreements OJ [1972] L 143/31; 76/29/EEC: Commission Decision of 2 December 1975 relating to a proceeding under Article 85 of the Treaty establishing the EEC (IV/26.949 – AOIP/Beyrard), OJ [1976] L 6/8 (AOIP/Beyrard (1976)); 79/86/EEC: Commission Decision of 10 January 1979 relating to a proceeding under Article 85 of the EEC Treaty (IV/C-29.290 – Vaessen/Moris), OJ [1979] L 19/32 (Vaessen BV v Moris); and 78/253/EEC: Commission Decision of 23 December 1977 relating to proceedings under Article 85 of the EEC Treaty (IV/171, IV/856, IV/172, IV/117, IV/28.173 – Campari), OJ [1978] L 138/69 (Campari). 135 See para 3.93 below.

136 Modernisation Regulation (n 134).

137 Under Art 10 of the Modernisation Regulation, ibid., the Commission may exceptionally make a ‘finding of inapplicability’ that an agreement does not infringe Art 101 TFEU. Note that this is not a replacement for the old notification system. Art 10 provides that a finding of inapplicability, as provided for in that Article, shall be made only where the ‘Community public interest so requires’ and only by the Commission ‘acting on its own initiative’. Action under Art 10 has been rare – see Recital 14 of the Modernisation Regulation for examples of when such a decision might be justified. Between 2004 and 2020, no decisions pursuant to Art 10 were taken. Against the backdrop of the Covid pandemic, the Commission did provide informal guidance on at least one occasion. For commentary on this see, e.g., Richard Whish, Reflections on Regulation 1/2003, declarations of inapplicability and informal guidance (Concurrences, 2-2022, May 2022). In October 2022, the Commission published a new notice on informal guidance relating to novel or unresolved questions concerning Arts 101 and 102 TFEU that arise in individual cases (guidance letters), C(2022) 6925 final, OJ [2022] C 381/9, and see the accompanying Commission Press Release IP/22/5887, Competition: Commission adopts a more flexible

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competitive; and, if so, whether it (b) benefits from the exception in Article 101(3) TFEU. The Commission has produced guidelines on the application of Article 101(3) TFEU, and companies are expected to use these when assessing their agreements.138 As part of the modernization package, national courts were given the power to apply Article 101(3) TFEU directly. 2.99 In summary, the Article 101(3) TFEU exception may now apply in two ways. ● First, an agreement can be exempted from the Article 101(1) TFEU prohibition through the application of one of the block exemption regulations. These provide automatic exemption for certain common types of commercial arrangement, without the need to carry out a full Article 101(3) TFEU analysis. As the block exemptions are enacted by Commission or Council Regulations, they are directly applicable and bind the courts of Member States. The block exemptions most relevant to IP owners are discussed in Chapter 3 below. ● Alternatively, the parties may determine through self-assessment that, even though the agreement does not fit within one of the block exemptions, the Article 101(3) TFEU conditions are met, and the agreement is automatically excepted from the prohibition in Article 101(1) TFEU. 2.100 If there is a private dispute about the compliance of an agreement with competition law, it will be for the national judge to assess whether it is within the scope of a block exemption and complies with all the relevant conditions or, alternatively, to assess its compliance with Article 101(3) TFEU. This may, on occasion, result in a reference to the CJEU from a national court under Article 267 TFEU.139 2.101 The Article 101(3) TFEU Guidelines are an invaluable source of assistance in understanding how the Article 101(3) TFEU exception applies. National courts, National Competition Authorities and the Commission itself have referred to them in their judgments and decisions. Further specific assistance on the application of Article 101(3) TFEU to particular types of commercial arrangement is available in the Guidelines published by the Commission to accompany the various block exemption regulations. Nevertheless, despite the guidance in both the general Article 101(3) TFEU Guidelines and in the specific guidelines the application of Article 101(3) TFEU to a particular agreement outside the scope of a block exemption requires a significant amount of factual information, legal and economic input and analysis. Even with good access to factual and market information, and sufficient time and resources to carry out a full analysis, it can be difficult to be certain that all four criteria under Article 101(3) are met.

antitrust Informal Guidance Notice; withdraws Antitrust COVID Temporary Framework, 3 October 2022 (https://​ec​ .europa​.eu/​commission/​presscorner/​detail/​en/​ip​_22​_5887 – accessed 20 January 2023).

138 Article 101(3) TFEU Guidelines (n 4).

139 In some jurisdictions, it may be possible, in the event of a dispute, to seek a declaration of compatibility with Art 101 TFEU (and the relevant equivalent national legislation) from the national court. This could give parties certainty, if that was desirable, about the legality or otherwise of their agreement, particularly if the national court chooses to refer particular issues to the CJEU. Now that the UK has left the EU, the ability to refer issues to the CJEU by way of preliminary reference no longer exists for disputes heard in the UK. However, given the likely continuing similarity between UK domestic competition law and EU competition law for the short to medium term, a declaration under Chapter I of the Competition Act might still be useful in some circumstances to resolve contentious questions under EU as well as English law. Note that like the CJEU, the English courts will not rule on hypothetical questions but only where there is a genuine dispute so that a declaration of how the law applies will have some practical utility.

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While the block exemptions can also often be tricky to apply with certainty, if an agreement can be brought within the scope of a block exemption or at least close to satisfying its requirements that provides business with greater certainty than if no block exemption applies. This has a significant impact on how businesses and their advisers approach the drafting of, for example, technology transfer licences as discussed in more detail in Chapters 3 and 4 below.

V. RESTRICTIVE CLAUSES IN LICENCE AGREEMENTS The ownership of an IPR gives the owner the right to prevent others from using the subject 2.102 of that IPR. This implies that the grant of a licence to a third party is procompetitive, as it encourages greater competition than would have existed without the licence. It has been argued that licences should fall outside the scope of the prohibition in Article 101(1) TFEU unless they contain restrictions on competition that would have existed in the absence of the licence (i.e., which go beyond the scope of the IPR being licensed). At different times, and in different jurisdictions, some competition authorities have adopted a relaxed stance towards restrictions in licences based on this approach.140, 141 In the EU, the approach has evolved over time, with the European Courts generally taking 2.103 a more permissive approach than the Commission in cases such as Maize Seeds;142 Coditel 2;143 and Erauw-Jacquery (Plant Breeders Rights).144 In such cases the CJEU has indicated that IP related restrictions which the Commission had approached as self-evidently infringements of competition law might in some circumstances be acceptable. A. Existence/Exercise/Specific Subject Matter The existence/exercise distinction initially developed by the European Court in its jurispru- 2.104 dence on exhaustion of rights,145 and subsequently used in some competition law analysis, has been supplemented (or arguably supplanted) by another concept; the relevance of the ‘essential function’146 or ‘specific subject matter’ of each right to the restrictions the rights owner can impose on third parties. The relevance of this concept is well explained by Coates, Kjolbye and Peeperkorn: 140 This was largely the position in UK under the Restrictive Trade Practices Act 1976 following the 1978 judgment in the case of Re Ravenseft Properties Ltd’s Application [1978] 1 QB 12 (Ravenseft), where the court held that a restriction under the 1976 act did not arise when a tenant took a lease which included limitations as this did not restrict a pre-existing freedom to trade, but was in effect a new, but limited, right. This analysis was applied to IPRs in the same way as to property rights. With the adoption of the Competition Act in 1998, this ‘opening the door’ approach was swept away.

141 The relatively recent case of Peninsula Securities Ltd v Dunnes Stores (Bangor) Ltd [2020] UKSC 36 demonstrated a less formalistic approach of the UK Supreme Court towards the common law doctrine of restraint of trade. Perhaps other UK courts may be influenced by this when considering other restrictions on trading freedom post-Brexit. 142 Case 258/78 LC Nungesser KG and Kurt Eisele v Commission of the European Communities [1982] ECR 2015 (ECLI:EU:C:1982:211) (Maize Seeds).

143 Coditel 2 (n 61).

144 Erauw-Jacquery (Plant Breeders Rights) (n 79). 145 See discussion at paras 1.87 ff.

146 Technology Transfer Guidelines (n 76), para 6.

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS The distinction between the existence and exercise of an IP right is based on the ‘specific subject matter’ of the IP right. Use of an IP right in a manner which ensures for the right holder the benefit of the specific subject matter of that right is regarded as preserving the existence of the right and cannot in principle be overruled by the free movement or competition provisions of the Treaty. Use of an IP right in a manner which goes beyond the specific subject matter of the right is regarded as being an exercise of that right which must be analyzed in light of the free movement and/or competition provisions of the Treaty.147

2.105 The existence/exercise/specific subject matter concepts are not unique to EU law.148 Similar concepts applied for example under German law149 and also in the United States.150 In the very early years of competition enforcement in Europe, the Commission, perhaps influenced by the German model, took the position that provisions which regulated how the patentee’s rights were shared with a licensee would not fall within the scope of the prohibition in Article 101(1) TFEU.151 This overall approach was at the heart of the original ‘Christmas Message’. However, as the Commission’s familiarity with technology licensing grew, and as it began to appreciate the potential for multiple exclusive licences of national IPRs to contribute to continuing segmentation of national markets, its willingness to take a benign view of provisions which had seemed on their face to be permissive was diminished.152 2.106 The seminal case of Consten and Grundig153 made it very clear not only that the competition rules applied to restrictions in vertical agreements, but also that they applied equally to provisions in IP licences having the same or similar effects. Once such provisions were confirmed to be within the scope of the prohibition in Article 101(1) TFEU, the Commission received significant numbers of licences for review through the notification process under Regulation 17/62, enabling it to build up its experience and familiarity with licensing practices. 2.107 By 1975, the Commission was making clear its starting point that only licences which extended no further than protecting the ‘existence’ of an IPR fell outside the scope of the prohibition in Article 101(1) TFEU. Restrictions that involved the exercise of rights, over and above the pure grant of non-exclusive licences in return for royalties, would (subject to the de minimis concept) require exemption: … it is clear that patent licensing agreements are not automatically within Article [101(1) TFEU] if the agreements simply confer rights to exploit patented inventions against payment of royalties, but

147 Faull and Nikpay (n 84), para 10.21.

148 See the approach under the UK’s domestic legislation following Ravenseft (n 140). 149 Act Against Restraints of Competition, s 20(1).

150 In the US (and to some extent in Germany), this has the interesting corollary that while practices covered by the statutory grant of exclusivity are not regarded as anticompetitive, practices which tend to reach beyond the statutory monopoly (such as tie-ins or requirements to pay post-expiry royalties) may be regarded as a form of patent misuse. 151 See, e.g., First Report on Competition Policy (1972), pp 65–74.

152 See, e.g., a reflection of this principle in the EU Case 1983/83 Windsurfing International Inc. v Commission of the European Communities [1986] ECR 611 (ECLI:EU:C:1986:75) (Windsurfing).

153 Joined Cases 56/64 and 58/64 Consten SaRL and Grundig GmbH v Commission of the EEC Case [1966] ECR 299 (Consten and Grundig), p 345: ‘The injunction … to refrain from using rights under national trade-mark law in order to set an obstacle in the way of parallel imports does not affect the grant of those rights but only limits their exercise to the extent necessary to give effect to the prohibition under Article [101](1).’

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ARTICLE 101 TFEU AND IP LICENSING that questions of applicability of Article [101(1) TFEU] arise if a grant is accompanied by terms which go beyond the need to ensure the existence of an industrial property right …154

A more complete discussion of the historical approach of the Commission to distinguishing 2.108 between restrictions or limitations which are within the scope of an IPR or part of its ‘specific subject matter’155 and those which are not,156 and its evolving treatment of restrictions of both types under both Articles 101(1) and 101(3) TFEU can be found in specialist texts.157 One constant in both Commission practice and in Court jurisprudence has been a concern 2.109 about the potential effects on competition of agreements which expand the statutory reach and effect of an IPR. In other words, the EU authorities have always been very conscious of the nature of patents, in particular, as State granted ‘monopolies’ which are limited in both subject matter and in time. Attempts to extend such monopolies through agreement (e.g., by seeking the payment of royalties after expiry or by imposing obligations on licensees which extend beyond the term of a licensed IPR) have traditionally been regarded with concern.158 This is considered in more detail below at para 2.245 ff when discussing clauses of that type. The recognition that most licensing is inherently procompetitive159 has not entirely displaced

154 Fourth Report on Competition Policy (1974), point 20.

155 This concept has been applied in many of the pay for delay cases, notably the recent Lundbeck CJEU (n 116), where the CJEU found that restrictive conduct in certain agreements can be prohibited even if it appears at first glance to fall within the specific subject matter of IPR.

156 The existence/exercise distinction and the delineation of the specific subject matter have been criticized by some as artificial, or (particularly the former) as a distinction without a difference. Those who defended the prerogatives of Member States in the field of property rights under Art 345 of the Treaty argued that this is a route to circumvent the protection contained in that Article (Art 345 TFEU provides that the provisions of the Treaty shall not undermine national systems of property ownership and Consten and Grundig (n 153) established that national IPRs benefitted from that protection). Notwithstanding these criticisms, the existence/exercise dichotomy and the use of the specific subject matter concept as a tool to give that dichotomy some meaning has considerable support in the jurisprudence (again Consten and Grundig, more recently, Valve (n 6)). In addition, many EU constitutional scholars argue that the true purpose of Art 345 TFEU is not to protect all national property rights from intervention under EU law, but rather to ensure that particular systemic approaches to property ownership (e.g., public as opposed to private ownership) are outside the scope of EU challenge. Given how EU law has been interpreted by the courts, the latter reading seems more appropriate. In the last 60 years, many forms of national property right (including IP) have been subject to EU intervention. It is also worth noting that, in some exceptional circumstances, EU competition law may intervene to discipline even aspects of IP that might otherwise be thought of as falling within the ‘specific subject matter’ of that IPR. This is, e.g., the position in the cases dealing with refusals to license (see, e.g., the approach of Laddie J in the English High Court in Philips Electronics NV v Ingman Ltd and others [1999] FSR 112, paras 96–101, and that of the CJEU in Joined Cases C-241/91P and C-242/91P Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v Commission of the European Communities [1995] ECR I-743 (ECLI:EU:C:1995:98). Case C-418/01 IMS Health GmbH & Co OHG v NDC Health GmbH & Co KG. [2004] ECR I-5039 (ECLI:EU:C:2004:257), both discussed in Chapter 6 below).

157 Steven Anderman and Hedvig Schmidt, EU Competition Law and Intellectual Property Rights – The Regulation of Innovation (2nd edn, Oxford University Press, 17 February 2011), Chapter 14; and also discussed in Gabriella Muscolo and MarinaTavassi (eds), The Interplay Between Competition Law and Intellectual Property: An International Perspective (Kluwer Law International, updated January 2019).

158 See, e.g., AOIP/Beyrard (1976) (n 134); Windsurfing (n 152); Case 320/87 Kai Ottung v Klee & Weilbach A/S and Thomas Schmidt A/S [1989] ECR 1177 (ECLI:EU:C:1989:195) (Ottung v Klee CJEU).

159 For example, Technology Transfer Guidelines (n 76), para 9.

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concern about provisions in licences which have the effect of extending the subject matter or temporal scope of an IPR.160 2.110 The Commission’s evolving approach to licensing during the 1970s led many companies to be nervous about the compatibility of licences with Article 101 TFEU. In practice, the notification route was slow and impracticable, particularly as the inability of national courts to apply Article 101(3) TFEU directly meant that agreements infringing Article 101(1) TFEU coming before a national court would be unenforceable. The Commission responded by adopting the first of a series of block exemptions relevant to IP licences in 1984, providing a block exemption for certain patent licences.161 This was (relatively) swiftly followed by a parallel block exemption for knowhow licences in 1989.162 These were replaced by a combined patent and knowhow licensing block exemption in 1996,163 which was in turn replaced by the first ‘post-modernisation’ IP block exemption in 2004.164 The current block exemption is provided by the 2014 TTBER.165 2.111 The TTBER applies only to certain licences of IPR.166 A block exemption has never been available for trademark licences, or for licences of non-software copyright. Licences of those rights, as well as all other licences not falling within the scope of the TTBER, need to be analysed from first principles.167 Broadly speaking, similar underlying principles apply to licences of different species of IPR. However, it is important to be aware that an analysis which is appropriate to certain types of licence for certain rights cannot be assumed to apply in the same way to others. 2.112 The Commission states categorically in the Technology Transfer Guidelines that it will not apply those guidelines or the TTBER to licences of non-software copyright (other than where copyright is licensed for the production of products).168 2.113 The position is similar for trademark licences. If a trademark licence is directly related to the production or sale of contract products manufactured under a technology licence it is capable of benefitting from the TTBER.169 This will be the case even if the parties are more interested in the trademark and its exploitation rather than the underlying technology.170 Outside those 160 This is reflected in the Technology Transfer Block Exemption (TTBER) (Commission Regulation No 316/2014 of 21 March 2014 on the application of Article 101(3) of the TFEU to categories of technology transfer agreements, OJ [2014] L 93/17), Article 2(2); and the Technology Transfer Guidelines, ibid., para 68, by the fact that the Block Exemption is available (even for those agreements which satisfy its criteria) only for so long as the licensed technology is valid. 161 Commission Regulation (EEC) No 2349/84 of 23 July 1984 on the application of Article 85(3) of the Treaty to certain categories of patent licensing agreements, OJ [1984] L 219/15.

162 Commission Regulation (EEC) No 556/89 of 30 November 1988 on the application of Article 85(3) of the Treaty to certain categories of know-how licensing agreements, OJ [1989] L 61/1.

163 Commission Regulation (EC) No 240/96 of 31 January 1996 on the application of Article 85(3) of the Treaty to certain categories of technology transfer agreements, OJ [1989] L 31/2. 164 Commission Regulation (EC) No 772/2004 of 27 April 2004 on the application of Article 81(3) of the Treaty to categories of technology transfer agreements, OJ [2004] L 123/11. 165 TTBER (n 160).

166 Technology Transfer Guidelines (n 76), paras 44–46. 167 Ibid., paras 47–50.

168 Ibid., paras 48 and 49. 169 Ibid., para 47.

170 Ibid., para 47 and fn 35.

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limits, the Commission states that it will not extend the principles in the Technology Transfer Guidelines to trademark licensing.171 It notes, however, that the Vertical Agreements Block Exemption (VABE)172 and the accompanying guidelines173 may be relevant to trademark licences is some circumstances. With the above caveats in mind, the Technology Transfer Guidelines still provide a useful 2.114 starting point in understanding the approach of the Commission to many provisions commonly found in licences. They start by stating clearly that most licensing agreements do not restrict competition, noting that licensing ‘… leads to dissemination of technology and promotes innovation by the licensor and licensee(s)’.174 They then explain that the competitive impact of a licence must be assessed in the light of ‘… the actual context in which competition would occur in the absence of the agreement with its alleged restrictions’.175 A two-step approach is proposed, reflecting that in the Article 101(3) TFEU Guidelines.176 First, the effect of the licence itself is considered: ‘Does the licence agreement restrict actual or potential competition that would have existed without the contemplated agreement?’ (interbrand competition).177 Then the effects on competition of specific contractual restraints within the agreement are reviewed: ‘Does the licence agreement restrict actual or potential competition that would have existed in the absence of the contractual restraint(s)?’178 (intrabrand competition). The introductory section of the Technology Transfer Guidelines explores concepts which are 2.115 key to assessing any agreement. These include: the distinction between restrictions of competition by object and restrictions by effect; market definition and market power in the context of technology; and the distinction between competitors and non-competitors. These discussions will be referred to as appropriate below. Notwithstanding the usefulness of the Technology Transfer Guidelines when assessing the 2.116 risks of including particular clauses in a licence and the likelihood of Commission enforcement action, they remain Guidelines. Many clauses commonly found in licence agreements have been held by the CJEU to be likely to fall within the scope of the prohibition in Article 101(1) TFEU. While the Commission’s enforcement approach to some of these restrictions or limitations may have modified over time in the light of the more economic approach to competition law analysis which has been adopted since the beginning of this century, the lack of recent judicial authority means that a number of the concepts developed in the early cases remain potentially relevant today. The Technology Transfer Guidelines are adopted by the Commission expressly without prejudice to the interpretation by the EU Courts of both

171 Ibid., para 50.

172 Commission Regulation No 2022/720 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, OJ [2022] L 134/4 (VABE). 173 Vertical Guidelines (n 25).

174 Technology Transfer Guidelines (n 76), para 9. 175 Ibid., para 11.

176 Article 101(3) TFEU Guidelines (n 4).

177 Technology Transfer Guidelines (n 76), para 12(a). 178 Ibid., para 12(b).

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Article 101 TFEU itself and the TTBER.179 While the CJEU and GC (and national courts as appropriate) may move in the direction suggested by the Commission in its Guidelines and decisions, this cannot be guaranteed. 2.117 Given the potential breadth of the prohibition in Article 101(1) TFEU, the way in which it has been applied in the past, and the difficulty of carrying out an Article 101(3) TFEU analysis, a common practical approach to assessing the risks involved in concluding a licence generally involves first considering whether a block exemption applies. This has a number of benefits not least because, in practice, the lists of hardcore180 and excluded181 provisions provide an effective early warning of potential difficulties, whether or not the agreement is capable in principle of benefitting from the block exemption.182 2.118 However, focusing only on the TTBER or other potentially relevant block exemptions has some drawbacks. These arise in part from the practical difficulties of applying certain key concepts in block exemption regulations, meaning that it is often difficult to be sure in practice whether the protection of the block exemption will be available.183 This is a consequence of the Commission’s shift away from a formalistic approach which involved simply identifying ‘good’ and ‘bad’ clauses with little regard to the economic context in which they would apply. The inevitable result of making the accessibility of the safe harbour dependent on the economic climate in which an agreement operates is a greater uncertainty. 2.119 In addition, if an agreement contains any hardcore restriction the block exemption is not available to the agreement as a whole. Where this is the case, restrictions of competition which would otherwise be block exempt will require individual analysis and exemption under Article 101(3) TFEU. While most practitioners and their clients would generally choose to avoid including hardcore restrictions in agreements, it can be surprisingly difficult to be certain whether a given provision is a hardcore restriction. In the TTBER, this can be particularly tricky as different lists of hardcore restriction apply depending on whether the agreement being analysed is between competitors or non-competitors and whether it is reciprocal or non-reciprocal. These distinctions can be difficult to draw with confidence when negotiating, drafting and advising on a complex commercial licence.184 2.120 Notwithstanding the drawbacks, a practitioner is still most likely to begin with a review of how close a licence is to falling within a block exemption asking: ● Does it contain hardcore clauses or excluded provisions which immediately raise concerns? ● Has any reliable information about market definition and market shares been provided that indicate that a block exemption is or is not likely to be available?

179 Ibid., para 4.

180 TTBER (n 160), Art 4. 181 Ibid., Art 5.

182 Excluded and hardcore restrictions are discussed in more detail below at paras 3.39 ff and 3.45 ff respectively.

183 See the commentary in Steven D. Anderman and John Kallaugher, Technology Transfer and the New EU Competition Rules (2nd edn, Oxford University Press, 23 March 2006).

184 See the discussion of these issues under the TTBER (n 160).

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Even in the context of this pragmatic approach, it is valuable to have a sense of the type of 2.121 provision which may give rise to risks in the event that a block exemption is not or may not be available. It may then become necessary to suggest ways in which the agreement could be amended to reduce the competition law risks of concluding it. Understanding how specific restrictions have been analysed outside the context of the block exemption regime can help identify commercially and legally acceptable solutions. Some common obligations previously held to be potentially problematic and to fall within the 2.122 scope of the prohibition in Article 101(1) TFEU include: ● the grant of territorial exclusivity (whether that be manufacturing exclusivity or sales exclusivity);185 ● tying and bundling of products or licences;186 ● downstream restrictions on prices or customers;187 ● non-compete provisions;188 ● post-termination/expiry obligations;189 ● obligations relating to exclusive licensing back/assignment to the licensor of licensee improvements;190 and ● no challenge clauses.191 Each of these categories of provision is considered specifically below to provide some guidance 2.123 to how non-block exempt provisions may ultimately be assessed. As a practical matter, as well as bearing in mind the pre-existing case law, the Commission’s 2.124 Technology Transfer Guidelines are a sensible starting point to gain an understanding of the risks and options available to parties in respect of particular types of provision. Those guidelines explain the Commission’s current approach to common licensing terms including those which do not, for some reason, benefit from the safe harbour provided by the block exemption. The Technology Transfer Guidelines first explain the relevance of the context in which 2.125 a licence is concluded.192 The relative importance of particular factors varies, and they are

185 87/123/EEC: Commission Decision of 15 December 1986 in proceedings under Article 85 of the EEC Treaty (IV/31.302 – Boussois/Interpane), OJ [1987] L 50/30 (Boussois/Interpane); 85/410/EEC: Commission Decision of 12 July 1985 relating to a proceeding under Article 85 of the EEC Treaty (IV/4.204 – Velcro/Aplix), OJ [1985] L 233/22 (Velcro/ Aplix). 186 Case COMP/39230 – Rio Tinto Alcan, Commission Commitments Decision of 20 December 2012, C(2012) 9439 final (Rio Tinto). 187 78/823/EEC: Commission Decision of 21 September 1978 relating to a proceeding under Article 85 of the EEC Treaty (IV/28.824 – Breeders’ rights – maize seed), OJ [1978] L 286/23 (Breeders Rights (Maize Seed)). 188 Velcro/Aplix (n 185); Breeders Rights (Maize Seed), ibid. 189 Ottung v Klee CJEU (n 158).

190 75/494/EEC: Commission Decision of 18 July 1975 relating to a proceeding under Article 85 of the EEC Treaty (IV/21.353 – Kabelmetal/Luchaire), OJ [1975] L 222/34; 72/238/CEE: Commission Decision of 18 July 1975 relating to a proceeding under Article 85 of the EEC Treaty (IV/26.813 – Raymond-Nagoya), OJ [1972] L 143/39. 191 Windsurfing (n 152); Case 65/86 Bayer AG and Maschinenfabrik Hennecke GmbH v Heinz Süllhöfer [1988] ECR 5249 (ECLI:EU:C:1988:448) (Bayer v Süllhöfer). 192 Technology Transfer Guidelines (n 76), para 4.1.1.

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interdependent. It is a matter of judgement which factors are likely to be most important for any given licence. Matters which will always be important when assessing the likely effect on competition of an agreement are: ● the competitive relationship between the parties to the agreement (are they competitors or non‑competitors?); ● the importance of the parties in any affected market (do the parties have market power given their own positions, the structure of the market and the market positions of others?); and ● the overall nature of the agreement (does the agreement contain hardcore or by object restrictions; can implicit restrictions beyond the express obligations be identified?). 2.126 Other factors will be important depending on the circumstances, but those three core considerations will always be fundamental. 2.127 The Technology Transfer Guidelines also helpfully list the types of restriction that are unlikely to infringe Article 101(1) TFEU.193 While none of the provisions on that ‘white list’ is surprising, it is comforting for companies to have clearly listed a number of common terms which cause no concern. The list is expressly stated not to be complete and includes: ● confidentiality obligations; requirements to use the licensor’s trademark, or to indicate the name of the licensor on the licensed product; ● obligations to assist in enforcing the licensed rights, to pay minimum royalties or to produce minimum quantities of licensed products; and ● prohibitions on sub-licensing and on using licensed technology after the licence expires (as long as the IPRs remain valid and in force). 2.128 Against that background, the following pages consider briefly the types of obligation that have in the past given rise to competition concerns, how those concerns have arisen and how the position may be analysed in practice. In reading this section, bear in mind that the mere fact that the Commission indicates that it will be unlikely to intervene in respect of certain types of restriction in certain circumstances is not determinative of the correct legal treatment.194 Questions related to the legality (and enforceability) or otherwise of such provisions are more likely to come up in disputes between the parties before national courts or, for example, in the context of due diligence in a corporate transaction. B. Exclusivity195 2.129 Exclusivity is a common feature of licences. It can be granted over many aspects of exploitation including geographic scope; product or service scope; manufacturing and/or sales; and customers. The aspect of exclusivity that receives most attention under EU law is territorial exclusivity (although licences which are limited to particular customer groups are approached in a similar way). As explained in Chapter 1, the single market imperative is at the heart of the EU legal

193 Ibid., para 183.

194 The Commission intervenes only very rarely in the operation of common commercial agreements such as licences unless they are, for example, concealed cartels or contain other hardcore restrictions such as market sharing obligations. 195 Technology Transfer Guidelines (n 76), para 4.2.2.1.

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universe and actions of either Member States or private undertakings which hinder the creation and/or maintenance of a single market through which goods flow freely can expect to be closely scrutinized. The procompetitive rationale for exclusive licensing is that potential licensees may be unwilling 2.130 to accept a licence on anything other than an exclusive basis (or as close to an exclusive basis as can be achieved without significant risk of illegality/unenforceability) because of the need to protect investments made in entering a market or exploiting new technology. This procompetitive rationale is accepted in the EU, but the single market imperative affects the extent to which territorial exclusivity is permitted. Absolute territorial exclusivity implies that anyone who uses a licensed right in a licensed 2.131 territory (other than the specific licensee) is exposed to the risk of an enforcement action for infringement of the licensed IPR. An arrangement providing a licensee with absolute territorial exclusivity would prevent the licensor itself from exploiting the licensed IPR in the exclusive territory and from licensing a third party to exploit the IPR in the exclusive territory. It might also (absent competition law concerns) involve contractual obligations on the licensor and its licensees for other territories preventing them from supplying third parties outside the exclusive territory if the licensed products are then to be imported to the exclusive territory. It might further involve contractual prohibitions on other activities which could undermine the exclusivity that has been granted. Inevitably, the grant of exclusive licences helps partition the internal market. The effect is 2.132 greatest in cases involving different exclusive licences granted to different licensees in different Member States which inhibit parallel trade.196 Where companies competed with each other in the same product market, before the licence is granted, exclusive licences between them will be particularly closely scrutinized. Against that background, a core question is how much territorial exclusivity can be given to a licensee without significant risk of falling within the scope of the prohibition in Article 101(1) TFEU. Early Commission enforcement, building on Consten and Grundig,197 took a strict approach 2.133 to exclusivity, seeing an unacceptable risk to market integration in most exclusive licences. In the early 1980s, the CJEU stepped in, establishing that in some circumstances a degree of exclusivity will not breach Article 101(1) TFEU. In Maize Seeds in 1982, the CJEU held that the contractual relationship between a licensor and a licensee was not anticompetitive merely because the licence contained an obligation on the licensor not to grant other licences in respect of the same territory and not itself to compete with the licensee in that territory.198 The Court’s message was that the overall context in which a licence is concluded and the scope of the exclusivity granted affects the competition law analysis. The Court made clear that in some circumstances exclusivity may not be caught by the prohibition in Article 101 TFEU at all and in others it will be capable of exemption under Article 101(3) TFEU.

196 Maize Seeds (n 142), para 60.

197 Consten and Grundig (n 153). 198 Maize Seeds (n 142).

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2.134 The CJEU observed in Maize Seeds: In fact, in the case of a licence of breeders’ rights over hybrid maize seeds newly developed in one Member State, an undertaking established in another Member State which was not certain that it would not encounter competition from other licensees for the territory granted to it, or from the owner of the right himself, might be deterred from accepting the risk of cultivating and marketing that product; such a result would be damaging to the dissemination of a new technology and would prejudice competition in the [Union] between the new product and similar existing products. Having regard to the specific nature of the products in question, the Court concludes that, in a case such as the present, the grant of an open exclusive licence, that is to say a licence which does not affect the position of third parties such as parallel importers and licensees for other territories, is not in itself incompatible with Article [101(1)] of the Treaty

2.135 The CJEU has held that some exclusive licences of copyright do not infringe Article 101(1) TFEU. In Coditel 2, the CJEU held that the grant of an exclusive right to broadcast a film did not in itself infringe Article 101(1) TFEU.199 It held that, as a film is capable of infinite repetition, and as royalties are paid to the licensor by reference to the number of performances of the film, the exclusivity was required to protect the licensee. 2.136 Both Coditel 2 and Maize Seeds (and other cases such as Erauw-Jacquery (Plant Breeders Rights)200 and Sicasov201) could be seen as a particular application of the doctrine of ancillary restraints discussed above at paragraph 2.53. It is necessary to be cautious in seeking to extend them too far – the assessment will always be fact specific and exclusive licences may restrict competition and fall within the scope of the prohibition in Article 101(1) TFEU.202 This is a particular risk if it is not clear that: ● the licence relates to technology which involved significant investment in R&D; ● the licensee will face risk and the need for substantial investment when manufacturing and marketing the licensed product; and ● the licence will increase competitiveness and competition (particularly interbrand competition). 2.137 Licences involving exclusivity therefore require caution. Although even those licences which in principle fall within the scope of the prohibition in Article 101(1) TFEU may benefit from the Article 101(3) TFEU exception, there have been very few cases at EU level dealing with exclusivity provisions in technology transfer agreements since modernization in 2004.203 As explained below, the TTBER exempts some exclusivity provisions in licences which fall within its scope, but the position for licences outside that regulation is more problematic.

199 Coditel 2 (n 61).

200 Erauw-Jacquery (Plant Breeders Rights) (n 79).

201 1999/6/EC: Commission Decision of 14 December 1998 relating to a proceeding under Article 85 of the EC Treaty (IV/35.280 – Sicasov), OJ [1999] L 4/27. 202 Boussois/Interpane (n 185); Velcro/Aplix (n 185).

203 There has been more discussion of exclusivity and the application of Art 101(1) TFEU in the context of IP licensing which does not relate to technology transfer, e.g., in respect of broadcasting rights. See the discussion below at para 2.26 ff.

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As far as licences other than technology licences (i.e., to use the licensed IPR to manufacture 2.138 or to have manufactured, and then subsequently deal) are concerned, for example in relation to trademarks, the Commission has in the past held that the exclusive licence of a trademark may fall within the prohibition in Article 101(1) TFEU, although in some circumstances a sufficient effect on competition may not arise or an exemption may be available.204 The treatment of exclusivity in copyright licences varies depending on the type of copyright at 2.139 issue. In principle, the grant of a copyright licence which provides exclusive rights in a specific territory is not in itself sufficient to infringe Article 101(1) TFEU.205 However, agreements which are aimed at partitioning national markets or make market interpenetration along national lines more difficult will be regarded as agreements which are anticompetitive by object. This applies equally in the field of copyright, including performance or broadcasting rights as elsewhere.206 In FAPL v QC Leisure (No. 2),207 the CJEU held that, while the grant of an exclusive licence 2.140 to broadcast English premier league football games only in a specific territory at a specific time was not in itself ‘called into question’, this was not the case for additional obligations which would bolster the territorial limitations in a network of agreements and limit the possibility for parallel supply of decoding devices outside the licensed territory. The CJEU considered that those additional obligations would limit the free movement of services from the licensed territory into other Member States, enabling absolute territorial exclusivity and the elimination of all competition between national broadcasters. As such, the provisions in question were anticompetitive by object. The CJEU further held that none of the reasons explaining the benefits of the provisions put forward by the licensor ‘… would justify the finding that, despite the considerations set out in the preceding paragraph, those clauses are not liable to impair competition and therefore do not have an anticompetitive object’.208 In the context of technology licences, the Technology Transfer Guidelines draw a distinction 2.141 between the grant of manufacturing exclusivity (exclusive or sole licences209) and sales restrictions limiting the territories in which licensed products may be sold.210 EU competition law takes a more relaxed approach towards the grant of manufacturing exclusivity than towards sales restrictions. It also regards limitations on where the licensor can sell or manufacture more 204 Campari (n 134); XVIIIth Report on Competition Policy (1988), point 69; 90/186/EEC: Commission Decision of 23 March 1990 relating to a proceeding under Article 85 of the EEC Treaty (IV/32.736 – Moosehead/Whitbread), OJ [1990] L 100/32 (Moosehead/Whitbread). 205 Coditel 2 (n 61), para 19; FAPL v QC Leisure (No. 2) (n 65), para 137.

206 FAPL v QC Leisure (No. 2), ibid., para 138, citing Joined Cases C-468/06 to C-478/06 Lélos kai Sia EE and Others v GlaxoSmithKline AEVE Farmakeftikon Proïonton [2008] ECR I-7139 (ECLI:EU:C:2008:504), para 65; and Glaxo Spain (n 39), paras 59 and 61. 207 FAPL v QC Leisure (No. 2), ibid.

208 Ibid., para 143, and see the entire discussion at paras 137–144. This case is discussed in more detail below at paras 2.153–2.159.

209 The Technology Transfer Guidelines (n 76), paras 190–191, explain that an exclusive licence is one in which the licensor agrees not itself to manufacture in a given territory and/or not to license anyone other than the licensee to do so while a sole licence is one in which the licensor agrees only not to license third parties to produce within the licensed territory while itself remaining free to do so. 210 Technology Transfer Guidelines, ibid., para 189.

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favourably than restrictions on where the licensee can sell. The Commission accepts, however, that restrictions on sales to territories reserved to the licensor will often fall outside the prohibition in Article 101(1) TFEU as the licensor would otherwise be concerned about creating competition to itself through the grant of a licence, and some limitations on that possibility are likely to be indispensable.211 1. Manufacturing exclusivity

2.142 An exclusive licence between non-competitors under which the only restrictions prohibit the parties from competing directly with each other is regarded as potentially entirely outside the scope of the prohibition in Article 101(1) TFEU or, if caught by that prohibition, as likely to be exempt under Article 101(3) TFEU.212 The Commission’s reasoning on this point builds on the views of the CJEU in cases such as Maize Seeds. It notes that Article 101(1) TFEU is unlikely to be engaged where the licensee requires incentives to invest in developing or commercializing the licensed technology and suggests that it would only exceptionally intervene against exclusive licensing between non-competitors, whatever the territorial scope of the licence. This final sentence of paragraph 194 of the Technology Transfer Guidelines appears to be intended to apply whether or not the licensee is required to make large investments. 2.143 Exclusive licences between competitors require more detailed analysis.213 If there is no cross-licensing, it may be permissible for a company to grant an exclusive manufacturing licence to a competitor. Relevant factors will include whether the licensee has market power on the product market and whether the licensee already owns a substitutable technology. The prohibition in Article 101(1) TFEU will be likely to apply if there are barriers to entry and the technology being licensed competes with the licensee’s existing technology and is capable of enabling competition on the downstream market.214 2.144 According to the Commission, even reciprocal215 sole licensing (i.e., where both parties license each other in the same technical field and agree not to license any third party) may be acceptable.216 This is likely to be the case only where the parties do not have significant market power in any affected market. In addition, if the technology which is cross-licensed is necessary, in practice, to access a downstream market, it will be regarded as a de facto standard and be analysed in the same way as patent pools (see paragraph 4.10 ff).217 To benefit from an exemption and escape prohibition it would most likely be necessary to commit to license the standardised technologies to third parties on fair reasonable and non-discriminatory (FRAND) terms, as 211 Ibid., para 201. 212 Ibid., para 194. 213 Ibid., para 193.

214 Ibid., para 195, points out particular risks where the licensee already has a strong presence on the product market. If entry to the technology market is difficult and the licensed technology provides a source of competition, Art 101(1) TFEU is likely to apply and Art 101(3) TFEU is unlikely to assist. In certain circumstances a scenario of this type may also infringe Art 102 TFEU – Case T-51/89 Tetra Pak Rausing SA v Commission of the European Communities [1990] ECR II-309 (ECLI:EU:T:1990:41). See also the discussion of the joint purchase of patents by a group of companies which are intended for their exclusive use – IGR Stereo Television, XI Report on Competition Policy (1981) at para 94, p 63. 215 A reciprocal licence is a cross-licence in the same technology – TTBER (n 160), Art 1(1) (d). 216 Technology Transfer Guidelines (n 76), para 195. 217 Ibid., para 196.

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was offered in, for example, the Canon/Kodak APS case.218 FRAND has taken on rather a life of its own in the context of major formalized standard setting initiatives, such as in the field of mobile telephony or computing, and its meaning in that context is discussed further below at Chapter 9. 2. Sales restrictions/exclusivity

Licensees who receive an exclusive licence to manufacture often seek additional protection 2.145 from downstream competition. This might involve protection against sales competition from the licensor itself, from other licensees appointed by the licensor and, perhaps, from customers of the licensor or other licensees. A licensee may invest considerable sums of money and then want its market to be protected from sales by others into its territory. Sales restrictions on the licensor are regarded favourably. If a licensor restricts its own freedom 2.146 to sell into a territory which it has chosen to grant to another to exploit, Article 101(1) TFEU is unlikely to intervene in the absence of market power or when the parties are competitors. Restrictions which prevent a licensee from selling into the territory reserved by the licensor for itself are also likely to be regarded favourably, again absent market power on the part of the licensor or a network of agreements entered into by a number of licensors having a cumulative effect on a substantial portion of the market.219 The Commission accepts that restrictions providing the licensor with protection against, in particular, active sales may well be indispensable to encourage the licensor to grant a licence which would otherwise expose it to competition in its own market. To protect a licensee from competition from other licensees will involve an agreement, explicit 2.147 or implicit, by the licensor to include territorial limitations in its agreements with other licensees (usually mirrored in each licence to create a network of exclusive licences). EU law distinguishes between sales bans which prevent ‘active sales’ by one party into the terri- 2.148 tory of another and those which restrict ‘passive sales’, i.e., meeting unsolicited orders received from customers based outside an allocated territory. In the context of exclusive licences, bans on active sales may be permissible, as enabling exclusive licensees to seek to sell directly into each other’s territories would undermine the very nature of an exclusive licence and could also encourage free-riding.220 If such a provision falls within the scope of the prohibition in Article 101(1) TFEU, it can often be within the exception in Article 101(3) TFEU (and also block exempt). Restrictions on ‘passive sales’ which prevent licensees from responding to requests for supply into territories granted to other licensees are of considerable concern to the authorities and are regarded as hardcore restrictions of competition.221 Similarly, obligations on licensees 218 Notice pursuant to Article 19 (3) of Council Regulation No 17 concerning Case No IV/34.796 – Canon/Kodak, OJ [1997] C 330/10. See also IGR Stereo Television (n 214) and Commission Press Release IP/03/1152, Commission clears Philips/Sony CD Licensing program, 7 August 2003 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​IP​_03​_1152 – accessed 3 November 2023). 219 Technology Transfer Guidelines (n 76), para 201. 220 Ibid., para 203.

221 Ibid., paras 119–127. But note also that in some limited circumstances an exemption may be available, such as, e.g., if the restriction is limited in time and is necessary to assist the protected licensee to penetrate a new market – see paras 200 and 203.

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to seek to prevent third parties (such as their customers) from supplying into the territories granted to other licensees will infringe Article 101(1) TFEU and are unlikely to be exempt.222 2.149 Networks of sales bans to protect non-exclusive licensees are less common. Such licensees already face domestic competition and may be less inclined to seek additional territorial protection. The competition authorities have tended to view any form of territorial protection in a non-exclusive licence as being unnecessarily restrictive and capable of leading to artificial partitioning of the market.223 2.150 When it comes to provisions which affect the position of third parties (e.g., parallel importers), the Court has held that a restriction intended to limit the freedom of third parties to deal in the licensed goods is of substantial concern. Because such provisions can eliminate competition from third parties, the Court first held in Consten and Grundig that agreements intended to affect the freedom of third parties to deal in goods that have been placed on the market will infringe Article 101(1) TFEU. This was re-iterated in Maize Seeds and in FAPL v QC Leisure.224 3. Exclusivity in the courts

2.151 Exclusivity is a core aspect of many licences. Despite the starting point that any arrangement likely to create, maintain or support barriers to trade between Member States is potentially problematic, EU competition law now provides significant commercial flexibility to parties to technology licences. The law seeks to balance the procompetitive benefits of licensing, the need to encourage licensees to invest in manufacturing and commercializing commercial products and the need to encourage licensors to grant useful licences against the concern about market segmentation. Agreements between non-competitors without substantial market power which are carefully drafted are unlikely in practice to cause significant concern and are likely to be enforceable. 2.152 Territorial restrictions in a draft licence should be carefully checked against the hardcore and excluded lists in the TTBER (discussed below in detail at paras 3.102 ff and 3.106 ff respectively). As always, testing any restriction against a genuine commercial and procompetitive rationale is common sense – a restriction which goes only far enough to protect legitimate commercial interests is much more likely to be acceptable and enforceable than one which is not carefully thought through in the context of the particular relationship. This will be particularly important if, for whatever reason, there is doubt about the application of a block exemption – something which is in practice surprisingly common. 2.153 The FAPL v QC Leisure225 case provides an interesting illustration of some of the issues that can arise from territorial limitations in IP licences (though not relating to a technology transfer 222 See the discussion of the additional obligations imposed by the FAPL on its licensees above at FAPL v QC Leisure (No. 2) (n 65), paras 137–144.

223 The safe harbours provided for territorial restrictions in both Art 4(1) and 4(2) of the TTBER (n 160) (applying to licences between competitors and non-competitors respectively), are available only so long as the ‘protected’ territory is exclusive. The position in the new VABE (n 172), is more generous towards restrictions in non-exclusive arrangements (see Art 4(b)(i), 4(c)(i) (1), 4(d)(i)). 224 FAPL v QC Leisure (No. 2) (n 65); Maize Seeds (n 142); Consten and Grundig (n 153). 225 FAPL v QC Leisure (No. 2) (n 65), para 140.

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agreement). It has already been discussed in the specific context of copyright, but is of general importance on the principles relating to exclusivity in licences. This case concerned the English Premier League’s activities in licensing television rights for the 2.154 screening of Premier League football games across Europe. The rights were sold through a territorial (country-by-country) tender process. Some aspects of the licence related to copyright in various elements of the broadcasts themselves. As mentioned at paragraph 2.135 above, the Court of Justice had previously held in Coditel 2 that an exclusive licence of performance copyright would not necessarily fall within the scope of the prohibition in Article 101(1) TFEU. This was subsequently confirmed in a series of cases including the Commission’s 1995 decision in PMI-DSV.226 In FAPL v QC Leisure, the Court of Justice confirmed those previous rulings, reiterating that simply granting an exclusive licence of copyright in a particular territory does not infringe Article 101(1) TFEU. However, this was not the only restriction in the licences. To support the territorial limitations 2.155 in the copyright licences, licensees agreed to ensure that their broadcasts could not be viewed outside their allocated territory through the use of satellite decoder cards. It was agreed that these should be sold only to residents in the allocated territory. In two sets of proceedings, the English High Court referred questions to the CJEU on the compatibility of the agreements and related UK legislation with the TFEU. The CJEU regarded the provisions relating to the sale of decoder cards as limiting all sale and use of football decoder cards outside the licensed territory thereby providing licensees with absolute territorial exclusivity and preventing all competition in the supply of services. The Court’s reasoning is worth setting out in full as it summarizes a number of the points made 2.156 above about territorial exclusivity: … it is to be pointed out that, in accordance with the Court’s case-law, an agreement which might tend to restore the divisions between national markets is liable to frustrate the Treaty’s objective of achieving the integration of those markets through the establishment of a single market. Thus, agreements which are aimed at partitioning national markets according to national borders or make the interpenetration of national markets more difficult must be regarded, in principle, as agreements whose object is to restrict competition within the meaning of Article 101(1) TFEU (see, by analogy, in the field of medicinal products, Joined Cases C-468/06 to C-478/06 Sot. Lélos kai Sia and Others [2008] ECR I-7139, paragraph 65, and GlaxoSmithKline Services and Others v. Commission and Others, paragraphs 59 and 61). …, it must be held that, where a licence agreement is designed to prohibit or limit the cross-border provision of broadcasting services, it is deemed to have as its object the restriction of competition, unless other circumstances falling within its economic and legal context justify the finding that such an agreement is not liable to impair competition. In the main proceedings, the actual grant of exclusive licences for the broadcasting of Premier League matches is not called into question. Those proceedings concern only the additional obligations designed to ensure compliance with the territorial limitations upon exploitation of those licences that are contained in the clauses of the contracts concluded between the right holders and the broadcasters concerned, namely the obligation on the broadcasters not to supply decoding devices enabling access

226 95/373/EC: Commission Decision relating to a proceeding under Articles 85 and 86 of the EC Treaty (IV/33.375 – PMI-DSV), OJ [1995] L 221/34.

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2.157 This judgment is a useful reminder of the principle first articulated in Consten and Grundig that agreements which have the object of partitioning the internal market will be regarded as anticompetitive by object. In Consten and Grundig, the concern was with an agreement enabling use of the trademark to support the territorial exclusivity provided in the distribution arrangement. In FAPL v QC Leisure, the concern was with the restrictions on the supply of products which reinforced the exclusivity inherent in the exclusive copyright licence and prevented the supply of services across borders. The underlying concern was the same and the outcome identical. 2.158 It is also important to note the limits of the Court’s ruling in FAPL v QC Leisure and that a number of issues relating to territorial limitations and accompanying restrictions in licences have not been entirely resolved. For example, in FAPL v QC Leisure, the Court held that a licence designed to prohibit cross-border supply ‘is deemed to have as its object the restriction of competition, unless other circumstances falling within its economic and legal context justify the finding that such an agreement is not liable to impair competition’.228 This wording reflects a formula now frequently found in ‘by object’ cases. 2.159 In the light of the CJEU’s judgment in FAPL v QC Leisure, the High Court issued a declaration that the relevant obligations in the agreements constituted a restriction on competition prohibited by Article 101(1) TFEU and were void under Article 101(2) TFEU to the extent that they prohibited the import of decoder cards from other territories for use in the UK.229 It is fair to note that this case and other recent cases relating to copyright (such as, e.g., Valve230) differ in some respects from the way in which other IPRs would be dealt with, but the focus on removing restraints on parallel trade and on enabling competition between licensees, including through subsequent trading in the licensed goods by third parties is a consistent theme, irrespective of the IPR under consideration. 2.160 In Paroxetine,231 the CJEU noted that an IPR could, in some circumstances, be an ‘insurmountable’ barrier to competition which could in principle prevent a restriction on supply (a ‘pay for delay’ settlement agreement) from being liable to impair competition. This leads to the question whether it may be possible to argue that if national IP law would be breached by unlicensed conduct, provisions in a licence designed to prevent cross-border supply (often referred to as geo-blocking clauses) might not be ‘by object’ infringements as they are merely

227 FAPL v QC Leisure (No. 2) (n 65), paras 139–142. 228 Ibid., para 140.

229 Football Association Premier League v QC Leisure and Karen Murphy v Media Protection Services Ltd [2012] EWCA Civ 1708, judgment of 3 February 2012, [2012] FSR 12, Ch D. (FAPL v QC Leisure (No. 3)). 230 Valve (n 6).

231 Paroxetine CJEU (n 52).

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collateral and have no practical impact on competition?232 It has long been held that anticompetitive provisions (such as export bans) are restrictive by object even if never acted upon. Along similar lines, it might be argued that a contractual obligation not to do something which could infringe an IPR if done is still capable of affecting competition by bolstering the effect of the underlying IPR, particularly if there may be some difference in scope or duration of the parallel IPRs between different Member States.233 The authors of the eighth edition of Bellamy and Child considered the position to be ambig- 2.161 uous,234 while noting that the Commission has argued that an absolute contractual obligation not to sell into the territory of another licensee will infringe Article 101(1) TFEU even if such a sale would be unlicensed and therefore in principle infringe applicable IPRs. More recent case law suggests that the European Courts agree with the Commission. See, for example, the discussion of Valve above at paragraphs 2.40–2.46,235 further discussed below at paragraphs 2.168–2.171. It is, of course clear that obligations aimed at restricting the ability of third parties to deal in licensed products by way of parallel trade are likely to be regarded as by object infringements. As a practical matter, a licensor and licensee who wish to have a reasonable degree of certainty 2.162 about the enforceability of a licence, and the limitations within it, will avoid including clauses in a licence which could be viewed as bolstering the inherent territorial limitations involved in granting national licences. A series of recent cases have considered such exclusivity issues. One (FAPL v QC Leisure) 2.163 was a reference directly to the CJEU from a national court and has been discussed above at paragraphs 2.153–2.159; a second (Valve) was an appeal to the GC from a Commission decision. The Hollywood Studios236 investigation by the Commission is also relevant. In 2015, the Commission issued a Statement of Objections to Sky UK and six US film studios expressing the preliminary view that the agreements between Sky UK and the US studios had the effect of restricting the access of EU consumers outside the UK to certain Pay-TV services.237

232 https://​chillingcompetition​.com/​2020/​12/​10/​geo​-blocking​-and​-territorial​-restrictions​-after​-generics​-and​-canal​-are​ -they​-by​-object​-infringements/​– accessed 9 November 2023. 233 Case C-277/87 Sandoz Prodotti Farmaceutici SpA v Commission of the European Communities [1990] ECR I-45 (ECLI:EU:C:1990:6). 234 Bellamy and Child (n 86), paras 9.105 and 9.030. 235 Particularly Valve (n 6), para 192.

236 Case AT.40023 – Cross Border Access to pay-TV (Hollywood Studios Investigation). The Commission proceedings in this case were complex, involving two separate sets of commitments, which were ultimately withdrawn following the Canal + appeal (Canal + CJEU (n 62)). The history of the Commission proceedings in can be found at https://​competition​ -cases​.ec​.europa​.eu/​cases/​AT​.40023 – accessed 1 December 2023. The Paramount Commitments given in 2016 are at https://​ec​.europa​.eu/​competition/​antitrust/​cases/​dec​_docs/​40023/​40023​_5273​_5​.pdf – accessed 1 December 2023 and the commitments given by the other studios and by Sky in 2019 are at https://​ec​.europa​.eu/​competition/​antitrust/​cases/​ dec​_docs/​40023/​40023​_10624​_3​.pdf – accessed 1 December 2023. 237 The decision to initiate this investigation should be seen in the context of the Commission’s attempt to end unjustified geo-blocking practices and its Digital Single Market strategy to remove barriers around digital goods and services.

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2.164 Nine months after the investigation began, in April 2016, one of the studios, Paramount, offered commitments to the Commission, hoping to bring an end to the investigation. Paramount undertook: ● not to have (enter, renew or extend) any Pay-TV licence preventing a broadcaster from itself making passive sales outside the licensed territory and enabling a broadcaster to request that Paramount prohibit or limit other EEA broadcasters from engaging with unsolicited requests from another EEA licenced territory; ● not to honour or enforce any existing Paramount obligation preventing EEA broadcasters from responding to unsolicited requests; and ● not to enforce any geo-blocking restrictions in existing agreements with broadcasters. 2.165 These commitments were accepted by the Commission in July 2016. In December 2016, Groupe Canal + appealed, seeking annulment of the decision.238 The GC rejected the challenge but in December 2020 the CJEU annulled the commitments decision.239 2.166 Groupe Canal +’s main argument on appeal was that the GC had been wrong to hold that the decision to accept the commitments did not interfere with the contractual rights of Groupe Canal +. It argued that the legally binding nature of the commitments automatically implied that Paramount would not honour its contractual obligations with Groupe Canal + under their existing license agreement. The CJEU found that the principle of proportionality requires that the contractual rights of third parties are not ‘devoid of their meaning’ and that a commitments decision which effectively disapplies contractual clauses conferring rights on third parties who are not targeted by the investigation is an interference with contractual freedoms. 2.167 Given the focus of the appeal (and the inevitably preliminary scope of any substantive competition law assessment in the context of an Article 9 commitments procedure), the judgment deals only briefly with the question of whether the sorts of geo-blocking clauses used in licensing agreements in the film and television sector infringe competition law. The CJEU confirmed FAPL v QC Leisure as follows (internal references removed): In particular, in a factual context characterised by significant barriers that seriously restrict the opportunities for cross-border television broadcasting, the fact that the owner of the copyright grants the exclusive right to broadcast the audiovisual content on the territory of a Member State, and therefore to prohibit, during a specific period, the broadcasting of that content by other operators who have not obtained authorization from the holders of the rights in question or paid remuneration to them, is indeed not sufficient to justify a finding that such an agreement must be considered to be the object, the means or the result of an arrangement prohibited by the Treaty. Consequently, a copyright holder may in principle grant to a sole licensee the exclusive right to broadcast by satellite subject matter protected by such a right, during a specified period, from a single Member State of broadcast or from a number of Member States. On the other hand, when the agreements concluded by the copyright holder contain clauses under which the holder is thereafter required to prohibit all its contracting partners on the EEA market from making passive sales to geographic markets situated outside the Member State in respect of which

238 Case T-873/16 Groupe Canal + v European Commission, judgment of the GC of 12 December 2018 (ECLI:EU:T2018:904) (Canal + GC).

239 Canal + CJEU (n 62).

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ARTICLE 101 TFEU AND IP LICENSING it grants them an exclusive licence, those clauses confer a contractually specified absolute territorial exclusivity and thereby infringe Article 101(1) TFEU. In fact, an agreement which might tend to restore the partitions between national markets is liable to frustrate the Treaty’s objective of achieving the integration of those markets through the establishment of a single market. Thus, agreements which are aimed at partitioning national markets according to national borders or make the interpenetration of national markets more difficult must be regarded, in principle, as agreements whose object is to restrict competition within the meaning of Article 101(1) TFEU. In that regard, account should be taken of the development of EU law that has resulted, in particular, from the adoption of Council Directive 89/552/EEC of 3 October 1989 on the coordination of certain provisions laid down by law, regulation or administrative action in Member States concerning the pursuit of television broadcasting activities … which are intended to ensure the transition from national markets to a single programme production and distribution. In that context, where a licence agreement is designed to prohibit or limit the cross-border provision of broadcasting services, it is deemed to have as its object the restriction of competition, unless other circumstances falling within its economic and legal context justify the finding that such an agreement is not liable to impair competition.240

Issues relating to geo-blocking and IP continued to arise following FAPL v QC Leisure and 2.168 Canal +. As discussed above at paragraphs 2.40–2.46, in January 2021, the Commission imposed fines totalling 7.8 million euros on Valve, the owner of a global PC gaming platform ‘Steam’, and five publishers. They were found to have entered into anticompetitive agreements which restricted cross-border sales of around 100 PC video games in Europe. The Commission press release241 noted that the publishers requested Valve to set up geographical restrictions and to provide geo-blocked Steam ‘activation keys’, which prevented users located in one EU country from activating games purchased elsewhere. The publishers themselves also included contractual export restrictions in their agreements with distributors to prevent them selling games outside their allocated territories. The GC upheld the Commission decision in its entirety.242 The GC judgment in Valve is invaluable in pulling together a number of issues relating to 2.169 exhaustion, IPR and Article 101(1) TFEU. The GC considered the specific context of the geo-blocking arrangements instituted by Valve, including IP considerations and the relevance of the Copyright Directive.243 The judgment confirmed (in line with FAPL v QC Leisure and Canal +) that the Commission 2.170 had correctly taken the IP issues into account before holding that Valve’s conduct was a restriction by object. The GC confirmed and applied both Deutsche Grammophon244 and Coditel 2245 as authority that the exercise of an IPR may infringe Article 101(1) TFEU where it ‘… appears to be the object, the means or the consequence of an agreement … notwithstanding the fact

240 Ibid., paras 43–48.

241 Commission Press Release IP/21/170, Antitrust: Commission fines Valve and five publishers of PC video games € 7.8 million for ‘geo-blocking’ practices, 20 January 2021 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​IP​_21​_170 – accessed 25 November 2023). 242 Valve (n 6).

243 Ibid., para 185 ff.

244 Deutsche Grammophon (n 60), paras 6 and 10. 245 Coditel 2 (n 61), para 17.

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that it may constitute a legitimate expression of that right authorising its holder, inter alia, to oppose any unauthorised use’. 2.171 The question of cross-border limitations arising from all aspects of online trade was considered in detail in the Commission’s inquiry into the e-commerce sector.246 The inquiry is important background context for those who wish to understand the Commission’s policy towards geo-blocking (and territorial limitations generally).247 The report identified that geo-blocking is widespread throughout the EU and that many retailers and digital content providers are contractually required by suppliers to geo-block.248 The sector inquiry was followed by the adoption of specific legislation to prohibit geo-blocking in certain circumstances249 (but not including some digital online services). In Valve, the appellants argued that the Commission had wrongly ignored the legislative decision to exclude digital online services and products. Valve argued that the legislative choice to exclude such services was a recognition of their particular characteristics and that the Commission had not properly considered this when finding that its geo-blocking conduct amounted to a restriction of competition by object. The GC was unimpressed by this argument, noting both that the geo-blocking regulation was not in force at the material time and that it specifically foresaw the possibility of extending its scope to cover electronically supplied and copyright protected works.250 2.172 The Commission’s Digital Single Market initiative and the resulting cases will affect companies’ approach to exclusive licensing agreements, especially in high tech markets and particularly in the area of copyright and where distribution agreements are engaged. Notwithstanding the different context that applies in technology licensing, the cases discussed above are a useful reminder of some core principles. It is also worth remembering that the TTBER and the related Guidelines do not apply to licences of copyright other than software copyright.251 Key takeaways

2.173 As mentioned above, the compliance of sales limitations with Article 101(1) TFEU will depend on factors such as the market power of the parties and whether or not they are competitors. Bearing that in mind, generally speaking: ● sales restrictions imposed on the licensor to protect an exclusive licensee are acceptable252 (and may not even fall within the scope of the prohibition in Article 101(1) TFEU at all); ● sales restrictions imposed on the licensee to protect the licensor are also likely to be acceptable; 246 Commission Press Release IP/15/4921, Antitrust: Commission launches e-commerce sector inquiry, 6 May 2015.

247 Commission Communication COM(2015) 192 final, A Digital Single Market Strategy for Europe, 6 May 2015.

248 Commission Communication COM(2017) 229 final, Final Report on the E-commerce Sector Inquiry, 10 May 2017.

249 Regulation (EU) 2018/302 of the European Parliament and of the Council of 28 February 2018 on addressing unjustified geo-blocking and other forms of discrimination based on customers’ nationality, place of residence or place of establishment within the internal market and amending Regulations (EC) No 2006/2004 and (EU) 2017/2394 and Directive 2009/22/EC, OJ [2018] LI 60/1. 250 Valve (n 6), para 218.

251 Technology Transfer Guidelines (n 76), para 44; TTBER (n 160), Art 1.1(b) (i)–(vii). 252 Technology Transfer Guidelines, ibid., para 202.

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● if the agreement is a reciprocal (cross-) licence, sales limitations accepted between licensor and licensee may be regarded as market sharing;253 ● in a non-reciprocal (cross-) licence, sales restrictions between the parties, although potentially of concern, are likely to be acceptable;254 ● restrictions limiting active selling by licensees into territories reserved to exclusive licensees are likely to be acceptable; ● restrictions limiting passive sales between licensees are likely to be prohibited; ● obligations to restrict the activities of third parties are likely to be prohibited. C. Tying and Bundling/Quality Control Obligations Licensors sometimes oblige licensees to acquire from the licensor or from a supplier desig- 2.174 nated by the licensor services, products, technologies or materials which are not covered by the licensed IPR for use in the exploitation of the licensed IPR. Contractual ‘tie-ins’ can close rival suppliers of the tied goods or services out of the market or make access significantly more difficult. ‘Bundling’ is the practice of selling two technologies, or a technology and a product or service, 2.175 together in a single transaction only as a combined package. Bundling does not involve contractual restrictions on either party but can have an equivalent effect on competition to tying. Tying or bundling concerns arise only when the tied/bundled products/technologies are in 2.176 reality separate, that is, where there is a distinct demand for each of them. This is not generally the position where there is some necessary technical link between them. Where there is such a necessary technical link, tying and bundling will not fall within the scope of the prohibition in Article 101(1) TFEU. If there is no necessary link between separate products, and there is a degree of individual 2.177 demand for each so that tying/bundling might in principle occur, but obligations are imposed to buy them together so as to ensure a technically satisfactory exploitation of a licensed invention (or to maintain the consistent reputation and goodwill of a trademark owner), those obligations will usually be acceptable.255 Tying and bundling may have procompetitive or anticompetitive effects. Neither practice is 2.178 likely to be prohibited by Article 101(1) TFEU unless the party imposing the tie, or engaging in bundling, has a significant degree of market power. As the principal competition concern that arises from tying or bundling conduct relates to potential foreclosure of competing suppliers of the tied product, only licensors with market power in the tying product/technology will be sufficiently important to give rise to appreciable foreclosure effects. Other potential anticompetitive effects that may arise from tying provisions in licences include 2.179 situations where tying two separate products together may allow a licensor to maintain or 253 Ibid., para 198 and see definition of ‘reciprocal’ in Art 2 of the TTBER (n 160). 254 Technology Transfer Guidelines, ibid., para 199. 255 Ibid., paras 221–225.

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enhance its market power in the tying product because it will be necessary for any new entrant to enter two (or more) markets at the same time so as to be able to compete on a package basis. The Commission also notes that tying may allow a licensor to increase royalties ‘… in particular when the tying product and the tied product are partly substitutable and the two products are not used in fixed proportion’.256 The Commission explains that where a tying strategy is implemented in those circumstances, the licensee’s ability to switch to substitute inputs in response to higher royalties for the tying product is undermined. 2.180 Notwithstanding these potential anticompetitive effects, the Commission readily accepts that tying can have procompetitive outcomes, for example as when the tie is necessary for technically satisfactory use of the licensed technology (an example is given of a situation where a particular catalyst might be necessary for use in a particular chemical process) or use of both tied product and tying technology might be required to ensure that the licensee meets objective quality standards which are achieved by the licensor (and other licensees). Tying may also be procompetitive where it allows significantly more efficient exploitation of the licensed technology. 2.181 Where the result of exploiting the licensed technology is a product or service which is marketed using licensor’s trademark or brand name or even just by reference to the licensor’s technology, the Commission has stated that the licensor has a legitimate interest in protecting its reputation and the value of its technology. This may involve tying in some circumstances but can also extend to the imposition (and policing) of quality standards. An example of this principle outside the field of technology licensing can be seen in a couple of older Commission decisions relating to trademarks.257 Similar principles can be seen at work in the context of franchising arrangements.258 2.182 The application of these principles in practice was considered by the CJEU in Windsurfing.259 The Court agreed with the Commission that, while requiring licensees to abide by quality standards need not necessarily infringe Article 101(1) TFEU, such quality standards should be agreed in advance and be based on objectively verifiable criteria relating to quality and safety. 2.183 The Commission contended that the quality control provisions could fall outside the scope of Article 101(1) TFEU if they: ● relate to a product actually covered by the patent; ● are intended to ensure no more than that the technical instructions as described in the patent are in fact carried out; and ● if they are agreed in advance on the basis of objectively verified criteria. 2.184 There is no discussion in the judgment of the possible effects on competition of quality requirements going beyond those identified by the Commission, that is, if they related to aspects of products other than those specifically covered by the patent. The Court did not discuss this question and the Commission noted only: ‘The design and quality of a product are the sole 256 Ibid., para 233.

257 Campari (n 134); Moosehead/Whitbread (n 204), para 15(4).

258 Pronuptia (n 79) and see discussion of franchising arrangements in Chapter 5. 259 Windsurfing (n 152), para 46.

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concern of a licensee.’260 It seems most likely that further obligations could fall within the scope of the prohibition in Article 101(1) TFEU depending on their likely effect on competition, and that they might also be exempt under Article 101(3) TFEU. The Court of Justice did not appear to consider the market position of Windsurfing or the 2.185 extent to which either the quality controls or the tying provisions in the Windsurfing licences might affect competition. At paragraph 46 of the judgment, the Court observes that: ‘… discretionary … contracts would in effect enable a licensor to impose his own selection of models upon the licensees, which would be contrary to Article 85’ (emphasis added), and subsequently, at paragraph 49 the Court states: ‘It must therefore be held that Windsurfing International’s real interest lay in ensuring that there was sufficient product differentiation between its licensees’ sailboards to cover the widest possible spectrum of market demand.’ This suggests that on the facts the Court was not persuaded that the purpose of the quality control provisions was the control of quality or the imposition of uniform standards. In reality this might best be read as one of a number of cases in which the competition authorities and courts have looked behind the ostensible purpose of a contractual provision to discern its actual purpose in the light of its effects. While covering a wide spectrum of market demand might be thought to be broadly procompetitive, it seems that the Court and Commission were concerned that Windsurfing was seeking to control the downstream market and engaging in market segmentation by ensuring that individual licensees competed only in particular segments and were protected from competition in those segments. The Court rejected arguments by Windsurfing seeking to defend its ability to control the 2.186 choices of licensees. These arguments included a concern about potential liability under Californian law for a licensor whose licensees market poor quality boards. The Court dismissed this, noting pithily that ‘… even if such liability does exist it does not affect the question of the compatibility of such controls with community law’.261 Windsurfing also argued that maintaining a degree of oversight over the boards which were sold with its rigs would enable it to prevent passing off. Again, the Court of Justice was unimpressed, saying merely that: ‘In so far as the clause at issue enabled Windsurfing to detect and prevent the slavish imitation of boards by licensees, there can be no doubt that the clause constituted a restriction on the freedom of competition. It substituted Windsurfing International’s discretion for the decisions of national courts …’ (emphasis added).262 In the light of the discussion at paragraphs 45–52 of the judgment, the Court held, ultimately, 2.187 that a clause which obliged the licensees to exploit the licensed patents only for the manufacture of sailboards using boards which had been given Windsurfing International’s prior approval gave rise to a restriction of competition within the meaning of Article 101(1) TFEU. Windsurfing is not a particularly clear authority for some of the propositions in respect of which 2.188 it is sometimes cited. It is clear on a careful reading of the judgment that the outcome was heavily influenced by the underlying facts. An attempt by a patentee to control the development 260 Ibid., para 42. 261 Ibid., para 50. 262 Ibid., para 52.

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of the downstream market through broad prior approval clauses caused the Court real concern, almost irrespective of market share (although query whether this still holds good under the ‘more economic’ approach which is now pursued). On the other hand, the judgment helpfully clarified that some types of quality control will not fall within the scope of Article 101(1) TFEU at all – those which comply with the Commission’s criteria set out at paragraph 2.183 above. 2.189 What is considerably less clear is how much help licensors can get from Windsurfing for other quality related requirements in licences – such as those discussed at paragraph 224 of the Technology Transfer Guidelines. The Commission’s comments are comforting and suggest that an infringement of Article 101(1) TFEU is unlikely unless a significant adverse impact on competition is likely to flow from the quality requirements (possibly akin to that mentioned by the Court in Windsurfing, that the intent – and presumably likely effect – would be for the licensee to control the downstream market). Given the approach of the Court and the Commission in Windsurfing and in trademark cases such as Campari and Moosehead/Whitbread, if risk reduction is important, it would be prudent, and good drafting practice, to seek only to impose quality criteria which are clear, objective, uniformly applied, notified in advance and proportionate.263 2.190 To a large extent the comments above about the implications of the Windsurfing judgment for quality control clauses also apply to tying provisions. These were dealt with separately by the Court in Windsurfing as Windsurfing had imposed an explicit contractual obligation on its licensees to sell patented components (in particular, sail‑rigs) only in conjunction with boards approved by Windsurfing, in other words, only as complete sail boards. The Court dealt with the ‘standalone’ tying issue quite briefly. Having considered Windsurfing’s quality control arguments previously, the Court (again without obvious consideration of Windsurfing’s market position) dismissed Windsurfing’s arguments that the tie was justified by the need to prevent patent infringement, noting that as the patent covered only the rig, and as the rig could be and in fact was sold separately ‘… it cannot be accepted that the obligation arbitrarily placed on the licensee only to sell the potential product in conjunction with a product outside the scope of the patent is indispensable to the exploitation of the patent’.264 To that extent, Windsurfing can be seen as fitting into a series of cases in the late 1970s and early 1980s, in the immediate run up to the adoption of the first patent licensing block exemption, in which both the Commission and the Court expressed concern about the compatibility with competition law of provisions which appeared calculated to extend the power of a patent outside its proper scope. 2.191 Where a licensor considers some degree of tying to be important to enable effective licensing, the approach to contractual tying under vertical agreements as recently set out by the Commission may also be helpful in understanding the parameters within which such provisions

263 The Commitment Decision in Rio Tinto (n 186) is interesting as it is one of the few cases in the last ten to 15 years in which the Commission has investigated a tying concern. The investigation followed a complaint and resulted in a commitments decision under Art 9(1) of Regulation 1/2003. The party offering the commitments had a very significant market share on the relevant technology market (see paras 36 ff) and there were significant barriers to entry and expansion on that market (see paras 43 and ff). The Commission had reached a preliminary conclusion that the tying behaviour at issue was contrary to both Art 101 TFEU and Art 102 TFEU. 264 Windsurfing (n 152), para 57.

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may be less risky and the procompetitive justifications and efficiencies that may be relevant to justifying such obligations even once an appreciable effect on competition has been identified.265 Windsurfing is one of the few EU Court judgments on the specific terms of licences and the 2.192 difficulties of reconciling it with some more recent statements of the Commission simply underscore the complexities of advising in this area, where often the major concern of the parties is likely to be potential enforceability in a national court (where the views of the CJEU may be given greater deference than those of the Commission). Key takeaways

While tying and bundling (and the imposition of quality controls) can give rise to competition 2.193 concerns, these are likely to be significant only in circumstances where the party imposing the obligation has significant market power in the tying product and where the obligations imposed have no legitimate connection to the IPR which is being licensed (see the Court’s reference to the ‘arbitrary’ imposition of a tie in Windsurfing). As a matter of good practice, spending time understanding the legitimate commercial concern 2.194 which underpins the request to include a specific quality control, tying or bundling provision will be very helpful in understanding the risk which such a provision may pose. Testing the reasons given against the underlying purpose of the agreement and checking their link to the underlying IPR as well as their proportionality/necessity to achieve the legitimate aims of the parties will help in drafting licences which are more likely to withstand competition law scrutiny if necessary, and to be enforceable if required. D. Restrictions on Prices or Customers Downstream restrictions, that is, provisions which restrict a licensee in the onward sale of 2.195 licensed products are potentially anticompetitive. Restrictions on downstream pricing (and particularly as to the minimum price at which 2.196 licensed products can be sold) are likely to infringe Article 101(1) TFEU.266 The TTBER treats minimum resale pricing obligations as hardcore restrictions of competition.267 Outside

265 Vertical Guidelines (n 25), paras 389–397.

266 The Commission takes the position that limits on minimum onward pricing are ‘by object’ infringements of Art 101(1) TFEU (Cases AT.40465 – Asus, AT.40469 – Denon & Marantz, AT.40181 – Philips, AT. 40182 – Pioneer (n 126)). The issues which underlie this approach and its implications have been much explored by commentators (see, e.g., Matthew Bennett, Amelia Fletcher, Emanuele Giovannetti and David Stallibrass, ‘Resale Price Maintenance: Explaining the Controversy, and Small Steps Towards a More Nuanced Policy’ (2011) 33(4) Fordham International Law Journal 1278). The Court of Justice recently explored the nature of RPM in the context of the VABE in Super Bock (n 16).

267 Technology Transfer Guidelines (n 76), paras 97(a), 99, 117(a) and 118. See also 88/563/EWG: Commission Decision of 13 October 1988 relating to a proceeding under Article 85 of the EEC Treaty (IV/31.498 – Delta Chemie/DDD), OJ [1988] L 309/34; and Moosehead/Whitbread (n 204). The US Supreme Court has held that Retail Price Maintenance should be dealt with under the ‘rule of reason’ rather than as a per se infringement of US antitrust law (see Leegin Creative Leather Products Inc v PSKS Inc, 551 US 877 (2007)). However, ‘by object’ is not the same as ‘per se’. In the 2022 Vertical Guidelines (n 25), para 195, the Commission notes:

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the scope of the TTBER they may be restrictions of competition by object if, in their legal and economic context, they satisfy the requirements to be categorized as such. 2.197 While it is a relevant part of the legal context to consider that the TTBER treats minimum pricing restrictions as ‘hardcore’, this does not mean that a proper assessment of whether or not the specific provision presents a sufficiently serious degree of harm to competition to be categorized as a ‘by object’ restriction can be avoided.268 As the Court reiterated in Super Bock when discussing resale price maintenance (RPM) in the context of the VABE: ‘the concepts of “hardcore restrictions” and of “restriction by object” are not conceptually interchangeable and do not necessary overlap. It is therefore necessary to examine restrictions falling outside that exemption, on a case by case basis, with regard to Article 101(1) TFEU’.269 2.198 Restrictions as to the customers to whom a licensee can sell may also infringe Article 101(1) TFEU, particularly if the licensor and licensee are competitors. Such arrangements can easily be viewed as market sharing agreements and will be viewed with suspicion.270 However, as explained below, some restrictions on the purposes for which the licensed technology can be used, such as field of use restrictions, are entirely acceptable. Key takeaways

2.199 The view of the EU competition authorities is that restrictions on future dealing by a purchaser/ licensee are capable of affecting competition. Some such restrictions may be regarded as benign (e.g., field of use limitations of the sort discussed below). Restrictions on the terms on which licensees deal with downstream customers, in particular as to price or as to which customers may be supplied are likely to involve risks particularly when entered into between competitors. Even between non-competitors, minimum resale price maintenance gives rise to very significant competition law risk under EU law and is likely to infringe in most circumstances.271 E. Field of Use Restrictions 2.200 Field of use restrictions take many forms. The right to manufacture in a specified field of use may be granted on a sole or exclusive basis. Obligations on a licensee to exploit licensed IPRs in only one or more fields of use, for example, a licence to manufacture drugs for one therapeutic field, are commonly included in licence agreements and will not usually fall within the scope of the prohibition in Article 101(1) TFEU. If they do, they will often be exempted under The Court of Justice of the European Union has held on several occasions that RPM is a restriction of competition by object within the meaning of Article 101(1) of the Treaty. However, as stated in paragraphs (179) to (181), the qualification of a restriction as a hardcore restriction or as a by object restriction does not mean that it is a per se infringement of Article 101 of the Treaty. Where undertakings consider RPM to be efficiency-enhancing in an individual case, they may rely on efficiency justifications under Article 101(3) of the Treaty. The Vertical Guidelines then give various examples of potential efficiencies at para 197.

268 Super Bock (n 16), paras 31–41. 269 Ibid., para 41.

270 Technology Transfer Guidelines (n 76), paras 97(c)(i); 105 et seq; 117(b); 119 et seq.

271 There are some indications in para 197 of the Vertical Guidelines (n 25), of situations in which RPM may give rise to efficiencies.

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Article 101(3) TFEU. However, difficulties can arise where a field of use is, in effect, a customer restriction because of the precise and/or narrow nature of the specified field or product market.272 Field of use restrictions may be procompetitive because the ability to grant licences in limited or 2.201 specific technical areas may encourage a licensor to disseminate its technology where it might not otherwise have done for fear of creating competition in its own areas of exploitation or interest. Licensors may also be willing to license at lower royalties or on more favourable terms if the licensed field is limited (smaller and more clearly defined). However, anticompetitive effects are more likely where the licence is between competitors, leading to concerns about potential market sharing or a softening of competition. The Commission discusses this concern at paragraph 213 of the Technology Transfer 2.202 Guidelines. The previous paragraph notes that ‘freedom to operate’ agreements are common between competitors in some sectors. In such arrangements, the licensee is permitted to develop and exploit its own products or technology without concern about potential infringement actions.273 Such freedom to operate arrangements may be limited in technical scope, but to the extent that they are non‑exclusive and (if necessary) reciprocal, with the same technical scope, it is difficult to see risks to competition. The Commission recognizes the importance of the precise scope of any field of use restriction 2.203 between competitors. It states that field of use provisions which are reciprocal and symmetric (i.e., which go both ways and which cover the same technical field for both parties) are unlikely to give rise to competition concerns. On the other hand, the Commission regards cross-licences between competitors which are asymmetrical with some suspicion. Such arrangements, where the parties compete in markets which can be delineated as separate technical fields can give rise to market sharing concerns. For example, assume that two Parties, A and B, are both present in Market C/D, and both have 2.204 IPRs which read on the necessary technologies (E and F) to compete in Market C/D. Party A gains the right to Party B’s licensed technology (F) in one technical field, Field C, enabling it to operate in Field C (part of Market C/D) without fear of infringement suits by Party B. Simultaneously, Party B gains the right to use Party A’s licensed technology (E) only in Field D, enabling it to operate in Field D (part of Market C/D) without fear of infringement suits by Party A. In those circumstances, the concern is that each party will be incentivized to focus only on the field in which it is sure of being free from infringement suits (Party A in Field C and Party B in Field D) which will result in reduced competition and market sharing in Market C/D, even though there is no explicit market sharing agreement. The Technology Transfer Guidelines remark that Article 101(1) TFEU will be engaged if, in the circumstances, the effect of the agreement is likely to be for each licensee to reduce output (or presumably other endeavours, such as R&D) outside its licensed field of use.

272 Technology Transfer Guidelines (n 76), paras 208 et seq. 273 Ibid., para 212.

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2.205 Field of use restrictions give rise to real concerns about their potential impact on competition where competitors agree to license each other in the same field on an exclusive basis.274 As with other forms of exclusive licensing between competitors, if the competitors both have IPRs which create barriers to entry such an arrangement will make it significantly more difficult for third parties to enter, particularly if the licences in question contain clauses which are generally regarded as routine – such as an obligation on the parties to take action to enforce the licensed IP against third parties, or to collaborate in doing so or to keep each other informed of actual or potential infringements. Similar considerations may even arise in the context of some ‘freedom to operate’ arrangements. For example, if competitors have been involved in litigation relating to their respective IPRs and settle that litigation, even on a ‘walk away’ basis, there may be considerable competition law risk if there is any suggestion of an agreement or arrangement between them as to their future conduct vis-à-vis third parties. 2.206 Competition concerns will also arise where the restriction does not relate to a properly defined technical field of use. The Commission draws a distinction between genuine field of use limitations in a licence and restrictions on the customers to whom the licensee may sell. Customer restrictions are not block exempted and, as they are regarded by the Commission as tantamount to market sharing (and hardcore – thus outside the scope of the exemption provided by the TTBER), they are at serious risk of falling with the scope of the prohibition in Article 101(1) TFEU with individual exemption being unlikely. It can be difficult to distinguish between a legitimate technical field of use limitation and an illegitimate customer restriction. It will greatly assist enforceability, and avoid competition law concerns, if the contract drafting refers specifically to ‘identified and meaningful technical characteristics’275 of the contract products or the licensed field. 2.207 In the Commission’s view, a legitimate field of use restriction does not engage specifically with the identity or nature of the purchaser of the licensed product. The key distinguishing characteristic of a field of use restriction is its focus on the technical attributes of the product itself. In drawing this distinction, the Commission states clearly that: ‘The fact that a technical field of use restriction may correspond to certain groups of customers within a product market does not imply that the restraint is to be classified as a customer restriction.’276 In other words, for example, the mere fact that some types of glassware are bought predominantly by those who sell specific products in specific countries does not mean that a field of use restriction defined by reference to genuine technical characteristics of that product is an illegitimate customer restraint. 2.208 A properly defined field of use restriction is not equivalent to an output limitation. As long as the licensee is free to manufacture without limitation within the licensed field the fact that the licensee’s production may be less than if the licence had been unlimited in technical scope is not relevant. This clarification is important given that some output restrictions are regarded as hardcore restrictions.277 274 Ibid., para 211. 275 Ibid., para 209. 276 Ibid., para 209. 277 Ibid., para 210.

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Finally, while limiting a licensee to a single technical field of use, product market or sector will 2.209 generally not be objectionable, the Commission is clear that imposing a restriction as to supply within a product market is a form of market sharing and will be analysed as such. It is therefore important to be careful in deciding which product market is relevant from a competition law perspective when assessing the scope of the limitation. Commentators have noted that it is particularly important to consider the right level of the market, being the level where the licensed technology is an input.278 Key takeaways

Field of use restrictions are on balance regarded as procompetitive. When drafting them, the 2.210 potential competition risk will be reduced if they refer as precisely and clearly as possible to the technical characteristics in respect of which the technology is being licensed. Great care should be taken to avoid describing the particular field by reference to particular customers. As is always the case, particular attention should be paid to field of use restrictions in licences between competitors to check that they could not be assessed as reducing incentives to innovate and/or compete. F. Non-compete Obligations Licensors often seek to prevent competition between themselves and their licensees, or between 2.211 licensees in respect of products covered by the licensed IPR. This will often be addressed by the grant of intrabrand exclusivity, which can have many aspects (territorial exclusivity; field of use exclusivity, etc), as described above. In addition, a licensor may seek to impose a contractual ban on technical or product (interbrand) competition, where licensees also manufacture or supply products using alternative technologies, outside the scope of the licensed IPR. An obligation imposing a restriction on the manufacture or sale of competing products or 2.212 technologies is likely to fall within the scope of the prohibition in Article 101(1) TFEU unless, in all the circumstances, it is unlikely to have foreclosure effects.279 Market power and market context (including the existence of barriers to entry) are important to any analysis of the potential impact of a non-compete obligation. The Commission distinguishes between non-compete obligations which restrict the ability of 2.213 a licensee to use competing third-party technologies and those which limit the licensee’s ability to develop and commercialize its own competing technologies. The second issue is dealt with below at paragraphs 2.219 ff. Non-compete obligations which limit the licensee’s dealings in third-party technologies are 2.214 capable of having significant procompetitive effects. The Technology Transfer Guidelines280 278 Faull and Nikpay (n 84), p 1481, para 10.144, fn 152. In the particular example given, this is presented as important to distinguishing between a customer restriction and a product restriction, but similar caution should be applied when analysing other provisions. 279 Delta Chemie/DDD (n 267); Maize Seed (n 10); Velcro/Aplix (n 185). 280 Technology Transfer Guidelines (n 76), paras 231–233.

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recognize that incentives for IP owners to license technology and for licensees to utilize the technology so licensed are maintained or increased by ensuring that a licensee focuses on the licensed technology and develops and exploits it effectively. The Commission notes that licensors are more likely to be willing to license technology where there is no risk of ‘leakage’ from the licensed technology into technology owned or controlled by competitors. It also acknowledges that licensors may have particular concerns where knowhow is licensed as part of a technology package as it can in practice be very difficult to establish when knowhow has been misused or leaked (whether inadvertently or not). 2.215 Similar considerations arise where a licensor needs to invest resources in those that are granted a licence, for example in training the licensee in the use of the technology or, if necessary, in modifying the technical package to improve its utility to a particular licensee. The Commission also shows an awareness of practical concerns when it remarks that the accurate monitoring of royalty obligations can be more difficult when a licensee uses two or more competing technologies. Key takeaways

2.216 A non-compete obligation which falls within the scope of the prohibition in Article 101(1) TFEU may well be exempted, whether under the block exemption regulation or by way of individual exception. However, if the block exemption does not apply or there are significant questions about its potential application, parties may wish to consider whether some of the benefits identified above as resulting from a non-compete provision could also be achieved by other less restrictive provisions. This could increase the likelihood of being able to rely on the exception provided by Article 101(3) TFEU. 2.217 For example, if there is a concern that licensees require the discipline of a non-compete obligation to encourage them to exploit the licensed technology, similar incentives might be provided by imposing a minimum royalty obligation or a minimum output obligation. Equally, a licensor might be able to charge for any investment it makes in training the licensee, which could be less restrictive than imposing a non-compete provision. Ultimately, the balance of obligations and incentives will depend on all the circumstances and on the way in which individual licence negotiations play out. 2.218 As would be expected, non-compete obligations in a licence between competitors give rise to greater concerns than those between non-competitors with the principal concern being the risk of collusion on the product market. How realistic such a risk is, and whether steps can be taken to mitigate it, will affect the likelihood that such a provision will fall within the scope of the Article 101(1) TFEU prohibition. Even if it does, exemption is a real possibility and the TTBER exempts such provisions in agreements (including cross-licences) between competitors, up to the relevant market share threshold.

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G. Disincentives for the Licensee to Develop/Exploit Own Technology/Grant Back Requirements The previous section dealt with limitations on the ability of licensees to engage with competing 2.219 third-party technologies. Licences may also include provisions affecting the ability of licensees to develop or exploit their own technology. Restrictions on the ability of a licensee to use its own competing technology give rise to significant competition law risk. Such limitations are considered to be likely to reduce the licensee’s incentives to invest in innovation and to reduce competition on both product and technology markets. The risk will arise if a restriction affects the licensee’s freedom to choose how, where, how much, or at what price it produces and sells using its own technology. The EU authorities have always been concerned to protect incentives for follow on or incre- 2.220 mental innovation. They have traditionally also been suspicious of terms imposed by licensors which appear likely to deprive licensees of the fruits of their own developments. For example, in AOIP/Beyrard, the Commission held that an obligation ‘to pay royalties to the licensor in respect of the licensee’s own development work … discourages the licensee from carrying out its own research … This is also incompatible with Article [101(1)], in the same way as the obligation to pay royalties after the expiration of a patent’.281 Limitations on the ability of a licensee to exploit its own pre-existing technology rights and any 2.221 restriction on the ability of any party to carry out R&D are likely to fall within the scope of the prohibition in Article 101(1) TFEU and will require justification if they are to be exempted. As R&D is seen as critical to innovation, a restriction on independent R&D will be of concern 2.222 whether the limitation relates only to the field covered by the licence or is more general.282 The competition concerns are likely to be more acute where the parties are competitors than when they are non-competitors. However, a restriction on R&D may give rise to fewer concerns if, for example, a licensee is in receipt of knowhow, meaning that joint research with a third party might risk the disclosure of that knowhow to the third party. In such a situation, limiting the ability of the licensee to carry out joint research projects may be acceptable, as long as it is proportionate. In considering whether to include such a provision in a licence, it is wise to consider whether 2.223 a broad restriction is required, given the risk that it may be held not to be enforceable. Some more limited requirements, such as establishing a separate team for the third-party research with appropriate information barriers, might be sufficient and would be less likely to give rise to competition law concerns. If a more limited requirement is not proposed, it may be sensible to check that this possibility has been considered and to understand the reasons why it was not deemed sufficient or not pursued. This may become relevant if the provision is ever challenged. A form of contractual restriction peculiar to IP licensing (and to patent licensing in particular) 2.224 is an obligation on one party to license to the other any improvements it makes to the licensed 281 AOIP/Beyrard (1976) (n 134), para 4(f).

282 Technology Transfer Guidelines (n 76), paras 115–116; 142–143.

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technology. Utilizing licensed technology can enable the party working it to make discoveries, some of which may be patentable in themselves and some of which may constitute knowhow. ‘Improvements’ can be made by either a licensor or a licensee. The licensing of such improvements will need to be dealt with separately from the original licensed technology. If the original licence contains no provisions relating to the treatment of improvements other than an obligation on the parties to negotiate about future licences, Article 101(1) TFEU will not be engaged. However, it is common for licences to attempt to deal substantively with the future ownership and licensing of improvements at the same time as the conclusion of the original licence. Such provisions can fall within the scope of the prohibition in Article 101(1) TFEU. 2.225 In some instances, it may not be possible to utilize an improvement without infringing the patent(s) covering the original licensed technology (often described as ‘non-severable’ improvements). In other situations, the improvements may be capable of being utilized without infringing the originally licensed technology (often described as ‘severable’ improvements). This distinction was important when applying the predecessor to the current TTBER. The current block exemption makes no distinction in its treatment of grant back obligations based on the difference between severable and non-severable improvements, although the distinction remains potentially relevant outside the scope of the block exemption. 2.226 Both parties can be keen to ensure that subsequent improvements made by the other are passed on so as to avoid a situation in which the originally licensed technology becomes obsolete or is left behind by improved versions. 2.227 Licensors argue that they will be incentivized to grant licences only if they can obtain a grant back/assignment of any improvements and will be unwilling to license their technology if there is a risk that in doing so they are enabling the licensee to develop technology which may enable the licensee to be a more effective exploiter of the original invention than the licensor itself. 2.228 Licensors may also seek the right to sub-license improvements made by any licensee throughout a network of licensees. It is argued that the improvements made by licensees are only possible because of the grant of the original licence and that they should therefore be shared with the licensor for the benefit of all those who are exploiting the underlying technology. Licensors also argue that licences are more likely to be attractive to potential licensees if licensees can be reassured that they will have access to up-to-date technology during the lifetime of the licence. 2.229 Licensees, on the other hand, argue that improvements often arise because of the expertise of the licensee and its investments in working the originally licensed technology and that such improvements have value, which they should be free to realize, whether by working the improvements themselves and gaining a competitive advantage, or by choosing to license them. 2.230 From a competition point of view, there are competing interests between (i) ensuring that licensors are not disincentivized from granting licences, enabling wider exploitation and dissemination of the initial invention, and (ii) maintaining sufficient incentives for licensees to improve the technology and then to disclose and share any improvements they make. 2.231 The Commission has consistently regarded obligations on licensees to assign (or exclusively to license) improvements back to the licensor as falling within the scope of the prohibition 92

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in Article 101(1) TFEU. Any such obligations or provisions having a similar effect should be drafted with care.283 On the other hand, obligations to license back on a non-exclusive basis have been treated much more favourably in the Commission’s decisional practice (and in the block exemptions, as discussed below). This approach was apparent as early as 1975 in Kabelmetal/Luchaire284 and in subsequent Commission decisions such as Rich Products (1985)285 and Velcro/Aplix (1985).286 In Kabelmetal/Luchaire, the parties had originally agreed that the licensee (Luchaire) would 2.232 transfer to the licensor (Kabelmetal) ownership of any improvements made by the licensee whether patentable or not. When considering whether to grant an exemption following notification under the regime in Regulation 17/62, the Commission obliged the parties to delete this obligation from the licence, on the basis that it clearly infringed Article 101(1) TFEU and could not benefit from an exemption under Article 101(3) TFEU as it ‘could not be regarded as being of the essence of the licensed patent rights or as contributing to the improvement of production or distribution of goods or to promoting technical or economic progress’. Subsequently the parties amended the agreement to provide that Luchaire would grant 2.233 Kabelmetal non-exclusive licences to the licensee’s improvements. Kabelmetal would be free to sub-license those improvements to other potential licensees of Kabelmetal’s technology. The Commission regarded this scheme as also potentially infringing the prohibition in Article 101(1) TFEU on the basis that, in effect, Luchaire was obliged to make its technology available (indirectly through Kabelmetal) to competing firms who were also licensees of Kabelmetal. The Commission noted that while Luchaire remained free to grant licences for its improvements to others who were not also licensees of Kabelmetal, thus retaining some incentive to innovate, the obligation to permit Kabelmetal to license other Kabelmetal licensees (who were therefore direct competitors of Luchaire) would deprive Luchaire of any competitive advantage against those competitors which it might otherwise have obtained through its improvements to the underlying technology: the fact that it could not withhold its improvements from its direct competitors was capable of discouraging innovation and could therefore fall within the scope of the prohibition in Article 101(1) TFEU. However, in the specific circumstances of that case Article 101(1) TFEU was not infringed as Luchaire was the only licensee of Kabelmetal’s technology and the Commission found that it was unlikely that other licensees would be appointed before the expiry of the licence, meaning that the provision would not have an appreciable effect on competition. Rich Products is an interesting follow up to Kabelmetal/Luchaire. This agreement related to 2.234 knowhow. The grant back obligation was reciprocal and non-exclusive. The agreement provided that any licence to improvements would terminate at the same time as the licence to the original knowhow. The licensor was granted the right to grant sub-licences to the licensee’s improvements, but the licensee could not grant sub-licences to the licensor’s knowhow and 283 See, e.g., ibid, paras 129–132, discussed below. 284 Kabelmetal/Luchaire (n 190).

285 88/143/EEC: Commission Decision of 22 December 1987 relating to proceedings under Article 85 of the EEC Treaty (IV/31.206 – Rich Products/Jus-rol), OJ [1988] L 69/21. 286 Velcro/Aplix (n 185).

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technology (whether under the original licence or any improvements). The Commission concluded that in the circumstances of the case the obligations relating to improvements did not infringe Article 101(1) TFEU as the licensee was entitled both to use and to license its own improvements (as long as this did not involve disclosing the original licensed knowhow) and because neither party would be placed in a less favourable position than the other when the main licence agreement expired. 2.235 The reciprocity of the obligations seems to have been an important element in the Commission’s reasoning in Rich Products. However, the decision does not deal with the issue that had been important in Kabelmetal/Luchaire – that the licensee was not able to prevent the sub-licensing of its improvements to other Rich Products licensees and was thereby likely to lose some competitive edge against them. The mere fact that the sub-licences would come to an end at the same time as the main licence may have led the Commission to conclude that this was not sufficiently significant to affect competition appreciably – but the decision does not say so. It is likely that the parties were willing to accept the Commission’s analysis in order to obtain an exemption but it is worth noting that a licensee in equivalent circumstances might find the reciprocal extinction of licences to be of cold comfort if improvements have been disclosed to its direct competitors by the head‑licensor – particularly in the case of knowhow, the value of which resides in its secrecy. 2.236 The third of this trio of Commission decisions on improvements in the era before the first IP block exemptions came into force was Velcro/Aplix. This agreement was reviewed by the Commission against the backdrop of an acrimonious dispute between the licensor and licensee in the context of a relationship that had begun in the late 1950s and continued through various renewals and extensions for more than 20 years, considerably after the originally licensed patents had expired. 2.237 The obligations relating to improvements required the parties to notify each other of improvements. The licensee (Aplix) was obliged to transfer any patented invention in three identified Member States (Germany, the UK and the Netherlands) to the licensor. The licensor would pay compensation for those rights, which would be licensed to all its licensees, while Aplix would receive a licence to the inventions of other Velcro licensees. These provisions were held to fall within the scope of the prohibition in Article 101(1) TFEU on the basis that: the obligation was an ‘… unwarranted extension of the licensed patents in that the licensor is using his industrial property rights to appropriate certain foreign patents covering improvement inventions that are wholly or partly the work of his licensee …’ and that it ‘… prevents the licensee from obtaining patents for such improvements in other Member States and hence from exploiting them in such States, whether directly or by licensing …’. While it can be difficult fully to understand the reasoning in some of the older Commission decisions, it appears that the Commission was concerned about three aspects of the obligations: the patent-leveraging/ patent extension aspect; the disincentives to innovation aspect; and the territorial aspect. The Commission did not address the aspects relating to cross-licensing between licensees. 2.238 When applying Article 101(3) TFEU, the Commission’s reasoning is even more opaque. The procedural background to the case meant that the Commission did not consider whether the

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improvements provisions could have been exempted before the expiry of the basic patents in 1977. It looked only at the position after 1977 saying: The restriction of competition involving the compulsory assignment to Velcro of the title to certain foreign improvement inventions made by the licensee also cannot be justified after December 1977. Velcro’s basic patents having come into the public domain since then, Velcro can no longer invoke rights to obtain title to any improvement patents.

This leaves open the possibility that certain grant back obligations, even on an exclusive basis 2.239 (including an obligation to assign) might be capable of benefitting from the exception under Article 101(3) TFEU – as is suggested by the treatment of exclusive grant back provisions in the original block exemption (see paragraph 3.175 below). In summary, therefore, outside the scope of the block exemption regime, the enforceability of 2.240 some types of grant back obligation will be questionable. Subject to de minimis thresholds and questions of appreciability, exclusive grant back obligations or obligations to assign improvements to the licensor are likely to be regarded as within the scope of the prohibition in Article 101(1) TFEU, even if the licensee will be compensated for its rights. There may be circumstances in which the overall context of the arrangement means that Article 101(1) TFEU will not be engaged. This might be the case, for example, if the consideration to be provided for any improvements assigned or licensed back is sufficiently significant to remove disincentives to innovate. Assessing a ‘safe’ level for compensation in respect of improvements at the time of the original licence is likely to be very difficult in practice. A safer option may be to include some form of right of first negotiation or to provide that the price will be settled through independent arbitration if it cannot be agreed. The risks of exclusive grant back or assignment provisions will increase as the importance of the licensor or the licensor’s technology on the market increases. Other risk factors include whether such grant back provisions are common in licences in the relevant industry and whether there may, therefore, be a network of parallel agreements all of which restrict the ability of licensees to exploit their own improvements. An obligation to grant back improvements on a non-exclusive basis is much less likely to give 2.241 rise to significant competition law concerns. They are block exempted up to the market share threshold (see below) and the Commission appears to accept that non-exclusive grant back provisions may promote the wider dissemination of technology. The Technology Transfer Guidelines note287 that even non‑reciprocal obligations on the licensee to license back improvements on a non-exclusive basis may be procompetitive because the licensor’s incentives to license in the first place will be protected by allowing it to decide whether to pass on its own improvements to licensees, avoiding the concern about chilling identified at paragraph 3.172 below. The Commission also notes that ‘feed on’ clauses under which the licensor obtains non-exclusive 2.242 grant backs to its licensees’ improvements and undertakes to pass them on to others may encourage the dissemination of technology particularly in circumstances where the position is clear to each licensee at the time of entering into the licence and each licensee knows that it will not be at a disadvantage vis-à-vis other licensees in future. 287 Technology Transfer Guidelines (n 76), para 131.

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2.243 This rationale in the Technology Transfer Guidelines does not entirely deal with the concern identified by the Commission in Kabelmetal/Luchaire, discussed above at paragraph 2.232 about disincentivizing licensee innovation. As in Kabelmetal/Luchaire itself, much would depend on the facts of the case, but the Commission does acknowledge288 that risks to competition may arise from mutual cross-licensing obligations. Its concerns appear to focus on the risk that such sharing of technical improvements may prevent individual competitors from gaining a competitive lead, rather than on the disincentivizing/reduction in innovation impact of such provisions. The extent of the Commission’s competition concern will be reduced if the underlying purpose of the licence, and of the provisions relating to the sharing of improvements, is to provide freedom to operate, allowing both parties to continue developing separate technical approaches without fear of litigation. Conversely, if the underlying purpose of the licence is to enable the licensee to improve its technological base by exploiting the licensor’s technology, the Commission identifies potentially greater competition concerns from reciprocal (albeit non-exclusive) grant back obligations between competitors. Key takeaways

2.244 The treatment of improvements is an area which is often the subject of significant negotiation in technology licences. As a rule of thumb, where the parties are non-competitors, the least risky course is to provide a limited obligation on both parties to license each other, with no exclusivity and no right to sub-license. If more is commercially necessary for the parties to conclude the deal, the risks will depend on all the circumstances, the extent of the obligations and their effects on the parties’ incentives. Obligations on a licensee to assign back or license its improvements to the licensor on a sole or exclusive basis are very likely to fall within the scope of the prohibition in Article 101(1) TFEU but may be acceptable under Article 101(3) TFEU if the licence maintains some continuing incentive on the licensee to innovate, for example by providing a mechanism for payment on reasonable terms or by giving the licensor only a right of first refusal (plus imposing an obligation to compensate). Where the licence is between competitors (and particularly if it is reciprocal) greater scrutiny of its effects are likely, particularly if it includes obligations to assign, license or cross-license improvements on an exclusive basis. H. Royalty Payments on Unpatented/Partially Patented Products 2.245 A licensor will typically require a licensee to pay royalties calculated by reference to acts which would otherwise infringe the underlying IPR (e.g., the manufacture or sale of infringing products). Sometimes royalties are calculated by reference to products which do not incorporate the invention/knowhow, perhaps because it is only feasible to calculate the appropriate royalty at a later stage in the production process. Sometimes royalties are sought on products which have no connection with valid IPR (e.g., if a patent has expired, been declared invalid or does not read on to the products (or even adjacent stages of production) on which royalties are levied). 2.246 The approach under Article 101(1) TFEU has evolved. In part, this reflects the Commission’s move away from analysing the anticompetitive effect of IPR related restrictions narrowly by

288 See, ibid., para 132.

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reference to whether or not the restriction imposed extends the scope of protection of the IPR in question.289 In jurisdictions which continue to regard any attempts to extend the scope of the IPR with suspicion, obligations to continue to pay royalties after a patent has expired or been invalidated or on products not incorporating the licensed technology may be regarded as inherently problematic or per se illegal.290 The early practice of the Commission took a similar approach.291 The EU authorities began to adopt a more nuanced position towards flexible royalty schemes 2.247 in the late 1980s. Ottung v Klee was a reference to the Court of Justice from a German court.292 It is discussed in more detail below, in the context of obligations to continue paying royalties after a patent has expired. The Court of Justice in substance concluded that in some situations an obligation to pay royalties on unpatented (and by implication on products only part of which was patented) might not infringe Article 101(1) TFEU. Ottung v Klee to some extent built on the approach of the Court in Windsurfing. In Windsurfing, 2.248 the Commission had argued that basing a royalty calculation on a product (complete sailboards) which incorporates both patented components (rigs) and unpatented components (boards) would only be justified if ‘the number of items manufactured or consumed or their value are difficult to establish separately in a complex production process, or … there is for the patented item on its own no separate demand which the licensee would be prevented from satisfying through such a method of calculation’.293 The Court disagreed. As with many aspects of Windsurfing, the judgment is terse and somewhat unclear, but the 2.249 Court seems to have taken the approach that, while the method of calculation in itself did not have to be justified, the downstream effects of the royalty charging mechanism had to be analysed in each potentially affected market in the particular circumstances of the case.294 In Windsurfing, this had the result that the royalty mechanism adopted did not infringe the Article 101(1) TFEU prohibition in the market for rigs because the royalty payable for the patented technology was not increased by the method of calculation. However, the Court also held that charging royalties on complete sailboards in respect of patents which covered only the rigs and not the boards infringed Article 101(1) TFEU in the market for the supply of boards, which were not covered by the German patent.295 The current Technology Transfer Guidelines provide: The parties to a licence agreement are normally free to determine the royalty payable by the licensee and its mode of payment without being caught by Article 101(1) of the Treaty. This principle applies both to agreements between competitors and agreements between non competitors. Royalty obliga-

289 See, e.g., the discussion in the judgment in Windsurfing (n 152), and in Commission decisions such as Velcro/Aplix (n 185), discussed at para 2.236 ff. 290 See, e.g., the recent US decision in Kimble et al v Marvel Enterprises, LLC, 576 U.S. (2015) (Kimble v Marvel). 291 See, e.g., AOIP/Beyrard (1976) (n 134), and other cases in the late 1970s and 1980s. 292 Ottung v Klee CJEU (n 158).

293 Windsurfing (n 152), para 65. 294 Ibid., para 66. 295 Ibid., para 67.

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS tions may for instance take the form of lump sum payments, a percentage of the selling price or a fixed amount for each product incorporating the licensed technology. In cases where the licensed technology relates to an input which is incorporated into a final product it is as a general rule not restrictive of competition that royalties are calculated on the basis of the price of the final product, provided that it incorporates the licensed technology.296

2.251 Complex issues of fact and IP law can arise when trying to decide whether a final product does, in fact ‘incorporate the licensed technology’ and the overall tenor of the Commission’s comments in this portion of the Technology Transfer Guidelines means that parties should be careful when drafting licences in which the link between the calculation and payment of royalties and the underlying licensed technologies is not obvious. 2.252 The other concern, which is implicit in the judgment in Windsurfing, is to avoid a situation in which the effect of the royalty being charged on the complete product has the result that the licensee will be disincentivized from meeting separate demand for the non-patented product or from supplying that product in combination with a third-party product. 2.253 If a licence contains an obligation to pay royalties on products which do not incorporate the licensed invention, even indirectly by virtue of including an input which is covered by the licensed rights, competition concerns are likely to arise even though such obligations can be seen as a convenient mechanism for arranging payment, or a proxy for metering use. One particular example may be the use of so-called ‘reach through’ licences.297 2.254 It is worth noting that when discussing this issue, the authors of the Technology Transfer section in Faull and Nikpay state: The framework of the TTBER and the Guidelines is based on the premise that there is a direct link between the licensed technology and a contract product as the technology is (almost) ready for productive purposes. The greater the R&D content of the agreement, the more likely it is that the framework of the Guidelines would be unduly restrictive, inter alia, taking insufficiently into account the additional risk facing the licensee and the uncertainty as to the commercial success of the arrangement. Certain issues may also be particular to such arrangements. For instance, it is likely that royalty payments have to be linked to the results of future R&D work and thus take the form of reach through royalties, that is, royalties on the revenues generated by such future developments. The Guidelines should not be interpreted as creating obstacles to such particular arrangements.298 (internal references omitted)

2.255 As with post-expiry royalties (see below), and notwithstanding the comments in the Technology Transfer Guidelines, the Commission and, perhaps more importantly, the Courts have in the past taken the view that obligations to pay royalties on the manufacture or sale of products in which the patented invention is not incorporated may fall within the scope of the prohibition in Article 101(1) TFEU, particularly in the presence of market power,299 where

296 Technology Transfer Guidelines (n 76), para 184. This issue was considered by the Commission during its investigations into Philips’ LED licensing programme, discussed below at paragraphs 6.202–6.206. 297 See also the discussion at para 8.74 below. 298 Faull and Nikpay (n 84), para 2.070.

299 Such provisions are block exempted in agreements between non-competitors which satisfy the relevant criteria under the TTBER (n 160), para 188.

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foreclosure concerns may be increased.300 If a licensor charges royalties on products produced using technology developed by the licensee, there may be a concern that this will limit incentives to innovate. Striking a balance between enabling early-stage innovation to be rewarded and incentivized and incentivizing those downstream to continue to develop it and pursue their own innovative pursuits is at the heart of this debate.301 Key takeaways

When drafting provisions providing for royalties on products which do not clearly contain the 2.256 patented technology (so, e.g., some reach through royalties), it will be sensible and will reduce the competition law risks if the parties bear in mind that the permissive approach to royalty obligations implied by Ottung v Klee relies on the royalty being a ‘detailed arrangement for making the payments’ rather than ‘a supplementary payment to which the inventor is not entitled…’.302 In other words, those drafting such licences may wish to have regard to the position taken by the Court of Justice in Windsurfing by ensuring that the royalties actually charged are no greater than would have been the case had it been feasible to calculate them and meter them separately. This does not necessarily mean that they need be small, only that the parties might, if feasible, seek to agree on their value303 and then seek to recover that value using whatever counting system seems appropriate.304 I.

Post-Expiry Royalties

1. Introduction

Royalty obligations may take many forms, and parties design payment structures suitable to 2.257 their commercial needs. The Technology Transfer Guidelines state that the parties to a licence are ‘normally free to determine the royalty payable by the licensee and its mode of payment without being caught by Article 101(1)’.305 However, the link between infringing acts and royalty obligations which is the most common basis for payment (and which is reflected in the link between the licensed technology and the product on which royalties are payable, discussed above) raises the question whether the licensor can require the licensee to continue paying royalties beyond the life of the licensed patents without falling foul of Article 101 TFEU. And if so, in what circumstances? This issue becomes particularly important in industries where the life of the patent may not 2.258 coincide significantly with the period of commercial exploitation. Possible examples include

300 Microsoft’s undertaking, XXIVth Report on Competition Policy (1994), p 364.

301 TTBER (n 160), Arts 4(1)(a) and 4(1)(b); AOIP/Beyrard (1976) (n 134); Boussois/Interpane (n 185); Windsurfing (n 152).

302 Ottung v Klee CJEU (n 158), Opinion of AG Tesauro (ECLI:EU:C:1989:34) (Ottung v Klee AG Opinion), paras 11 and 14.

303 How that ‘value’ is expressed may be an interesting challenge – might it be an absolute amount, e.g., £x or could it be x per cent of any product developed using this technology as the parties believe that that is the ‘value’ of the original patented technology to the overall process? Whatever the basis chosen at the time, it is likely to be worth recording it for future reference sometimes 15 years or more after the licence is concluded. 304 Ottung v Klee AG Opinion (n 302), paras 11 and 23. 305 Technology Transfer Guidelines (n 76), para 184.

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pharmaceutical or biotech products where the long lead time between initial technical innovation (and the grant of patents on the inventions made at that time) and successful commercial exploitation can leave a relatively short period of patent coverage during the commercial phase. This can be the case even where it is possible to obtain the additional protection afforded by a Supplementary Protection Certificate.306 In such sectors parties may seek to address the perceived mismatch between short patent life/coverage and required commercial return by providing for royalty payments going beyond the life of the underlying patents.307 This does not necessarily give rise to competition law concerns, but risks can arise if the provisions are not drafted with competition law in mind. As is often the case in the context of commercial transactions, an understanding of the development of competition law is important to help understand the concerns. 2. The early approach of the Commission

2.259 Post-patent-expiry royalties did not come before the EU Courts until the late 1980s.308 Before then, the Commission tended to regard obligations on a licensee to continue paying royalties on products which did not infringe a valid IPR, including after patent expiry, as inherently problematic. This was, at least in part, on the basis that such obligations burdened licensees with costs that did not affect their competitors. Such obligations were essentially seen as an unjustified leveraging of the patent ‘monopoly’, exploitative, likely to distort competition, and therefore as contrary to EU competition law. 2.260 In AOIP/Beyrard (1976),309 the Commission considered several clauses of an exclusive licence, including an obligation on the licensee to pay royalties after patents had expired. It found that the obligation to pay such royalties infringed competition law because the licensee did not have the right to terminate the agreement. In its view, the maintenance of the payment obligation had ‘the effect of burdening manufacturing costs without any economic justification and thereby weakening the competitive position of the licensee’.310 2.261 The approach in AOIP/Beyrard (1976) was reflected in the Commission’s first block exemption for patent licence agreements,311 which was adopted in 1984. The conservative approach in the block exemption reflected a concern that companies entering into private agreements might extend the effects of the patent regime beyond the period provided by statute, with potentially adverse consequences for competition. There was significant concern that licensees might find themselves restricted in their freedom to utilize technology for periods exceeding the life of the original licensed technology. The ability for licensees to escape such potentially restrictive 306 The Commission describes an SPC as ‘an intellectual property right that serve[s] as an extension to a patent right. They apply to specific pharmaceutical and plant protection products that have been authorised by regulatory authorities’ (https://​single​-market​-economy​.ec​.europa​.eu/​industry/​strategy/​intellectual​-property/​patent​-protection​ -eu/​supplementary​-protection​-certificates​-pharmaceutical​-and​-plant​-protection​-products​_en – accessed 3 November 2023). 307 A more detailed discussion of post-expiry royalties and the implications of the case law in the pharmaceutical sector can be found at para 8.52 ff. 308 See para 2.263 ff below.

309 AOIP/Beyrard (1976) (n 134). Discussed in more detail at para 8.53 ff. 310 AOIP/Beyrard (1976), ibid., para II.4.(d).

311 Commission Regulation No 2349/84 (n 161).

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agreements was seen to be important. For example, Article 3(2) of the block exemption provided that parties could not benefit from the safe harbour where: the duration of the licensing agreement is automatically prolonged beyond the expiry of the licensed patents existing at the time the agreement was entered into by the inclusion in it of any new patent obtained by the licensor, unless the agreement provides each party with the right to terminate the agreement at least annually after the expiry of the licensed patents existing at the time the agreement was entered into … (emphasis added)312

Article 3(4) of the 1984 block exemption introduced a gloss to the Commission’s previous posi- 2.262 tion that an extension of royalty obligations beyond the period of patent validity would typically fall foul of the competition rules. It stated that the exemption would not apply to agreements where: ‘the licensee is charged royalties on products which are not entirely or partially patented or manufactured by means of a patented process …’. However, this was ‘without prejudice to arrangements whereby, in order to facilitate payment by the licensee, the royalty payments for the use of a licensed invention are spread over a period extending beyond the life of the licensed patents …’ (emphasis added). The idea of extending royalty payments into the post‑expiry period to facilitate payment was picked up some five years later by AG Tesauro in Ottung v Klee. 3. The Court of Justice Rules

Stemming from a reference by the Danish Commercial Court seeking a preliminary ruling, the 2.263 Court of Justice’s 1989 judgment in Ottung v Klee313 examined a contractual obligation under which the licensee of a patented invention was required to pay a royalty for an indeterminate period extending beyond the expiry of the licensed patent. The Court held that an obligation to pay post-expiry royalties is not in itself anticompetitive, 2.264 but went on to hold that if the licensee cannot freely terminate an agreement providing for post-expiry royalties that ‘might, having regard to its legal and economic context, restrict competition within the meaning of Article [101(1)]’.314 In addition to requiring the continued payment of royalties, the licence in Ottung v Klee pro- 2.265 vided that if the licence were terminated, the licensee would be prohibited from manufacturing and marketing the licensed products after termination. This forced the licensee to continue paying royalties under the agreement or to exit the market owing to the post-termination restraint. In practice, this prevented the licensee from freely terminating the agreement. The Court held that this ‘weakens the licensee’s competitive position since it places the licensee at a disadvantage in relation to its competitors, who may freely manufacture the products concerned after the patent has expired’.315 Accordingly, the Court held that this clause could

312 Commission Regulation No 2349/84, ibid., Art 3(2). 313 Ottung v Klee CJEU (n 158). 314 Ibid., para 13. 315 Ibid., para 18.

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also, depending on the agreement’s legal and economic context, unlawfully restrict competition within the meaning of Article 101(1) TFEU.316 2.266 In his Opinion,317 AG Tesauro stated that whether an obligation to pay post-patent expiry royalties infringes Article 101 TFEU may also depend on whether the royalties have been ‘pre-determined’ to reflect the value obtained by the licensee under the agreement. Referring to the judgment of the Court of Justice in Windsurfing,318 the AG emphasised that there were two distinct logical steps: ‘first, determination of the reward due to the inventor for the patented product; secondly and necessarily at a later stage, at least from the conceptual point of view, determination of the method of payment of that reward’.319 2.267 The AG went on to suggest that a royalty provision is unlikely to give rise to competition law concerns where the parties first fix an amount considered to be fair compensation to the licensor for the rights to the patent, and then determine the method of payment, agreeing for example that part of the sum may derive from a percentage of the sale price of an unpatented product.320 2.268 Echoing the provisions of the 1984 block exemption, AG Tesauro also suggested that an obligation on the licensee to pay post-expiry royalties will not fall within the prohibition in Article 101(1) TFEU if the payment structure is adopted merely to facilitate payment by the licensee: … the detailed arrangements for making the payment may nevertheless differ considerably. As regards the period over which the payments are to be made, it may easily be imagined that, for various reasons, the total sum payable to the inventor might be divided into a large number of periodic instalments, some of which might therefore fall due after the expiry of the patent, or that rather than receiving a high percentage of the sale price of the product an inventor might prefer a lower percentage over a longer period of years …321

2.269 How important the criteria identified by the AG are to the analysis under Article 101(1) TFEU was not subsequently widely explored. Most licensors and licensees took heart from what appeared to be a permissive approach in the 1996 block exemption322 and similar comments in the 2004 and 2014 Technology Transfer Guidelines. These did not discuss the contextual issues

316 It is worth noting in passing that the references in paras 13 and 18 of the Court’s judgment to the importance of the agreement’s ‘legal and economic context’ might be taken to reflect the Court’s practice when considering potential ‘by object’ infringements of competition law. In Ottung v Klee CJEU, ibid., the Court clearly stated that it was for the national court to determine whether the agreement appreciably affected trade between Member States (a jurisdictional requirement for the application of Art 101 TFEU); it did not state that the national court had to assess whether the agreement had anticompetitive effects. This is consistent with the restrictions being treated as object restrictions (unless the conditions identified by the Court are satisfied), since in object cases there is no need to consider effects. A similar formula has consistently been adopted by the CJEU in other ‘object’ cases. 317 Ottung v Klee AG Opinion (n 302). 318 Windsurfing (n 152).

319 Ottung v Klee AG Opinion (n 302), para 21. 320 Ibid., para 23.

321 Ibid., para 11. The idea of extending royalties into the post-patent period to facilitate payment was picked up again in Art 2(1)(7(b)) of the Commission’s 1996 block exemption on technology transfer agreements (Commission Regulation No 240/96 (n 163)). 322 Commission Regulation No 240/96, ibid., see also Recital 21.

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(including the importance of the right to terminate, and what exactly constitute arrangements to ‘facilitate payment’) that the Court and AG had highlighted as relevant in Ottung v Klee.323 The issue of post-expiry royalties was not further explored by the EU Courts until more than 25 2.270 years after Ottung v Klee, when the CJEU revisited the competition law treatment of royalties on invalid or expired IPR in its 2016 judgment in Genentech v Hoechst.324 The licence provided for consideration in the form of: (i) a one-off payment; (ii) an annual research fee; and (iii) running royalties on sales of products incorporating the licensed technology. The licensee was required to pay the running royalties even if the licensed patents were revoked or its products did not infringe the patents. As is common with licensing agreements of this nature, the dispute between the parties was 2.271 subject to confidential arbitration. However, it ultimately found its way to the CJEU via a preliminary reference from the Paris Court of Appeal which had dealt with an appeal from the original arbitration award.325 The CJEU was asked whether Article 101 TFEU prevents a licensor from enforcing an obligation to pay royalties for the entire duration of the licence, in circumstances where the licensed patents are found to be either invalid or non-infringed. The Court applied Ottung v Klee and reiterated that Article 101 TFEU ‘does not prohibit the imposition of a contractual requirement providing for the payment of a royalty for the exclusive use of a technology that is no longer covered by a patent, on condition that the licensee is free to terminate the contract’ (emphasis added).326 The agreement allowed the licensee to terminate on two months’ notice if it no longer required 2.272 a licence to the technology. There were no post-termination restrictions of the sort identified in Ottung v Klee. The licensee could therefore freely avoid the obligation to continue paying royalties, and the royalty obligation did not violate Article 101(1) TFEU.327 AG Wathelet noted in his Opinion that ‘[a]s soon as the licence agreement was terminated, Genentech was … in exactly the same position as all other users of the [technology] at issue’.328 In other words, because the licensee was free to terminate the agreement on reasonable notice and then continue its business unencumbered, it was not disadvantaged compared with its competitors. These facts appear to have been important to the Court’s assessment that the obligation to pay post-expiry royalties did not infringe Article 101 TFEU. The relationship between the value obtained by the licensee and the ability to terminate once 2.273 that value was no longer a reality was important in Genentech v Hoechst. The Court referred 323 Ottung v Klee CJEU (n 158), para 11; AG Opinion (n 302), paras 21–24. 324 Genentech v Hoechst (n 130).

325 The possibility of competition law appeals from arbitral awards is a complex topic outside the scope of this book but a good starting point is Case C-126/97 Eco Swiss China Time Ltd v Benetton International NV (ECLI:EU:C:1999:269). The OECD has held hearings on this topic (although some time ago) https://​www​.oecd​.org/​daf/​competition/​49294392​ .pdf – accessed 4 November 2023 and see the useful (but rather old) discussion in Komninos, Arbitration and EU Competition Law, 12 April 2009 (electronic copy available at: http://​ssrn​.com/​abstract​=​1520105 – accessed 24 January 2023).

326 Genentech v Hoechst (n 130), para 40, citing Ottung v Klee CJEU (n 158). 327 Genentech v Hoechst, ibid.

328 Ibid., para 91 of AG Wathelet’s Opinion on 17 March 2016 (ECLI:EU:C:2016:177). See also para 40 of the judgment.

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explicitly to the fact that the agreement provided the licensee with freedom from the risk of patent infringement proceedings, which had value even though the patents in question were ultimately held to be neither valid nor infringed. Crucially, however, the licensee had to be free to terminate the agreement once it was no longer receiving that value,329 including following revocation of the patents.330 4. The Commission’s approach in the 2014 Technology Transfer Guidelines

2.274 An obligation to pay post-expiry royalties is neither a hardcore restriction nor an excluded restriction under the TTBER. In principle, therefore, such provisions are exempt in agreements which satisfy the pre-conditions for coverage by the block exemption.331 Paragraph 187 of the Technology Transfer Guidelines (repeating the language from the 2004 Guidelines) states: Notwithstanding the fact that the block exemption only applies as long as the technology rights are valid and in force, the parties can normally agree to extend royalty obligations beyond the period of validity of the licensed IPRs without falling foul of Article 101(1) of the Treaty. Once these rights expire, third parties can legally exploit the technology in question and compete with the parties to the agreement. Such actual and potential competition will normally be sufficient to ensure that the obligation in question does not have appreciable anti-competitive effects.332 (emphases added)

2.275 At first glance, the above paragraph suggests the Commission takes the view that post-expiry royalties are unlikely to be problematic, regardless of the underlying rationale and the mechanism adopted for the extension of the royalty obligation into the post-expiry period and irrespective of the particular provisions of the agreement. 2.276 On closer analysis, however, the position may be more complex. A more cautious reading of paragraph 187 – one that is consistent with the CJEU’s case law333 and the Commission’s earlier (pre-2004) block exemptions – is that a ‘normal’ post-expiry royalty agreement is one which: (a) is entered into in order to facilitate payment by the licensee; and (b) allows for termination on reasonable notice; without (c) hampering the licensee’s post-termination freedom of action. Only if these conditions are satisfied can the parties be confident that an agreement to extend royalty obligations into the post-expiry period will not give rise to risks of infringing Article 101(1) TFEU, and thus of potential problems, particularly with enforceability (as was seen in Genentech v Hoechst – which post-dated the 2014 block exemption and guidelines). Even in such circumstances, other questions may arise about how the post-expiry payments are calculated (i.e., whether they are simply delayed payments of an amount or value previously determined or some other form of royalty which is not so precisely agreed in advance) and the legal relevance of those issues might need to be considered.

329 Note that the CJEU similarly referred to a concern about a licensee being burdened with royalty payments which were not properly attributable to a valid IPR in Bayer v Süllhöfer (n 191) at para 17: ‘… it should be pointed out that there is no restriction on competition when the licence granted is a free licence inasmuch as, in those circumstances, the licensee does not suffer from the competitive disadvantage involved in the payment of royalties’.

330 Genentech v Hoechst (n 130), para 40 of the judgment; and para 97 of the AG Opinion (n 328). 331 See discussion at para 3.04 ff below.

332 Note that the same wording was used in Technology Transfer Guidelines (n 76), para 159.

333 Note that Technology Transfer Guidelines, ibid., para 4 states: ‘These guidelines are without prejudice to the interpretation of Article 101 and the TTBER that may be given by the Court of Justice and the General Court.’

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Key takeaways

In the light of the above discussion, licensors and licensees may wish to bear the following 2.277 general principles in mind when negotiating the duration of royalty provisions in a patent licence: ● Parties can agree for the payment of royalties to continue after patent expiry. Such provisions will not entail significant competition law risk provided that: (i) the licensee can freely terminate the agreement on reasonable notice; and (ii) the agreement does not seek to restrict the licensee’s freedom of action after termination. ● By contrast, an obligation to pay post-expiry royalties may fall within the scope of the prohibition in Article 101(1) TFEU if the agreement prohibits the licensee from terminating or restricts the licensee’s post-termination freedom of action. There is some basis to be concerned that an obligation to pay royalties after expiry in those circumstances could, depending on the legal and economic context, be a ‘by object’ infringement of Article 101(1) TFEU (although, of course, an exemption under Article 101(3) TFEU might be available). ● If the agreement is to provide that royalties are to be payable after patent expiry, parties should consider including wording in the agreement or otherwise keeping a record explaining the commercial rationale for the provision (e.g., because of the wish to balance risk and reward between licensee and licensor when licensing early-stage technology; or because of the difficulty in assessing the value of the technology at the time of licensing; or to facilitate payment of royalties by a licensee who may have limited revenue at a time when it is facing significant costs in bringing the contract products to market). That wording should be consistent with internal documents and the underlying commercial rationale. ● The parties may also wish to consider whether it would be feasible and proportionate to pre-determine the total value of the IP which is to be licensed and provide for that sum to be paid over a period of time beyond patent expiry, as seems to have been envisaged by the AG in Ottung v Klee. If that is impracticable, as may be the case where technology is novel or the licence is concluded at an early stage, the parties may wish the royalties to accrue (rather than just be paid) after the expiry of the patent. In such circumstances the competition law risks may be reduced by explicitly discussing and recording the reasons why such a mechanism is necessary and proportionate in all the circumstances and explicitly recording the ‘value’ of the licensed technology to the final product, even if that is expressed as a percentage. ● If the agreement grants licences to a mixture of patent rights and knowhow, it may be appropriate to use a ‘layered’ royalty payment structure, with a reduced royalty rate upon patent expiry that reflects the value of the knowhow. Alternatively, the agreement might provide that the parties will renegotiate price terms upon patent expiry or provide for some continuing payments, which are tranches of a pre-agreed sum. From the licensee’s perspective, these options avoid the dilemma of having to choose between (i) continuing to pay high royalties for non-patented rights or (ii) terminating and running the risk of infringing the licensor’s knowhow.

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● Even where knowhow is licensed, Article 101(1) TFEU may still be infringed if the knowhow ceases to be valuable, or to qualify as knowhow – for example because it is no longer secret but restrictions remain on the licensee.334 ● To reduce the risk of missing out on royalties if the licensee terminates upon patent expiry, the licensor may wish to consider front-loading payments in the latter stages of the patent’s life (perhaps higher royalties in the last five years if commercialization by then is feasible, followed by lower post-expiry royalties) or by including a liquidated damages provision reflecting the value obtained by the licensee under the agreement. 5. The approach to post-expiry royalties in the US

2.278 Given the global nature of many patent licences in industries such as pharma and biotech, a brief discussion (from the perspective of a non-US lawyer) of the current approach to post-expiry royalties under US law may be helpful. 2.279 It is arguable that the US and EU law approaches to post-expiry royalties are underpinned by similar policy considerations and have their roots in a desire to prevent extensions of patent monopoly protections beyond their intended limits. 2.280 In its 1964 Brulotte v Thys decision, the US Supreme Court held that it is unlawful under US federal patent law for a licensor to seek to collect royalties on expired patents.335 The Court stated that whilst the ‘right to make, the right to sell and the right to use’ confer a patent monopoly on the patent owner before patent expiry, ‘any attempted reservation of the patentee … after the patent expires, whatever the legal device employed, runs counter to the policy and purpose of the patent laws’.336 The Court focused in particular on the indistinguishable nature of the licensee’s obligations in the pre- and post-expiry periods, noting that the ‘same provisions as respects both use and royalties [were] applicable to each’. In the Court’s view, continued payment of royalties after patent expiry was a ‘tell-tale sign that the licensor was using the licenses to project its monopoly beyond the patent period’.337 The Court concluded that ‘a patentee’s use of a royalty agreement that projects beyond the expiration date of the patent is unlawful per se’.338 2.281 Roughly 50 years later, in Kimble v Marvel,339 the US Supreme Court reaffirmed the per se rule preventing a licensor from charging post-expiry royalties. However, acknowledging that the Brulotte v Thys rule ‘prevents some parties from entering into deals they desire’,340 the Court in Kimble v Marvel also emphasized that Brulotte v Thys does not represent an absolute ban on all licence provisions extending into the post-expiry period. The Court held that ‘parties can often find ways around Brulotte, enabling them to achieve those same ends made possible by

334 Technology Transfer and the New EU Competition Rules (n 183), para 7.69. 335 Brulotte v Thys Co, 379 U.S. 29 (1964) (Brulotte v Thys). 336 Ibid., para 31. 337 Ibid., para 32. 338 Ibid., para 33.

339 Kimble v Marvel (n 290). 340 Ibid., para 2408.

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post-expiration royalties’.341 For instance, it would be open to parties to extend the payments for pre-expiry patent use into the post-expiry period in order to assist a cash-strapped licensee; multi-patent licences could require payment of royalties until the last licensed patent expires; and agreements granting a mixture of patent and non-patent rights could use a ‘layered’ royalty plan, with a reduced royalty rate upon patent expiry.342 J. No Challenge Clauses A no challenge clause obliges a licensee not to challenge the validity of an IPR. The inclusion 2.282 in a licence agreement of such an obligation is capable of falling within the scope of the prohibition in Article 101(1) TFEU on the basis that: ● public policy requires that everyone ought to be able to bring proceedings challenging the validity of exclusionary rights which have been wrongly granted or are being wrongly maintained; ● an obligation not to challenge the validity of a right may restrict competition within the meaning of Article 101(1) TFEU as it may leave intact a right which might inhibit companies wishing to enter or compete on a particular market, that is, the continuing existence of rights which should be invalid may amount to a significant barrier to entry; and ● a licensee may otherwise be prevented from escaping obligations based on the existence of the IPR. Until the late 1980s, no challenge clauses in respect of any IPR were regarded by the 2.283 Commission and the CJEU as within the scope of the prohibition in Article 101(1) TFEU and not likely to be capable of exemption. In Windsurfing,343 the CJEU held that a clause requiring a licensee to acknowledge the validity of a trademark clearly infringed Article 101(1) TFEU. In addition, no challenge clauses were ‘blacklisted’ in the original knowhow and patent licensing block exemptions. The attitude of the Commission towards no challenge clauses subsequently appeared to soften. 2.284 In Bayer v Süllhöfer,344 the Commission argued that in certain contexts such provisions might not fall within the scope of the prohibition in Article 101(1) TFEU. The Commission’s argument was that, while a no challenge clause in a licensing agreement should in principle be considered to be restrictive of competition, that was not the case for no challenge provisions in settlement agreements. It argued that such provisions would be compatible with Article 101(1) TFEU as long as: ● there was a genuine dispute about the IPR in question before a national court which is settled by the agreement; ● the agreement contained no other restrictions on competition; ● the no challenge provision related to the rights in dispute; and 341 Ibid., para 2408.

342 Ibid., para 2408. The implications and reach of this case continued to be debated in the US, but as a practical matter, many licences will incorporate provisions drawing on the hints given by the US Supreme Court. 343 Windsurfing (n 152).

344 Bayer v Süllhöfer (n 191).

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● the right is manifestly unlikely to be revoked.345 2.285 The CJEU disagreed with the premise of the Commission’s argument. It noted that the Article 101(1) TFEU prohibition did not distinguish between settlement agreements and other agreements. The CJEU went on to say that a no challenge clause in any licensing agreement may restrict competition depending on the legal and economic context.346 The CJEU then identified two specific situations in which Article 101(1) TFEU would not be infringed by the inclusion of a no challenge clause in a licence: ● first, if the licence were free, so that the licensee would not suffer any competitive disadvantage from the payment of royalties on an IPR which might be invalid; and ● secondly, even if the licence containing the no challenge clause was in principle royalty bearing, no effect on competition would arise if the licensed technology was not actually used by the licensee (because technically outdated).347 2.286 Bayer v Süllhöfer repays careful reading as it has important implications both in the context of licensing generally and in relation to settlement agreements, particularly in the pharmaceutical sector. Although the judgment is short (only seven or eight pages), and the opinion of the AG even shorter, both deal with fundamental concepts. 2.287 In essence, the Commission’s argument appeared to be that certain categories of agreement could be presumed to fall outside the scope of the prohibition in Article 101(1) TFEU as long as they satisfied set criteria (perhaps seeing this as a counterpoint to the way in which ‘by object’ restrictions are presumed to fall within the scope of the prohibition, and to infringe, without the need to undertake a detailed assessment of their effects). The Court objected to this as a matter of principle and held that the effect on competition of all types of agreements must be considered before they can be assumed to fall outside the scope of Article 101(1) TFEU; there can be no presumption that certain specific categories of commercial agreement are excluded. 2.288 The Opinion of AG Darmon contains rather more detailed reasoning than the judgment. He starts from the premise that the CJEU’s judgment in Windsurfing put no challenge provisions firmly in the category of ‘by object’ infringements, stating: ‘… It would be very hard not to deduce from the general nature of those words [at paragraph 92 of Windsurfing] that there is a presumption of incompatibility with Article 101(1) TFEU.’348 The AG then considers whether that presumption of incompatibility can be outweighed by other fundamental considerations so that a presumption of compatibility might be appropriate for certain agreements. His final conclusion is that, while in certain circumstances an exemption might be possible under Article 101(3) TFEU, it is not possible to say a priori that certain types of no challenge provision are compatible with Article 101(1) TFEU simply on the basis that they comply with a list of formal criteria.

345 Bayer v Süllhöfer, ibid, Opinion of AG Darmon delivered on 7 July 1987 [1988] ECR 5249 (ECLI:EU:C:1987:336) (Bayer v Süllhöfer AG Opinion), para 11. 346 Ibid., para 15 of the judgment. The CJEU also noted that it was an open question whether a settlement before a national court, which constitutes a judicial act, might be invalid if it breached the competition rules. 347 Ibid., paras 17 and 18. 348 Ibid., para 8.

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The AG took issue with the criteria (particularly the first and fourth criteria) suggested by the 2.289 Commission to identify which agreements might or might not be presumed to be compatible with Article 101(1) TFEU. As to the first (a special status for settlements), he foresaw the possibility of efforts to take 2.290 fundamentally anticompetitive provisions outside Article 101(1) TFEU by engaging in (and then settling) fictitious disputes. This risk, even if it might be argued to be fanciful, would make it necessary to determine the real nature of the dispute before it could be held to fulfil the Commission’s first criterion. The AG thought that this would be complex and render any assessment difficult to reconcile with the requirement of legal certainty. As to the fourth criterion, the AG was concerned about the need to assess the ‘strength’ of the 2.291 right in question (‘manifestly unlikely to be revoked’). He was initially attracted by this concept in theory, as it would exclude clauses which were unlikely to perpetuate a ‘doubtful’ right. However, he concluded that in practice such an approach would be unsatisfactory because, in reality, the assessment of the strength or ‘doubtfulness’ of the right in question would subsequently need to be judicially verified. This is a clear early acknowledgement in EU jurisprudence that it is not for the EU authorities, or courts, to assess the strength or otherwise of IPRs in the context of a competition dispute. This has been reiterated subsequently on a number of occasions, as is discussed below when considering the recent history of no challenge clauses in patent settlement agreements in the pharmaceutical sector (see para 8.131 ff below). The AG went on to consider a couple of then fairly recent cases in which the CJEU had held 2.292 that restrictive provisions included in an otherwise procompetitive agreement could be compatible with Article 101(1) TFEU and not require exemption under Article 101(3) TFEU.349 The types of provision in question were non-compete provisions in the context of the sale of a business350 and certain essential restrictions in franchise arrangements.351 He noted that the Court had stipulated that the starting point must be to assess the state of competition had those clauses not existed; thus in Pronuptia, the court had stated clearly that: ‘The compatibility of franchise agreements for the distribution of goods cannot be assessed in abstracto but depends on the provisions contained in such agreements’;352 and had then gone on to examine the effects of the clauses in issue in the context of the specific agreement and the possible impact on competition foreseen. He concluded that to move away from an approach involving a proper review of the context of the specific arrangement would lead to a formalistic approach which was not compatible with the TFEU. However, the AG went on to accept that no challenge clauses might be acceptable if they were 2.293 on their facts ‘crucial for the equilibrium of an agreement which has neither as its object or its

349 Provisions of this type are commonly called ancillary restraints. They are discussed in greater detail at para 2.53. For a review of the historical approach to ancillary restraints in EU competition law, see F. Enrique Gonzales Diaz, ‘The Notion of Ancillary Restraints Under EC Competition Law’ (1995) 19(3) Fordham International Law Journal. He discusses some aspects of Technology Transfer Agreements in Part VI, starting on p 34. 350 Remia (n 85), para 18.

351 Pronuptia (n 79), para 14. 352 Ibid., para 9.

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effect the prevention restriction or distortion of competition’.353 This is an early statement of the principles that might allow the application of the ancillary restraints doctrine to no challenge clauses. In summary, the AG, subsequently followed by the Court, took the view that: ● no challenge clauses are presumptively anticompetitive (by object infringements); ● they could nevertheless fall outside the prohibition in Article 101(1) TFEU in some circumstances; ● it was not sufficient simply to identify a category of agreement and then assume that it was procompetitive – that would be mere formalism; ● the attempt by the Commission to provide a ‘pre-packed’ list of criteria failed, in part because the criteria chosen were impracticable or counterproductive and in part because it was again too formalistic; and ● a no challenge clause may nevertheless be compatible with Article 101(1) TFEU if it is, in all the circumstances, ‘crucial for the equilibrium of an agreement which has neither as its object nor as its effect the prevention, restriction or distortion of competition’.354 2.294 Despite the Commission’s arguments having been dismissed in Bayer v Süllhöfer, the case did lay the groundwork for a more generous approach to no challenge provisions. It was now established that, even though such provisions were problematic for public policy and competition law reasons, they were nevertheless capable both of: ● falling outside the scope of the prohibition in Article 101(1) TFEU by way of the ancillary restraints doctrine if they are directly related necessary and proportionate to an agreement which has been assessed to be procompetitive; and ● being exempted, under Article 101(3) TFEU following an assessment of the context in which they operate if they satisfy the Article 101(3) TFEU criteria. 2.295 This more generous approach is reflected in the Commission’s Technology Transfer Guidelines which currently state that, for settlement and non-assertion agreements, no challenge clauses are considered by the Commission to be outside the scope of the prohibition in Article 101(1) TFEU, if the purpose of the agreement is inherently procompetitive: to avoid dispute and permit both parties freedom to continue to exploit the licensed technology.355 However, the Technology Transfer Guidelines also note circumstances in which no challenge clauses in settlement agreements may be prohibited under Article 101(1) TFEU, including where an IPR was granted following the provision of incorrect or misleading information and/or where there is financial inducement for the no challenge provision. This goes to the CJEU’s point, clearly articulated by the AG in Bayer v Süllhöfer,356 that the actual context and competitive impact of the agreement of which a no challenge clause forms part is important to its competition law assessment: a no challenge clause will fall outside the prohibition in Article 101(1) TFEU only if it forms part of an otherwise procompetitive agreement.

353 Bayer v Süllhöfer AG Opinion (n 345), para 17. 354 Ibid., para 17.

355 Technology Transfer Guidelines (n 76), para 242. It may be overly critical to query whether this fully encapsulates the actual approach of the AG and the Court in Bayer v Süllhöfer (n 191), and AG Opinion, ibid. 356 Bayer v Süllhöfer AG Opinion, ibid, paras 6–10, particularly para 10.

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The way in which no challenge clauses are dealt with under the TTBER and the Technology 2.296 Transfer Guidelines is discussed below at paragraph 3.182. A discussion of how no challenge clauses are analysed in the context of certain types of settlement agreement in the pharmaceutical sector is contained in Chapter 8. Key takeaways

It is essential to consider carefully the scope of a proposed ‘no challenge’ clause in any licence. 2.297 As a general rule of thumb, no challenge obligations are regarded as inherently problematic and likely to infringe Article 101(1) TFEU. It is possible to argue that a no challenge provision is compatible with Article 101(1) TFEU or may be exempt under Article 101(3) TFEU. This will require a review of its possible effects on competition in the actual legal and economic context. If a no challenge clause is to be included in a procompetitive settlement agreement (which will 2.298 be most settlement agreements, absent considerations such as reverse payments/pay for delay concerns, discussed below), residual risk can be reduced by ensuring that the scope of no challenge clauses is limited to what is necessary to ensure that the settlement agreement is effective. If the settlement agreement itself is not (having regard to all the relevant circumstances) procompetitive, a no challenge provision which supports it will also infringe. The principles relating to settlements as set out in the TTBER and the accompanying 2.299 Technology Transfer Guidelines are of assistance in drafting and analysing settlement agreements. However, pending new guidance, which is expected in 2024, recent developments in the pharmaceutical sector must be considered as case law on key concepts has evolved (see Chapter 8). K. Application of Article 101 TFEU to Different Types of IPR Licences Licences often contain similar restrictions even though they relate to different types of IP. Much 2.300 of the analysis of the CJEU and Commission in relation to one type of IPR can be applied to others, although this is not always the case. Sometimes the competition law assessment will be affected by the nature (particularly the exclusionary potential and specific subject matter) of the IPR in question. Below is a brief description of the ways in which the Commission and Courts have treated the different types of IP licence. A summary of the key features of each of the principal IPRs is shown in Table 2.1 below. 1. Patent licences/knowhow licences

Most of the experience of the Commission and Courts has been in the field of patent (and 2.301 related knowhow) licensing. The importance of patents to encouraging and protecting innovation, and of patent licensing in the dissemination and exploitation of innovative technologies, mean that the EU competition authorities have engaged with the competition law implications of restrictions in patent licences from the point at which the competition rules first came into effect. This led to the adoption of the permissive ‘Christmas Notice’ discussed at paragraphs 1.37 and 2.105.

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Table 2.1

Principal IP rights

 

Patents

Registered Trade Copyright

What does the

Inventions

Badges of

right protect?

which are

origin – any

new and not sign which the obvious

Registered

Design Rights

Database Right

Creative

Appearance of

Aspects of

Collections

including

part of a product configuration,

Marks

works,

public associates artistic, with a product

literary,

origin

dramatic

as designating

musical and works

Design Rights

the whole or

resulting from

the features of

to register the

right necessary?

How long does 20 years the right last?

a systematic

commonplace

Indefinite (if

Life of

25 years

and mark used)

70 years

renewal fees paid creator plus

or internal, of

new and have

which are

Yes

rights may exist)

whether external arranged in

an article which individually

No

unregistered

other material

ornamentation,

character Yes (although

of data or

the product or its whole or part of way which are

individual

Is an application Yes

the shape or

maximum

are original, not accessible

Confidential

Information/ Know-How

Information

unequivocally of a secret

nature, not generally

available, and imparted in confidence

and is

a qualifying design No

No

No

UK – 15 years

15 years

Indefinite

Prevents

Prevents

re‑utilization

use

or 10 years after

the article is sold (whichever is

shorter) EU – 3 What is the

nature of the

Monopoly

Monopoly

right?

Prevents copying

Monopoly

years

Prevents copying

extracting and

disclosure and

Source: Bristows LLP.

2.302 Once it became clear following Consten and Grundig357 how IP licences might be affected by the competition law regime, the importance of patent licences to industry meant that very significant numbers of patent licences were notified to the Commission for review under the regime established by Regulation 17/62. This gave the Commission opportunities to review common terms in patent licences and to reach a view on how such terms should be analysed. The outcome of that experience was reflected in the various block exemptions that were subsequently adopted. 2.303 The authorities have tended to treat licences of patents and licences of knowhow in a similar manner, viewing both as licences of technology and therefore important to technical innovation and to industrial development. In practice it is common for patents and knowhow to be licensed together as a package. Originally covered by two separate block exemptions, patent and knowhow licences are now in most circumstances treated as licenses of ‘technology’ and covered by the TTBER (see Chapter 3).

357 Consten and Grundig (n 153).

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The EU competition authorities extend a degree of deference to technology licences. For 2.304 example, the Commission is willing to accept (and, as will be seen below, to block exempt) more restrictive provisions in patent and knowhow licences than in respect of vertical agreements. This reflects the Commission’s view that the development of technology can require significant investment in research and development and that an interventionist competition regime affecting the exploitation of resulting IPRs might undermine incentives to invest. While the EU authorities are sensitive to the potential exclusionary power of patents and to 2.305 their possible role in establishing positions of market power, they are also conscious of the legislative trade off inherent in the patent system whereby: patents are valid for only 20 years; that the exclusionary power inherent in a patent is the subject of State scrutiny before grant; and that one of the bases for that grant is the disclosure of the underlying invention so that it can be used by all after expiry of the patent. These considerations are reflected to some extent in the Commission’s approaches to patent licences, for example the concern to prevent extension of the legislative ‘monopoly’ through licence provisions (see by way of illustration the discussion of non‑compete provisions, post-expiry royalties and no challenge clauses above at paragraphs 2.211 ff, 2.257 ff and 2.282 ff respectively). The Commission has become increasingly concerned to ensure that existing patent positions 2.306 are not used to inhibit follow on innovations and the further development of new technologies. This theme is explored in more detail below in the context of, for example, the pharmaceutical industry and the TMT sector. An example of this concern is the Commission’s stance on exclusive grant back and assignment provisions, discussed at paragraph 2.231. The Commission is suspicious of the potential anticompetitive effects of attempts to extend 2.307 the favourable treatment enjoyed by restrictions in technology licences to agreements which do not merit it.358 For this reason, restrictions relating to IPR will be favourably treated only for so long as the underlying IPR is in force. Post-expiry obligations are, for this reason, treated with caution. In addition, the Commission has always been clear that restrictions in agreements relating to knowhow will receive favourable treatment (e.g., benefitting from a block exemption) only if the knowhow in question is sufficiently valuable, clear and well defined to be sure that the exemption is merited. This is reflected in the scope of the TTBER which applies only to knowhow that is a package of practical information, being secret, substantial and identified and which results from experience and testing.359 The Technology Transfer Guidelines provide greater detail about how ‘knowhow’ is to be 2.308 identified for the purpose of the competition rules.360 In essence, the licensed information: ● must not be generally known or easily accessible; 358 See, e.g., the Commission’s note to the OECD explaining its approach to IP licensing: https://​www​.oecd​.org/​ officialdocuments/​publi​cdisplaydo​cumentpdf/​?cote​=​DAF/​COMP/​WD(2019)52​&​docLanguage​=​En – accessed 24 January 2023. At para 9, the Commission notes that exemption under Art 101(3) TFEU requires that the relevant agreement (and each restriction) contributes to improving the production or distribution of goods or to promoting technical or economic progress. Implicitly, this will not be the case for ‘knowhow’ that is not secret and substantial. 359 TTBER (n 160), Art 1(1)(i).

360 Technology Transfer Guidelines (n 76), para 45.

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● must be significant and useful for the production of the contract products (meaning that the condition is not met where the contract product can easily and effectively be produced using freely available technology); and ● must be capable of identification so that it can be checked whether the criteria of secrecy and substantiality are satisfied. 2.309 This last criterion indicates the Commission’s concern to ensure that courts, other parties and the competition authorities should be able to check that ‘knowhow’ agreements containing potentially significant restrictions on competition are genuinely valuable and procompetitive before they are automatically exempted. The requirement can be satisfied not only by identifying materials in which the knowhow can be found (e.g., in manuals, schedules or other written form) but also by identifying the general nature of the knowhow, how it will be passed on and who will be responsible for providing relevant training. This may be particularly important for so-called ‘show-how’ relating to knowledge about production processes. 2.310 When drafting knowhow licences which include restrictions that may fall within the scope of the prohibition in Article 101(1) TFEU, it will reduce competition law risk (including the risk of potential unenforceability) if these criteria are borne in mind. In mixed licences, where the knowhow may subsist long after the patents have expired and the parties may wish to rely on this to justify continued reliance on the TTBER to exempt restrictions, or to justify the potential application of Article 101(3) TFEU, it may become important to be able to demonstrate that the knowhow does in fact satisfy the requirements to be protected, namely that it is valuable and substantial. 2. Trademark licences

2.311 Trademarks perform a different role from patents. They are an indication of origin and can continue in force indefinitely, subject to any relevant use and registration requirements. 2.312 No block exemption covers pure trademark licensing. The Commission states explicitly in the Technology Transfer Guidelines that it will not extend the principles underpinning the TTBER and accompanying guidelines to trademark licensing.361 2.313 To the extent that a trademark licence enables a licensee under a technology transfer agreement to exploit the licensed technology rights more effectively, the trademark licence will benefit from the exemption provided by the TTBER to the same extent as the technology licence.362 To take advantage of this possibility, the trademark licence must be directly related to the production and sale of the contract products to be produced under the technology licence. The Commission gives the example of a situation where the use of the licensor’s trademark may help the licensee to reach customers more effectively ‘by allowing consumers to make an immediate link between the product and the characteristics imputed to it by the licensed technology rights’. The Commission goes on to say, helpfully, that an obligation on the licensee to use the licensor’s trademark may improve the dissemination of the underlying technology by making more apparent the identity of the underlying owner of the technology. It further clarifies that, 361 Ibid., para 50. 362 Ibid., para 47.

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even if the principal interest of the parties to an agreement is, in fact, the exploitation of the trademark, the TTBER will cover such agreements as long as they are still technology transfer agreements, meaning that they must satisfy the pre‑conditions to qualify as such (including, e.g., that licensed knowhow in a combined knowhow and trademark licence should be secret, substantial and identified). Trademark licences often exist in the context of the supply of goods and services. The 2.314 Commission treats restrictions in trademark licences that crop up in agreements relating mainly to the supply of goods or service analogously to vertical restraints. Other arrangements which include ancillary trademark licences such as distribution or franchise agreements may be covered by the VABE as is discussed further below at paragraph 5.02 ff. While the Commission and the Courts have held that restrictive provisions in trademark 2.315 licences fall within the scope of the prohibition in Article 101(1) TFEU (see the discussion of Consten and Grundig363 above) and may require exemption, any analysis of the anticompetitive impact of trademark licensing will have regard to the significantly lesser exclusionary effect of trademarks364 in comparison with that of some, or even many, patents. A patent in a particular technical field may be a significant barrier to operating in that field; a trademark does not prevent third parties from utilizing particular technologies or even foreclose them from accessing particular types of product – trademarks deal with the name or get up or other specific aspects of goods or services and can be ‘avoided’. They can be extremely valuable and provide significant market advantages, which are acknowledged in the Commission’s decisions, but, as noted in the Commission decisions discussed below, may have limited exclusionary power In the early 1990s, the Commission reviewed an agreement between UK brewing company 2.316 Whitbread and Canadian beer company Moosehead.365 That agreement permitted Whitbread to manufacture and sell a beer under the trademark ‘Moosehead’. The overall arrangement consisted of three contracts, including a Trademark User Agreement. In addition to licensing the Moosehead Trademark, the arrangement gave Whitbread access to ‘Moosehead’s secret knowhow’. Whitbread’s rights were limited to the UK, the Channel Islands and the Isle of Man. Whitbread was licensed to use Moosehead only in respect of the contract product and to use 2.317 no other names or marks when selling the contract product. Whitbread’s licence was granted on an exclusive basis. In addition, Whitbread was prohibited from using or registering any trademarks which might be confused with Moosehead and required to acknowledge both Moosehead’s ownership of the trademarks and the validity of the registrations. The agreement was stated to be of indefinite duration subject to the possibility to terminate on grounds stipulated in the contract. The Commission found that the provisions which granted exclusivity, the ban on active sales 2.318 outside the territory and the non-compete provision fell within the scope of the prohibition in 363 Consten and Grundig (n 153), discussed at para 1.36.

364 See, e.g., the discussion in Moosehead/Whitbread (n 204), considered below at paras 2.316–2.321. 365 Ibid.

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Article 101(1) TFEU. The contractual obligations on Whitbread to maintain certain quality standards and the trademark no challenge clause were held to fall outside the scope of the prohibition in Article 101(1) TFEU as they would not have an appreciable effect on competition. 2.319 The Commission’s reasoning relating to the no challenge clause is particularly interesting.366 The Commission found that the ban on a challenge to ownership had no appreciable effect on competition because it did not matter to third parties who owned a trademark; they would still be prevented from using it. The Commission found, unsurprisingly, that an obligation not to challenge the validity of the trademark might constitute a restriction on competition ‘because it may contribute to the maintenance of a trademark that would be an injustified (sic) barrier to entry into given market’. It then went on to hold that the obligation on Whitbread not to challenge the validity of the Moosehead mark did not in the circumstances infringe Article 101(1) TFEU because the trademark was comparatively new in the lager market at the time and would not therefore constitute an appreciable barrier to entry. 2.320 The Commission’s underlying rationale was: … in order for any restriction of competition to fall under Article [101(1)], it must be appreciable. The ownership of a trademark only gives the holder the exclusive right to sell products under that name. Other parties are free to sell the product in question under a different trademark or tradename. Only where the use of a well known trademark would be an important advantage to any company entering or competing in any given market and the absence of which therefore constitutes a significant barrier to entry, would this clause which impedes the licensee to challenge the validity of the trademark, constitute an appreciable restriction of competition within the meaning of Article [101(1)].

2.321 As far as the restrictive provisions were concerned, the Commission held that the then applicable patent and knowhow licensing block exemption did not apply to the agreement because the principal interest of the parties was in the trademark, rather than the knowhow. The Commission then considered whether an individual exemption under Article 101(3) was appropriate and concluded that in all the circumstances an exemption should be granted as the agreement would have significant benefits, there was no possibility that it would eliminate competition, and the provisions in question were indispensable to achieving the benefits identified. 2.322 Campari367 is a further example of a different approach in a trademark licence by comparison with the usual approach in respect of patent licences. As in Moosehead/Whitbread, the Commission was willing to permit a non-compete provision, stating: The restriction on the licensees’ freedom to deal in other products at the same time as the products here in question prevents the licensees from neglecting Campari in the event of conflict between the promotion of Campari sales and possible interest in another product. Although a non-competition clause in a licensing agreement concerning industrial property rights based on the result of a creative activity, such as a patent, would constitute a barrier to technical and economic progress by preventing the licensees from taking an interest in other techniques and products, this is not the case with the licensing agreements under consideration here. The aim pursued by the parties, as is clear from the agreements taken as a whole, is to decentralize manufacture within the EEC and to rationalize the distribution system linked to it,

366 Ibid., para 15(4).

367 Campari (n 134).

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ARTICLE 101 TFEU AND IP LICENSING and thus to promote the sale of CampariMilano’s Bitter, manufactured from the same concentrates provided by Campari-Milano, according to the same mixing process and using the same ingredients, and bearing the same trademark, as that of the licensor. The prohibition on dealing in competing products, therefore, makes for improved distribution of the relevant product in the same way as do exclusive dealing agreements containing a similar clause, which are automatically exempted by Regulation No 67/67/EEC (*); a declaration that the prohibition in Article 85(1) is inapplicable to this clause is accordingly justified.368 (emphasis added)

In Campari, the Commission cleared a prohibition on sub-licensing/assignment of the mark 2.323 and in both Moosehead/Whitbread and Campari it found quality control requirements to be outside the scope of the prohibition in Article 101(1) TFEU. As with other settlements of IP litigation, agreements between the settling parties as to 2.324 the future use of trademark rights may give rise to concerns under Article 101(1) TFEU. Trademark delimitation agreements under which owners accept limits on the use of their marks in order to settle a dispute need to be carefully drafted. Such agreements may be perfectly acceptable and may fall outside the scope of the prohibition 2.325 in Article 101(1) TFEU, as settled by the CJEU in BAT.369 The CJEU held that trademark delimitation agreements ‘are lawful and useful if they serve to delimit, in the mutual interest of the parties, the spheres within which their respective trade marks may be used, and are intended to avoid confusion or conflict between them’.370 The CJEU went on to note that if such agreements have the aim of dividing the market or otherwise restricting competition they will be prohibited. The arrangements considered by the Court in BAT were unusual in that they were held to involve ‘a contrived conflict involving trademark law to interfere with the conditions of competition’ but it is clear that if there is a genuine dispute involving, for example, confusion between two marks it is permissible to resolve the problem through a delimitation agreement that goes no further than is necessary to deal with the confusion.371 In drafting such agreements, the risks of competition law infringement will be reduced if the 2.326 parties avoid provisions which divide the use of the marks along geographical lines within the EU unless there are no alternative effective means of avoiding the confusion. For example in Syntex Synthelabo,372 the Commission found that a delimitation agreement partitioned markets when that was not objectively necessary and obliged the parties to modify their arrangement. Similarly, in Hershey/Herschi,373 the Commission cleared an agreement under which Schiffers (a large Dutch soft drinks company) assigned its Herschi mark to US chocolate manufacturer Hershey and received an exclusive licence back from Hershey to use the mark on particular goods for a period of time.

368 Ibid., pp 75 and 76.

369 Case 35/83 BAT Cigaretten-Fabriken GmbH v Commission of the European Communities (ECLI:EU:C:1985:32) (BAT). 370 Ibid., para 33.

371 See also, e.g., Sirdar and Phildar Trade Marks [1975] 1 CMLR D93; Re Penney’s Trade Mark, OJ [1978] L 60/19.

372 Commission Press Release IP/89/108, Commission ensures amendment to pharmaceutical trademark agreement, 28 February 1989 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​IP​_89​_108 – accessed 4 November 2023). 373 Hershey/Herschi, XXth Report on Competition Policy (1990), point 111.

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2.327 Chiquita/Fyffes374 involved a trademark delimitation agreement which followed the sale by Chiquita of its subsidiary Fyffes. Chiquita had been using ‘Fyffes’ as a subsidiary brand for the sale of bananas on the European mainland. The Fyffes brand was partially assigned to a new owner along with the subsidiary company. A trademark agreement between the new owner and Chiquita granted Chiquita the exclusive right to use ‘Fyffes’ outside the UK and Ireland for three years from 1986 and also contained a provision prohibiting the new owner from using the mark outside the UK and Ireland for the sale of fresh fruit (including bananas) until 2006. By 1989, Chiquita no longer used the Fyffes mark, but relied on the non-use provision to prevent its use by the new owner in continental Europe. 2.328 The Commission considered that this territorial limitation was a significant restriction of competition as it deprived the new owner of the competitive advantage that could have been derived from using the Fyffes brand Europe-wide to compete with Chiquita. This was regarded as a significant barrier to effective competition with Chiquita. The provision infringed both Article 101(1) TFEU and Article 102 TFEU as it protected Chiquita’s dominant position in a number of EU Member States, not least as Chiquita had itself stopped using the Fyffe’s mark for the sale of bananas by 1989 at the latest.375 Following the Commission’s intervention and the issuing of a statement of objections, Chiquita agreed to stop its efforts to block the sale of Fyffes bananas. 3. Copyright/design right licences

2.329 There are fewer authorities on the application of Article 101(1) TFEU to copyright and design right licences than those relating to patents, knowhow or trademarks. Licences of software copyright and designs are now covered by the TTBER. 2.330 No block exemption applies to licences of other types of copyright (save insofar as they may be genuinely ancillary to an agreement otherwise covered by the TTBER or VABE). Similar broad principles can be applied to licences of non-software copyright as have been established for other types of IPRs, but the particular nature of various species of copyright may affect the competition law analysis (e.g., as in the case of performance copyright – see Coditel 2,376 FAPL v QC Leisure,377 Canal +378 and Valve379. 2.331 A few cases have dealt with the IP related issues of pure copyright licences under Article 101 TFEU. Some cases which have arisen in a copyright context, such as the cases relating to music licensing relate primarily to Article 102 TFEU (e.g., excessive pricing/discrimination) and those aspects are discussed briefly in Chapter 6 below.

374 Chiquita/Fyffes plc, XXIInd Report on Competition Policy (1992), points 168–176.

375 Indeed, the Commission asserted that by relying on the Fyffes mark in English legal proceedings and threatening to do so in continental Europe Chiquita had further abused its dominant position. Chiquita/Fyffes, ibid., at point 174. 376 Coditel 2 (n 61).

377 FAPL v QC Leisure (No. 2) and (No. 3) (nn 65 and 229). 378 Canal + CJEU (n 62). 379 Valve (n 6).

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Collecting societies license copyrighted works on behalf of the copyright owner. They are 2.332 parties to licences at various levels, including licences from the individual artist to the society and licences to users. Collecting societies may also enter into agreements with each other. They might be thought of as a form of copyright pool, whose purpose is to make the process of licensing and managing the use of copyrighted works more efficient. In some countries statutory monopolies exist which can give rise to issues under Article 102 TFEU, as mentioned above. Collecting societies have many similarities with technology pools and similar principles will 2.333 apply under Article 101 TFEU. Agreements between collecting societies have been investigated on a number of occasions. This has arisen in part because collecting societies have in the past tended to operate on a geographically delineated basis. Each society may also deal with only some of the rights which may be required by users, particularly as technology evolves, meaning that offering more efficient licences requires collaboration. The CJEU has held that reciprocal contracts between collecting societies do not in themselves 2.334 infringe Article 101(1) TFEU. However, unsurprisingly, exclusivity clauses or other restrictions will give rise to potential concern and may infringe Article 101(1) TFEU.380 One example of Commission intervention relates to the establishment by two collecting soci- 2.335 eties of an arrangement under which broadcasters could obtain a single EU-wide licence to simulcast programmes by conventional TV and radio as well as via the internet.381 Overall, the Commission considered the scheme to be procompetitive as it made the licensing process more efficient and would provide consumers with better access to copyrighted materials. It noted that the agreement created a new product (multi-territorial and multi-repertoire licensing of the simulcasting right) that could not be created without some cooperation among collecting societies. However, the Commission did require amendments to provisions imposing territorial limitations; the joint setting of royalty fees; and the bundling of administrative costs with the copyright royalty before granting the arrangement an exemption under Article 101(3) TFEU. Concerns about market sharing came to the fore in the CISAC case.382 CISAC is a non-profit 2.336 non-governmental organization, whose principal tasks include promoting reciprocal representation between collecting societies around the world. The main underlying competition concern related to the way in which the CISAC model contract used by collecting societies for cooperation in licensing envisaged that collecting societies would agree between themselves as to the nationality of members they would accept (the ‘membership clause’); granted reciprocal exclusive rights to license each other’s repertoire in their ‘home’ territory (the ‘exclusive mandate’); and agreed not to interfere in that way in which those exclusive mandates were exercised (the ‘non-intervention’ clause).

380 Cases 110/88, 241/88 and 242/88 Lucazeau and Others v SACEM and Others (ECLI:EU:C:1989:326), para 17.

381 2003/300/EC: Commission Decision of 8 October 2002 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement (Case No COMP/C2/38.014 – IFPI ‘Simulcasting’), OJ [2003] L 107/58.

382 Case COMP/C2/38.698 – CISAC, Commission Decision of 16 July 2008 (CISAC). Partially annulled on the issue of whether the Commission had adequately proved a concerted practice in Case T-442/08 International Confederation of Societies of Authors and Composers v European Commission (ECLI:EU:T:2013:188).

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2.337 The Commission investigated, following complaints that CISAC members were refusing to grant Europe-wide licences to broadcasters, and concluded that the model contract was operated by collecting societies so as to limit the geographic coverage of the licences granted by any given society to the territory of the EEA country in which the society in question was established. The Commission accepted that both cooperation between collecting societies and some form of model contract were, in themselves, unobjectionable. Nevertheless, on the facts, the Commission found that the arrangements between the collecting societies restricted competition by creating artificial barriers to the provision of music across borders and by limiting the freedom of rights owners to choose which collecting society managed their rights383 thus undermining competition in the market for the provision of services. 2.338 Developments in copyright licensing practices and requirements have moved away from the competition sphere following the adoption of specific EU legislation dealing with collective management of musical rights and multi-territorial licensing. This reflected the evolution of broadcast markets and other technologies.384 2.339 Outside the sphere of musical rights, the Commission has also considered other aspects of rights licensing, including sports rights and more general rights to broadcast. The general principles explored above relating to exclusivity are also relevant in these spheres, although the context means that some specific approaches are required.385 So, for example in the field of sports broadcasting, the Commission has published a white paper386 which considers a number of aspects of the role of sport in European society. The white paper summarizes the competition policy underpinnings of the approach to the selling of sports media rights, particularly when sold collectively (as is often of necessity the case, given the nature of sports competitions).387 2.340 The Annex to the white paper388 explains that: The acquisition and sub-licensing of broadcasting rights and the sale of advertising slots constitute examples of activities of an economic nature covered by the provisions of the EC Treaty. The applica-

383 On the question of discrimination against members on the basis of nationality, see also the earlier Commission decisions against GEMA (71/224/EEC: IV/26-760 – GEMA, OJ [1971] L 134/15) and GVL (81/1030/EEC: IV/29.839 – GVL, OJ [1981] L 370/49). GVL was primarily a case under Art 102 TFEU and was unsuccessfully appealed to the CJEU (Case 7/82 GVL v Commission (ECLI:EU:C:1983:52)).

384 Directive 2014/26/EU of the European Parliament and of the Council of 26 February 2014 on collective management of copyright and related rights and multi-territorial licensing of rights in musical works for online use in the internal market, OJ [2014] L 84/72.

385 For an early Commission decision, focusing on foreclosure issues in media broadcasting, subsequently upheld by the Court, see Métropole Télévision (n 82), which involved the creation by six major media companies in France of a new satellite broadcast company to compete with the incumbent, Groupe Canal +. The JV had benefitted from an exclusivity clause lasting for ten years to broadcast content owned by its parents. The CJEU upheld the Commission’s decision to limit the exemption granted to a period of three years. 386 White Paper on Sport, COM(2007) 391 final, 11 July 2007.

387 A summary of the interrelationship between sports and competition law including the joint acquisition and joint selling of sports media rights can also be found at: https://​competition​-policy​.ec​.europa​.eu/​sectors/​sports​_en​#:​~:​text​=​Most​ %20sport​%20cases​%20have​%20been​,abuse​%20of​%20a​%20dominant​%20position – accessed 9 November 2023. 388 Commission Staff Working Document, The EU and Sport: Background and Context – Accompanying document to the White Paper on Sport, Section 3.4 Anti-trust (p 35 et seq) and 4.8 Media (p 53 et seq (Sports White Paper Annex).

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ARTICLE 101 TFEU AND IP LICENSING tion of the competition provisions of the EC Treaty to the selling of media rights of sport events takes into account that this area has a number of specific characteristics …

The Annex explains that:

2.341

The area of sport media rights is particularly sensitive to antitrust violations. Given that a single seller or a joint selling entity may sell all sport media rights on an exclusive basis for an extended period of time to one single operator in a certain market (such as pay-TV), other operators in that market are foreclosed from accessing the product, which may result in competitive harm. Moreover, operators in neighbouring markets (such as internet) cannot access the exclusively sold rights. This may hamper the development of new services in neighbouring markets.

It summarizes three Commission competition decisions affecting sports media rights,389 outlin- 2.342 ing the ways in which these sought to limit or remove restrictive effects which may otherwise result from collective licensing, particularly the downstream foreclosure problems that could result from excessively long licences or exclusive licences for large packages of rights. While recognizing that joint selling of media rights in the context of organized sport involves 2.343 efficiency, the Commission is clear that it constitutes a horizontal restriction of competition under Article 101(1) TFEU which requires the application of Article 101(3) if it is to avoid prohibition. The guidance from the Commission’s decisions is that the competition concerns inherent in joint selling of sports media rights can be mitigated by, for example: dividing rights into several packages, rather than selling one comprehensive package; seeking tenders for those packages through an open process; limiting the duration of contracts to no more than three years; preventing all packages from being acquired by one dominant broadcaster; and requiring that rights that go unsold are returned to the individual participants (or clubs) for exploitation. The Commission has also taken action against anticompetitive downstream conduct by pur- 2.344 chasers/licensees of media rights, particularly to avoid the risk of downstream foreclosure.390 As might be expected in relation to a foreclosure concern, the remedies imposed have largely been a combination of limiting the scope of exclusivity (so that rights were not available to only one purchaser across all possible distribution media)391 and/or limiting duration. In conclusion, the lack of block exemptions for trademarks and non-software copyrights means 2.345 that when drafting licences relating to these rights, parties need to be conscious of the risks of falling within the scope of the prohibition in Article 101(1) TFEU. They will often look to the provisions of the TTBER and/or VABE to help identify provisions which may be problematic and ways in which the risks can be reduced. If there is a realistic concern that an agreement 389 Sports White Paper Annex, ibid., para 3.3.1.2 summarizing the decisions relating to the UEFA Champions League (Case 37398 23 July 2003 Joint selling of the commercial rights of the UEFA Champions League, OJ [2003] L 291/25 (UEFA CL)); German Bundesliga (Case 37214 19 January 2005 Joint selling of the media rights to the German Bundesliga, OJ [2005] L 134/46 (DFB)); and FA Premier League (Case 38173 22 March 2006 Joint selling of the media rights to the FA Premier League (Not published in Official Journal) (FAPL)).

390 Sports White Paper Annex, ibid., section 3, pp 78–99.

391 For example, in Newscorp Telepiu (in fact a merger case), commitments were given by the acquiring company to waive certain of its exclusive rights for means of transmission other than its own satellite platform: Case No COMP/M.2876 – Newscorp/Telepiu’, Commission Decision of 2 April 2003, OJ [2004] L 110/73 (https://​ec​.europa​.eu/​competition/​ mergers/​cases/​decisions/​m2876​_en​.pdf – accessed 21 November 2023).

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may be sufficiently significant to engage Article 101(1) TFEU, that is, that it is outside the scope of the De Minimis Notice and could have a significant impact on competition if it contained restrictions, it is sensible to have regard to the hardcore and excluded restrictions in the TTBER and to avoid provisions having similar effects unless there is a good procompetitive rationale, which can be evidenced. 2.346 Some specialized contexts such as joint licensing of musical copyrights and joint selling of media rights have seen the development of specific decisional practices. Past cases in these sectors give a good indication of where the concerns lie (primarily foreclosure; limitation of technical development of new market development; and geographical market division) and the sort of solutions that can be adopted, although, as the Commission notes: ‘It is important to re-emphasize that the remedies adopted in previous decisions are not exhaustive or binding for future cases. They merely represent possible options to deal with competition issues arising in this area. The Commission may decide to adopt additional or different remedies in future cases.’ This holds good and is a salutary warning in respect of all competition enforcement.

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CHAPTER 3 TECHNOLOGY TRANSFER BLOCK EXEMPTION I. OVERVIEW OF THE TTBER 3.04 II. PROVISIONS OF THE TTBER – SUMMARY 3.12 A. Article 1 – The Definitions 3.14 B. Article 2 – The Exemption 3.22 C. Article 3 – The Market Share Thresholds 3.27 D. Article 4 – The Hardcore Restrictions 3.39 E. Article 5 – The Excluded Restrictions 3.45 F. Articles 6–11 – Additional Provisions 3.47 1. Article 6 – Withdrawal of the benefit of the block exemption 3.48 2. Article 7 – Non‑application of the block exemption to networks of agreements3.51 3. Article 8 – Application of market share thresholds 3.52 4. Articles 9–11 – Relationship with other block exemptions, transitional period and duration 3.56 III. GENERAL COMMENTS ON THE TTBER 3.58 A. Distinction Between Competitors and Non-competitors3.58 1. Blocking positions 3.64 2. Key takeaways on blocking positions 3.94 B. Use of Market Share Thresholds 3.95 IV. THE APPLICATION OF THE CORE OPERATIVE PROVISIONS OF THE TTBER 3.102 A. Hardcore Restrictions – Agreements Between Competitors 3.102 1. Price fixing 3.103 2. Output restriction 3.112 3. Allocation of markets/customers 3.115 a. Sole licences 3.118

b.

Restrictions protecting the parties from each other 3.119 c. Restrictions protecting licensees from each other (and the licensor from the licensees) 3.124 B. Hardcore Restrictions – Agreements Between Non-competitors 3.135 1. Price fixing (Article 4(2)(a)) 3.136 2. Passive sales restrictions on the licensee (Article 4(2)(b)) 3.140 a. Sales into reserved territories/ customer groups (Article 4(2)(b)(i))3.144 b. Captive use limitation (Article 4(2)(b)(ii))3.152 c. Single customer supply obligations (Article 4(2)(b)(iii)) 3.153 d. Sales at the wholesale level only (Article 4(2)(b)(iv)) 3.154 e. Sales to authorized distributors only (Article 4(2)(b)(v))/sales to end-users must be permitted (Article 4(2)(c)) 3.155 C. A Change in the Competitive Relationship of the Parties (Article 4(3)) 3.159 D. Excluded Restrictions (Article 5) 3.163 1. Grant back obligations (Article 5(1) (a))3.166 2. No challenge provisions (Article 5(2) (b))3.182 3. Limiting developments outside the licence (Article 5(2)) 3.192

The parties to a licence likely to have an effect in the EU should consider whether the licence 3.01 contains clauses which may fall within the scope of the prohibition in Article 101(1) of the Treaty on the Functioning of the European Union (TFEU). If so, unless the agreement qualifies under the ‘de minimis’ rules, the agreement will require exemption to escape the prohibition contained in Article 101(1) TFEU. The previous chapter explained some of the considerations that apply when assessing how Article 101(1) TFEU applies to IPR licences. Paragraphs 2.117–2.128 explained some of the general difficulties and uncertainties that arise 123

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when applying Article 101(3) TFEU. Given the uncertainty involved in both these assessments, a practical first port of call is to consider whether a block exemption regulation may be available and, if not, why not. Even if the potentially relevant block exemption does not in fact apply, its detailed provisions can give valuable guidance as to what may be acceptable and, more importantly, what is almost definitely going to give rise to real risks of infringement and unenforceability. 3.02 The block exemption that is most likely to be relevant to an intellectual property (IP) licence is that which applies to technology transfer agreements. Agreements permitting the sale of products subject to IP rights (IPRs) (rather than their manufacture) may be covered by the block exemption applicable to vertical agreements. Some agreements relating to IPRs arising from or relevant to research and development collaboration may be covered by the Research and Development Block Exemption (R&DBE).1 3.03 This chapter deals with all of the potentially relevant block exemptions, starting with the TTBER (Regulation 316/2014),2 followed by the VABE (Regulation 2022/720),3 the Specialisation Block Exemption (SBE)4 and the R&DBE.

I. OVERVIEW OF THE TTBER 3.04 The current TTBER came into effect on 1 May 2014 and will expire on 30 April 2026. The accompanying ‘Technology Transfer Guidelines’5 explain its scope and application (as well as providing guidance on the assessment of potentially restrictive provisions in IPR licences which fall outside the TTBER). 3.05 The TTBER covers many types of IP licence: ● the licensing of patents, including designs and utility models (pure patent licensing agreements); ● the licensing of non-patented technical information (pure knowhow licensing agreements); ● the licensing of software copyright; and ● combined patent, knowhow and/or software copyright licensing (mixed agreements).

1

2 3 4

5

European Commission (Commission) Regulation No 2023/1066 of 1 June 2023 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements, OJ [2023] L 143/20. A transitional regime applies from 1 July 2023 until 30 June 2025 for agreements in force on 30 June which satisfied the requirements of the previous R&DBE, but not those of the 2023 R&DBE.

Commission Regulation No 316/2014 of 21 March 2014 on the application of Article 101(3) of the TFEU to categories of technology transfer agreements, OJ [2014] L 93/17. Commission Regulation No 2022/720 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, OJ [2022] L 134/4.

Commission Regulation No 2023/1067 of 1 June 2023 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of specialisation agreements, OJ [2023] L 143/20. A transitional regime applies from 1 July 2023 until 30 June 2025 for agreements in force on 30 June which satisfied the requirements of the previous SBE, but not those of the 2023 SBE.

Commission Notice, Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union (TFEU) to technology transfer agreements, OJ [2014] C 89/3.

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The full list of technology rights covered by the TTBER is set out in Article 1(1)(b). This 3.06 article makes clear that a licence covering any combination of those technology rights, including applications for those rights or applications for the registration of those rights is potentially capable of benefitting from the exemption. If the TTBER applies, and its requirements are satisfied, the parties may proceed with their 3.07 agreement without having to carry out an (often complex) analysis of whether the licence breaches Article 101(1) TFEU and, if so, satisfies Article 101(3) TFEU. If the TTBER does not exempt an agreement, the parties must analyse whether the licence may 3.08 fall within the scope of the prohibition in Article 101(1) TFEU. If the parties detect a potentially anti‑competitive provision, they may decide: 1. to proceed with the contract as it stands, accepting the risk that if the agreement is later challenged it will then need to be defended either: by demonstrating that it does not in all the circumstances fall within the scope of the prohibition in Article 101(1) TFEU; or by showing that it satisfies the requirements for automatic exception under Article 101(3) TFEU; or 2. to redraft the licence to reduce or remove the risk of competition law infringement by: (i) bringing it within the scope of the TTBER if possible; (ii) removing the problematic restrictions; or (iii) bringing the restrictions as close as possible to the requirements of the TTBER or Article 101(3) TFEU itself. Redrafting and the related commercial decisions and negotiations are likely to take time, so if there is a significant risk that the TTBER may not apply it is wise for each party to have considered potential fall-back positions and ‘must have’ provisions (and the related risks/benefits) on a timely basis. This underlines the need to consider competition law issues in good time if there is any concern about competition law risks so that there is sufficient time to assess all the issues and to take informed commercial decisions. Applying the TTBER requires the understanding and application of several key concepts. 3.09 These are introduced below and subsequently addressed in more detail. Both the TTBER itself and the accompanying Technology Transfer Guidelines provide some assistance in understanding how these tests are to be approached. However, it is important to remember that in the time since the adoption of the TTBER and the Technology Transfer Guidelines, the EU Courts have had to consider some of the key concepts, so the TTBER and Technology Transfer Guidelines do not necessarily contain the most up-to-date legal analysis and should be taken only as a starting point. ● Are the parties to the agreement competitors? The Commission considers restrictive agreements between competitors more likely to have serious anticompetitive effects than those between non-competitors. Restrictive agreements between competing undertakings are less likely to qualify for the Article 101(3) TFEU exception and such agreements are likely to be subject to more intensive scrutiny than restrictive agreements between non-competitors. The TTBER is more generous than the equivalent block exemption for vertical agreements as it does exempt some agreements between competitors. Identifying whether the parties are competitors can be tricky, as is explained below at paragraph 3.58 ff. ● May either party, or both, have market power? The Commission considers that restrictive agreements between parties with market power are more likely to give rise to competition 125

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law concerns than those between parties with limited market power. Market shares are used in block exemption regulations as a proxy to identify circumstances where market power may exist. All modern block exemption regulations contain market share thresholds. Agreements between parties who exceed the relevant threshold do not benefit automatically from the block exemption (although an individual exception under Article 101(3) TFEU is still possible, and merely exceeding the market share threshold in a block exemption regulation does not mean that the agreement necessarily falls within the scope of the prohibition in Article 101(1) TFEU). An exemption under the TTBER is available for technology transfer agreements: (i) between competitors provided that their combined market share6 do not exceed 20 per cent; and (ii) between non-competitors provided that neither party’s market share exceeds 30 per cent. If these thresholds are likely to be exceeded, the agreement should be assessed to determine if it may benefit from an exception under Article 101(3) TFEU (or is in fact not restrictive of competition in any event) and what risks arise. ● Does the agreement contain any serious (‘hardcore’) restrictions of competition? Block exemptions are not suitable for agreements which contain one or more serious restrictions of competition. Such agreements can be exempted only if they actually satisfy, in their actual legal and economic context, all the requirements for exception under Article 101(3) TFEU. If a licence contains one or more such potentially serious restrictions the agreement as a whole cannot benefit from the TTBER. The TTBER has two lists of hardcore restrictions, with a stricter regime applying to agreements between competitors and a shorter list of hardcore terms for agreements between non‑competitors. While technically the hardcore restrictions listed in a block exemption are not necessarily ‘by object’ restrictions of competition7 and, while even hardcore restrictions are capable of being exempted,8 the Commission has made clear that, whatever the theoretical possibilities, such restrictions are in its view unlikely to satisfy the requirements of Article 101(3) TFEU.9 ● Does the Agreement contain any specific restrictions requiring individual scrutiny before that particular restriction can be confirmed to benefit from Article 101(3) TFEU (‘Excluded restrictions’)? Excluded restrictions are provisions which are potentially problematic and are not granted automatic exemption under a block exemption regulation. Unlike hardcore restrictions, they are not subject to a strong inference that they are not likely to be exempted under Article 101(3) TFEU or that they are likely to infringe Article 101(1) TFEU. If an agreement contains an excluded restriction, but otherwise satisfies the requirements of the block exemption, the TTBER will exempt the agreement – other than the excluded 6 7

8 9

How to identify the markets on which these shares are to be assessed is discussed at para 3.95 below.

Advocate General (AG) Wahl has emphasized that the concept of ‘hardcore restriction’ is to be distinguished from that of ‘restrictions of competition by object’ (Case C-230/16 Coty Germany GmbH v Parfümerie Akzente GmbH: Opinion (ECLI:EU:C:2017:603), para 56; judgment (ECLI:EU:C:2017:941)); see also AG Mazák’s Opinion in Pierre Fabre (Case C-439/09 Pierre Fabre Dermo-Cosmétique SAS v Président de l’Autorité de la concurrence and Ministre de l’Économie, de l’Industrie et de l’Emploi: Opinion (ECLI:EU:C:2011:113), paras 23–30; judgment (ECLI:EU:C:2011:649)) that, in his view, there was no ‘legal presumption’ that an agreement including a hardcore restriction infringes Art 101(1) TFEU. See also the judgment of the CJEU in Case C-260/07 Pedro IV Servicios SL v Total España SA (ECLI:EU:C:2009:215), para 82. This was recently confirmed by the CJEU in Case C‑211/22 Super Bock Bebidas, SA v Autoridade da Concorrência (ECLI:EU:C:2023:529), paras 38–39.

See, e.g., Case 1983/83 Windsurfing International Inc. v Commission of the European Communities [1986] ECR 611 (ECLI:EU:C:1986:75) (Windsurfing), and AG Mazák’s Opinion in Pierre Fabre, ibid, para 64. Technology Transfer Guidelines (n 5), para 95, notwithstanding what is said above about the need for a consideration of all the circumstances.

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restriction, which will need to be separately analysed applying the criteria in Article 101(3) TFEU. The excluded restrictions in the TTBER are primarily provisions that may well have positive market effects and that are common in technology licences, such as terms relating to grant back licensing or assignment of improvements, no challenge clauses and (for agreements between non-competitors) non-compete obligations. ● Is the purpose of the agreement manufacture/production of contract products? The exemption will apply only where the licensee itself manufactures/produces the licensed product or services or has them manufactured/produced for its account. In all cases the licence agreement must permit ‘the production of contract products’.10 Agreements which are not for the purpose of production are not within the scope of the TTBER (although other block exemptions may apply).11 ● Does the arrangement involve the transfer of technology through a licence? The exemption does not apply to assignments of technology unless part of the risk associated with exploitation remains with the licensor.12 The Technology Transfer Guidelines explain that this may be the case where the consideration for the assignment varies depending on turnover or usage (e.g., the quantity of products produced or the number of times the technology is employed).13 Non-assertion agreements and other settlement agreements are also covered in principle, as long as they involve a technology transfer.14 In addition to the key considerations summarized above, the TTBER applies only to bipartite 3.10 agreements and to the effect these agreements will have within the EU/EEA. Where licensing agreements contain obligations relating to both non-member countries and territories within the EU/EEA, the TTBER will still apply to territories within the EU/EEA. The TTBER will also apply when undertakings in non-member countries have licensing agreements which have effects within the EU/EEA. The TTBER is also a good starting point for assessing which clauses are likely to be acceptable 3.11 under Article 101(3) TFEU in situations where the TTBER does not apply (e.g., in relation to pure trademark licences and certain patent pooling arrangements). As a rule of thumb, any restriction in an IP licence not covered by the TTBER which is similar to or has similar effects to a restriction which falls within the TTBER’s list of hardcore restrictions should be reviewed carefully in its overall context to assess the risks of infringement.

10

TTBER (n 2), Art 2 and Technology Transfer Guidelines, ibid., paras 58–66.

12

Ibid., Art 1(1)(c).

11 13 14

TTBER, ibid., para 69.

Technology Transfer Guidelines (n 5), para 52. So, e.g., continuing obligations in assignments of portfolios of patents such as an obligation to pay royalties depending on use may bring that assignment within the scope of Art 101(1) TFEU and, if necessary, within the scope of the TTBER. Technology Transfer Guidelines, ibid., para 53 and fn 38.

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II. PROVISIONS OF THE TTBER – SUMMARY15 3.12 The TTBER follows a similar pattern to all other modern EU block exemption regulations. Its structure and provisions are summarized below, and the substantive Articles are then analysed in more detail. It is a short instrument, with ten Articles, covering only seven pages in the Official Journal. However, its length belies the complexity of some of its provisions and the difficulty of applying them in a practical commercial context. 3.13 As with EU legislation generally, the recitals or ‘whereas’ paragraphs at the beginning of the Regulation are an important tool in understanding its underlying purpose. They set out the legislative basis for the regulation and its fundamental purpose and give a brief summary of the reasoning which underpins the grant of an exemption and the reasons for some of the particular provisions contained in the regulation. When seeking to apply a particular operative provision, it is sensible to take a look at the related recital as well as the relevant paragraphs in the Technology Transfer Guidelines.16 This can provide useful context to help interpret the provision in the light of its underlying purpose. A. Article 1 – The Definitions 3.14 Article 1 defines the key terms required to understand and apply the regulation. Some of the definitions are common to all block exemptions, and wholly unexceptional, such as the definition of ‘agreement’ at Article 1(1)(a) or that of ‘connected undertakings’ at Article 1(2). Others are more unexpected. For example, the Regulation incorporates a distinction between ‘technology’ rights and ‘intellectual property’ rights. Article 1(1)(h) makes clear that technology rights are a subset of IPRs. It suggests (without being completely clear) that technology rights are the same as ‘industrial property rights’. As a practical matter this distinction is reflected in the scope of application of the block exemption. In addition, as is set out in the Technology Transfer Guidelines, this distinction is further reflected in the Commission’s unwillingness to apply the TTBER and its guidelines by way of analogy to some IP licences which deal with other types of licensing, such as the licensing of rental rights or public performance rights protected by copyright.17 3.15 The block exemption covers only technology transfer agreements permitting the production of contract products. These concepts are also defined in Article 1. The Technology Transfer Guidelines explain that the TTBER does not apply to parts of a technology transfer arrangement relating to inputs or equipment which are not used to manufacture contract products.18 3.16 The Technology Transfer Guidelines also clarify that, while the agreements covered are usually licences, the concept of a technology transfer agreement also covers an arrangement where 15 16 17 18

A useful summary of the structure of the TTBER, and the overall approach of the Commission to IP licensing from the perspective of the EU services can be found in the EU note to the Organisation for Economic Co-operation and Development (OECD), Licensing of IP rights and competition law (DAF/COMP/WD(2019)52). The recitals, or preamble, are often referred to by the CJEU when interpreting block exemption regulations. See, e.g. Pedro IV Servicios SL v Total España SA (n 7), paras 52 and 53. Technology Transfer Guidelines (n 5), paras 47–50. Ibid., para 46.

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ownership of the IPR is itself transferred by way of assignment or a similar transaction as long as part of the risk of exploitation remains with the original owner.19 The Technology Transfer Guidelines also specify that both non‑assert agreements (whereby one party agrees not to assert its rights against another) and settlement agreements under which a dispute is settled and the IP owner allows the other party to use the right are also covered. The purpose of the exemption is to encourage the exploitation of technology rights for the pro- 3.17 duction of goods or services.20 Agreements which have that aim will be covered, even if some further research and development may be required to commercialize the licensed technology and to produce contract products.21 However, the TTBER will not apply if the technology is licensed to enable the licensee to carry out research , meaning that licences relating to technological research tools are not covered.22 The Technology Transfer Guidelines also note that if the parties do not, in fact, exploit the 3.18 licensed technology, the underlying rationale of the block exemption is not met. Despite this, ‘exploitation’ can take place under a freedom to operate agreement, even if the licensee continues to exploit only its own technology, because the licence means that it can now engage in that exploitation activity free from the risk of infringement proceedings. Notwithstanding that, the Commission is suspicious of agreements which do not result in some exploitation of the licensed technology, particularly when concluded by competitors.23 Agreements under which the licensee appoints a sub-licensee to manufacture on its behalf are 3.19 covered by the block exemption. Any parts of a head licence which relate only to sub-licensing are not technically within the scope of the block exemption. The Technology Transfer Guidelines state, however, that similar principles to those applied to the technology transfer aspects will be applied by analogy to those provisions.24 Subcontracting is covered if the licensor licenses technology to enable a subcontractor to produce products for the licensor.25

19

20

21 22

23 24 25

Ibid., para 52. This means that if the consideration for the assignment/transfer of ownership depends on what the acquirer does with the IPR (e.g., turnover, quantity, or other utilization indicators), the assignment arrangements and any obligations/restrictions will be analysed as technology transfer agreements falling within the scope of Art 101 TFEU (see above n 13). TTBER (n 2), Recital 7. This suggests that the link need not necessarily be direct as long as it is there. Treatment of licences involving an indirect link with production or manufacture are discussed at paras 61 and 66 of the Technology Transfer Guidelines, ibid. Para 61 suggests that a direct link is required but does not establish how direct the link must be. Para 65 makes clear that the link will be sufficiently clear as long as a contract product has been identified even if further development work is required. What is required, according to para 65, is that the products are produced with the licensed technology rights but, as mentioned below, Art 1(1)(g) defines a contract product as including a product produced indirectly using the licensed rights. Defined at TTBER, ibid., Art 1(1)(g) as ‘… a product produced, directly or indirectly, on the basis of the licensed technology rights’. Ibid., para 66, although perhaps it could be argued that they might be covered if a suitable field of use provision were identified. On balance, given that the purpose of the limitation in the block exemption is to ensure that it relates only to licences where the underlying technology licensed has a fairly close and direct link to the manufacture of specific contract products, this might still not be enough. Ibid., para 59. Ibid., para 60

Ibid., para 64.

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3.20 Specific definitions which are well worth becoming familiar with are: ● Articles 1(1)(d) and (e), which explain the difference between ‘reciprocal’ and ‘non-reciprocal’ agreements (important to the application of the hardcore list in agreements between competitors); ● Articles 1(1)(j)–(m), which set out the parameters of various potentially relevant markets (the product, technology and geographic markets); ● Article 1(1)(n), which explains the concept of ‘competing undertakings’ as used in the Regulation; and ● Articles 1(1)(p)–(r), which define various types of exclusivity or selectivity. 3.21 Given the importance of the definitions, it can pay dividends to briefly review all the definitions (and, indeed, to read the recitals) before beginning to draft, review or analyse any technology licence from a competition law perspective. B. Article 2 – The Exemption 3.22 This is the principle operative provision of the TTBER. It defines the scope and application of the exemption. Its parameters are important to any risk assessment. Block exemption regulations are a derogation from a core provision of the TFEU itself (Art 101 TFEU), meaning that they are restrictively interpreted to ensure that they do not extend to arrangements and situations which they are not intended to cover.26 It is for this reason that advisers will often at least ‘stress test’ restrictions in Technology Transfer Agreements against Articles 101(1) and 101(3) TFEU as well as assessing compatibility with the TTBER. This enables them to advise on risks that would arise in the event that an agreement does not fall within the precise parameters of the regulation but needs to be assessed under Article 101(1) and (3) TFEU. 3.23 Article 2 provides that any bipartite27 technology transfer agreement permitting the production of contract products that is subject to Article 101(1) TFEU is exempt, provided that: the criteria relating to market share are satisfied; and the agreement contains no hardcore terms. Once it is clear that the pre-conditions to qualify as a technology transfer agreement are met and the further criteria are satisfied, the terms of the agreement need not be considered further from a competition law perspective – the agreement is deemed to benefit from the exemption in Article 101(3) TFEU. 3.24 The block exemption exempts restrictions only for as long as the licensed technology is covered by a valid right: in the case of patents and other similar rights this is as long as the right has not expired, lapsed or been declared invalid; in the case of knowhow, Article 2(2) stipulates that the exemption remains available for as long as the knowhow remains secret.28 Article 2(2) also explains that if knowhow enters the public domain as a result of the licensee’s conduct, 26 27 28

Case C‑70/93 Bayerische Motorenwerke AG v ALD Auto-Leasing D GmbH [1995] ECR I‑3439 (ECLI:EU:C:1995:344), para 28; Case C-306/96 Javico International and Javico AG v Yves Saint Laurent Parfums SA (YSLP) [1998] ECR I‑1983 (ECLI:EU:C:1998:173) (Javico v Yves Saint Laurent), para 32; Pedro IV Servicios SL v Total España SA (n 7), para 51.

While the TTBER (n 2), para 57, applies only to agreements between two undertakings, the Technology Transfer Guidelines (n 5), state that the principles in the TTBER will be applied by analogy to multi-party agreements which are of the same nature as those covered by the block exemption. TTBER (n 2), Art 2(2).

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the exemption will continue to be available. In other words, a licensee who wishes to avoid contractual restrictions in a licence cannot through its own actions remove those restrictions from the protection of the block exemption and render them potentially unenforceable under Article 101(2) TFEU by putting the knowhow into the public domain. It is an open question whether the block exemption would also be lost if the licensed knowhow 3.25 no longer satisfied the other criteria laid down in the block exemption for knowhow to qualify for exemption (that it be ‘substantial’ and ‘identified’ as well as secret). While it is perhaps difficult to think of situations in which knowhow that was originally sufficiently well identified might lose that character, it is easier to think of situations in which knowhow that was at one time ‘substantial’ no longer satisfies that criterion.29 Article 2 also explains that supplementary provisions in technology transfer agreements relating 3.26 to the licensing or assignment of other (non-technology) IPRs to the licensee, or to the purchase of products by the licensee will also be covered by the exemption. The exemption applies only to provisions that are directly related to the production or sale of the contract products to be produced under the main licence. C. Article 3 – The Market Share Thresholds For agreements between competitors the parties’ combined market shares must not exceed 20 3.27 per cent. For non-competitor agreements neither party may have a market share over 30 per cent. The purpose of the market share thresholds is to ensure that the block exemption applies only to agreements which can be presumed to satisfy the requirements of Article 101(3) TFEU. Agreements between parties with significant market shares may involve a degree of market power and their effects therefore need to be analysed. The Commission offers some comfort to those who are party to agreements that exceed the relevant thresholds, stating that there is no presumption that such agreements infringe Article 101 TFEU, and that after a market analysis it may be concluded either that the agreement does not fall within the scope of the prohibition in Article 101(1) TFEU or that, if it does, the criteria in Article 101(3) TFEU are satisfied.30 The general principles which apply to market definition are explained in the Commission’s 3.28 Market Definition Notice.31

29

30

31

The Technology Transfer Guidelines (n 5) do not discuss this question. Para 67 merely repeats the formula in the block exemption which is further repeated in para 68. This seems a little unsatisfactory in the light of the Commission’s concerns in earlier iterations of block exemptions and in its case law to avoid circumstances in which restrictions could be prolonged well beyond the expiry or loss of importance of the original licensed rights by, e.g., providing that the agreement would be constantly refreshed by the addition of new rights. This was a concern in, e.g., 76/29/EEC: Commission Decision of 2 December 1975 relating to a proceeding under Article 85 of the Treaty establishing the EEC (IV/26.949 – AOIP/Beyrard), OJ [1976] L 6/8; and 85/410/EEC: Commission Decision of 12 July 1985 relating to a proceeding under Article 85 of the EEC Treaty (IV/4.204 – Velcro/Aplix), OJ [1985] L 233/22. See also Preflex/Lipski, Xth Report on Competition Policy (1980), point 126 and the discussion above at Chapter 2 (n 358). Technology Transfer Guidelines, ibid., para 79.

Commission notice on the definition of relevant market for the purposes of Union competition law, OJ [2024] C 1645 (Market Definition Notice) adopted 8 February 2024. It is important to review the Market Definition Notice alongside the discussion of market definition in the Technology Transfer Guidelines, as the Commission has explicitly stated that the revised notice (replacing the earlier 1997 Market Definition Notice) ‘offers expanded and up-to-date-guidance’

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3.29 The relevant product market will include products that are regarded by purchasers as interchangeable with or substitutable for the contract products that incorporate the technology that underlies the agreement. Factors to be considered when identifying substitutable products include the products’ characteristics, prices and intended uses. 3.30 The technology market includes the licensed technology and technologies that are regarded by licensees as substitutable for the licensed technology. As with the product market, factors to be considered include the technologies’ characteristics, royalties and intended uses. 3.31 The Technology Transfer Guidelines note that some licences may affect competition in innovation32 but state that when analysing licences in the context of Article 101 TFEU the Commission will usually focus on the licence’s effect on competition in existing markets. Where the particular circumstances mean that innovation is a source of potential competition which may be affected because an agreement will delay the launch of new products this must be considered when looking at the licence’s impact on existing markets. If, unusually, it is necessary to consider the effect of a licence on competition in innovation separately, the Commission will focus particularly on whether there will be sufficient remaining ‘poles’ of innovation after the agreement enters into force to allow effective competition in innovation to continue. 3.32 The initial approach to market definition is the same in both product and technology markets – consider the other products/technologies to which the purchasers/licensees could switch in response to a small increase in the price of the licensed product/technology. However, the technology market may also be assessed by reference to the market for products incorporating the licensed technology.33 3.33 The definition of the geographic market in IPR cases might, in principle, be different for the product market (which may be affected by the territorial scope of IPRs) and the technology market, which may be wider because issues that may constrain physical distribution do not necessarily affect technology in the same way or at all. Helpfully, the Technology Transfer Guidelines state that for the purposes of the block exemption, ‘… the geographic dimension of the relevant technology market is also determined by the product markets’.34 3.34 If the applicable threshold is exceeded on one or more markets, the block exemption does not apply to that market or market(s), although provisions relating to other affected markets will continue to be covered.35

which includes ‘A recognition of the importance of non-price parameters for market definition, including innovation, quality, reliable supply and sustainability’ (see Commission Press Release dated 8 February 2024, ‘Commission adopts revised Market Definition Notice for competition cases’, available at https://​ec​.europa​.eu/​commission/​presscorner/​ detail/​en/​ip​_23​_6001 – accessed 13 April 2024).

32 Technology Transfer Guidelines (n 5), para 26. The Commission’s increasing focus on competition in innovation markets is discussed further in Chapter 7 in the context of merger control. 33

Ibid., para 22.

35

Ibid., para 81.

34

Ibid., para 89.

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Market shares are calculated on the basis of market sales value data for the preceding calendar 3.35 year.36 This means that a new technology which has not generated any sales will initially be assigned a zero market share. Where market share information is not available, estimates can be based on other reliable market information, including sales volumes.37 The Commission has acknowledged some of the difficulties in determining relevant markets 3.36 and in assessing market shares where IPR is licensed, not least because of difficulties in obtaining reliable information. It seeks to assist by providing a proxy to help parties assess whether their licence is likely to have sufficient impact to infringe Article 101 TFEU. Paragraph 157 of the Technology Transfer Guidelines encourages parties to think not only about market shares, but also about the number of independently controlled competing technologies, that is, market structure. It says: In order to promote predictability beyond the application of the TTBER and to confine detailed analysis to cases that are likely to present real competition concerns, the Commission takes the view that outside the area of hardcore restrictions Article 101 of the Treaty is unlikely to be infringed where there are four or more independently controlled technologies in addition to the technologies controlled by the parties to the agreement that may be substitutable for the licensed technology at a comparable cost to the user. In assessing whether the technologies are sufficiently substitutable the relative commercial strength of the technologies in question must be taken into account. The competitive constraint imposed by a technology is limited if it does not constitute a commercially viable alternative to the licensed technology.38

The Technology Transfer Guidelines seek to further clarify situations in which the number of 3.37 competing technologies may not be a true reflection of the alternatives which are regarded as commercially viable. The Guidelines give an example of a market with strong network effects as a situation in which products incorporating the licensed technology may be so strongly preferred by customers that products utilizing other technologies may not exert sufficient competitive constraints on the incumbent to be commercially viable alternatives. Market definition and broader issues of market power and the existence of actual or potential 3.38 competition are raised both by ‘break through’ products and by products which are compatible with a specific technology. In both situations, the importance of other products as a competitive constraint is reduced: even though in principle alternatives may exist, competition is reduced by the market context. In the case of products compatible with a specific technology, this may include barriers to entry such as IPRs and in the case of ‘break through’ products their technical advantages and improved functionality may be sufficient to create a separate market if customers regard previous products as significantly inferior and substitutability is therefore limited. D. Article 4 – The Hardcore Restrictions The inclusion of any so-called ‘hardcore’ restriction (with certain limited exceptions) prevents 3.39 the entire agreement from benefitting from the TTBER. The TTBER contains two lists of 36

TTBER (n 2), Art 8 and Technology Transfer Guidelines, ibid., para 90.

38

See also Technology Transfer Guidelines, ibid., para 27 making a similar point in respect of research poles when considering ‘innovation markets’. The new draft Market Definition Notice (n 31) deals with issues such as market definition in markets that are expected to undergo structural transitions and innovation intensive markets.

37

Technology Transfer Guidelines, ibid., para 92.

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hardcore restriction: one relates to agreements between non-competitors; the other to agreements between competitors.39 3.40 Where an agreement is between competitors (actual or potential40), the TTBER also makes a further distinction between reciprocal and non-reciprocal agreements. Reciprocal agreements between competitors are those in which the parties cross-license each other with competing technologies or (to the extent that there is a difference) with technologies that can be used to produce competing products. Not all cross-licences are ‘reciprocal’ within the meaning of the TTBER.41 3.41 Where the relationship between the parties changes over time, this may affect the relevant hardcore list. Article 4(3) explains that if parties were originally non-competitors but subsequently begin to compete, the existing agreement can retain the protection of the block exemption and be subject to the hardcore list that covers agreements between non-competitors (contained in Art 4(2)) as long as the agreement is not subsequently amended ‘in any material respect’. The block exemption explains that a ‘material’ amendment would include the conclusion of a new agreement between the parties covering competing technology rights. 3.42 A ‘material’ amendment would mean that the parties would have to analyse the existing agreement against the Article 4(1) hardcore list and might need to agree amendments to retain the protection of the block exemption. The parties would also need to check the application of the market share thresholds again, given the lower threshold which applies to agreements between competitors. The Technology Transfer Guidelines explain that although the parties may still rely on the Article 4(2) hardcore list, the 20 per cent market share threshold will apply as soon as they become competitors.42 3.43 Similarly, the Technology Transfer Guidelines explain that if an agreement that was previously non-reciprocal becomes reciprocal (e.g., because of a second agreement being concluded subsequently), the parties will need to assess the first licence against the stricter hardcore list that applies to reciprocal agreements and may need to revise it if the protection of the block exemption is to be retained. In such circumstances, if the parties choose not to amend, the individual assessment of the provisions will bear in mind the amount of time that has lapsed between the conclusion of the two licences.43 This comment is presumably intended to put parties and their advisers on notice that the sequential conclusion of separate agreements over a short time may well be seen as an attempt to circumvent the limitations in the block exemption and will be treated accordingly.

39

TTBER (n 2), respectively Art 4(1) and 4(2).

41

Ibid., para 98, discuss reciprocal agreements and explain that in the case of cross-licensing, an agreement is non-reciprocal if the licensed technology rights licensed by the respective parties are not competing technologies and cannot be used to produce competing products.

40

42 43

For the purposes of applying the block exemption, the existence of potential competition on the technology market is not relevant to the question of whether the parties are competitors. Technology Transfer Guidelines (n 5), paras 36 and 83.

Ibid., para 85. Ibid., para 98.

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The lists of hardcore restrictions for competitors and non-competitors respectively are set out 3.44 and discussed in more detail below44 but, in broad terms, hardcore restrictions are those that the Commission believes to be almost always anticompetitive, based on its experience, on the objective nature of the restriction and on the case law of the EU Courts. It will come as no surprise that the hardcore lists include (albeit with some exceptions), restrictions relating to downstream pricing and restrictions relating to geographical or customer market sharing. E. Article 5 – The Excluded Restrictions Article 5 contains the list of ‘excluded restrictions’ which require individual assessment to 3.45 determine whether their procompetitive effects are sufficient to enable them to benefit from the exception under Article 101(3) TFEU. The inclusion of an excluded restriction in an agreement does not take the whole agreement outside the scope of the block exemption. Any other provisions which require exemption remain exempt but the specific excluded restriction(s) will need to be analysed under Article 101(1) TFEU and, if necessary, Article 101(3) TFEU. If these clauses do infringe Article 101 TFEU, they will be unenforceable under Article 101(2) TFEU, but this does not necessarily render the entire agreement void as they are (subject to national laws) capable of severance from the remainder of the agreement.45 Article 5 lists only three excluded restrictions, all of which are specific to technology licensing. 3.46 They deal with: grant back obligations; the imposition of no challenge clauses; and limitations on competing technical development or R&D. These provisions are analysed in more detail below. As with several other areas in the block exemption, the list of excluded restrictions differs for agreements between non-competitors and those between competitors. F. Articles 6–11 – Additional Provisions The final four articles of the block exemption deal with a number of operational but important 3.47 issues which are briefly summarized below. 1. Article 6 – Withdrawal of the benefit of the block exemption

The Commission has retained the right to withdraw the benefit of the block exemption in 3.48 individual cases where, notwithstanding the fact that the TTBER’s requirements are satisfied, the agreement does not give rise to the benefits required under Article 101(3) TFEU. Such circumstances include (but are not limited to) those in which third parties are unable to bring their technologies to the market as a result of a network of restrictive agreements preventing licensees from exploiting third-party technology, or if potential licensees cannot access the market because of a network of parallel agreements.46 Withdrawal of a block exemption can only happen prospectively. The burden of proving that 3.49 the agreement falls within the scope of Article 101(1) TFEU and does not satisfy the require-

44

Competitors (paras 3.102–3.134); non-competitors (paras 3.135–3.158).

46

Technology Transfer Guidelines (n 5), para 147.

45

See Chapter 2 for discussion of Art 101(2) TFEU.

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ments of Article 101(3) TFEU falls on the body seeking to withdraw the benefit. Any decision to withdraw must be taken by way of formal decision.47 3.50 Both the Commission and the competition authorities of the Member States have this power (although Member State National Competition Authorities may exercise it only in circumstances where the relevant geographic market is no wider than the Member State’s national territory). 2. Article 7 – Non‑application of the block exemption to networks of agreements

3.51 The Commission may adopt a specific regulation to exclude networks of similar agreements from the protection of the block exemption. This may be done where the network in question covers more than 50 per cent of a relevant market. If the Commission were to take such a step, it would not imply a negative decision about the affected agreements; once the specific regulation took effect, individual agreements could still be analysed under Article 101(1) and (3) TFEU, on the usual basis. The Technology Transfer Guidelines indicate that if the Commission were to exclude a network of agreements from the protection of the TTBER it would, if appropriate, take a decision in an individual case to provide guidance to all of those affected. As with an individual withdrawal under Article 6, the effect of a regulation under Article 7 would be prospective only, and the Commission would be required to give those potentially affected a period of at least six months to adapt their agreements.48 3. Article 8 – Application of market share thresholds

3.52 Article 8 contains specific rules on the calculation of market shares and the application of the market share thresholds. In brief, it provides that market share is to be calculated on the basis of data relating to the preceding calendar year49 and should use market sales value data if available. If that is not available, which may often be the case, the Commission suggests that ‘other reliable market information’ may be used and that this may include volume data. 3.53 A licensor’s market share on the technology market is based on the sales of contract products incorporating the licensed technology by the licensor and its licensees combined.50 The Technology Transfer Guidelines explain that this approach, based on the ‘footprint’ of the technology at the level of contract products, is intended to reflect the difficulty of calculating shares on the basis of royalty income received by the licensor.51 3.54 A licensee’s market share on the product market(s) where the contract products are sold is to be calculated by reference to all of the licensee’s sales on that product market.52

47

Ibid., para 146.

49

This may be difficult for undertakings which report or record data on another basis such as fiscal year. Best estimates can be used as a proxy, but this is only one of the numerous problems with assessing market share data. For agreements where competition law risk is an important aspect of deciding whether or not to conclude an agreement, companies may wish to instruct specialist market analysts or economists to carry out a robust and defensible assessment.

48

50 51 52

Ibid., paras 149–155.

Technology Transfer Guidelines (n 5), paras 86–90.

This difficulty is discussed at para 25 of the Technology Transfer Guidelines, ibid.

Ibid., para 91. This includes sales of products which incorporate competing technology.

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In the event that market shares increase and breach the thresholds of 20 per cent (competitors) 3.55 or 30 per cent (non-competitors) respectively, the exemption will still be applicable for two consecutive calendar years after the year in which the threshold was first exceeded. 4. Articles 9–11 – Relationship with other block exemptions, transitional period and duration

Article 9 specifies for the avoidance of doubt that licensing and technology transfer agreements 3.56 in the context of R&D or specialization arrangements are not within the scope of the TTBER but are to be analysed under the relevant block exemption applying to such arrangements.53 Article 10 provided a transitional period which has now elapsed. Technology transfer agree- 3.57 ments seeking to benefit from the TTBER must now comply with the requirements of the current regulation. Article 11 provides that the current TTBER will expire at the end of April 2026 and the Commission began a consultation on a possible replacement at the end of 2022.54

III. GENERAL COMMENTS ON THE TTBER A. Distinction Between Competitors and Non-competitors The way in which the TTBER applies depends on whether parties are competitors or 3.58 non-competitors. This affects both the applicable market share threshold and also which hardcore list is relevant. The test is whether, in the absence of the agreement, the parties would have been actual or potential competitors in any relevant market affected by the agreement.55 In practice, and particularly for dynamic industries, it can be difficult to assign one or the other label to a party when circumstances may change quickly. Undertakings that compete on the relevant technology market (i.e., they license competing 3.59 technologies) or/and the relevant product market and geographic market where the contract products are sold are competitors. Parties are considered actual competitors where, without infringing each other’s IPRs, they are active on either the same technology or product market. They are potential competitors where, again without infringing each other’s IPRs, it is possible for one of the parties to enter the relevant market within a short period, usually between one and two years. For example, if the parties are already active on adjacent geographical/product markets, they will be considered potential competitors. In assessing potential competition for the purposes of applying the TTBER, it is necessary to consider only the product market, and not potential competition on the technology market.56 The Technology Transfer Guidelines provide two examples of situations in which the parties 3.60 will be considered non-competitors.57

53 54 55 56 57

R&DBE (n 1) and SBE (n 4) – both discussed at Chapter 5 below.

https://​ec​.europa​.eu/​info/​law/​better​-regulation/​have​-your​-say/​initiatives/​13636​-EU​-competition​-rules​-on​-technology​ -transfer​-agreements​-evaluation​_en – accessed 15 November 2023. TTBER (n 2), Art 1(n) and Technology Transfer Guidelines (n 5), para 28. Technology Transfer Guidelines, ibid., paras 36 and 83. Ibid., paras 29 and 37.

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3.61 The first deals with IP blocking positions – most likely to arise because of patent rights – and states that the parties are non-competitors if they are either in a ‘one-way’ or ‘two-way’ blocking position caused by their technology rights.58 3.62 The second example involves so-called ‘drastic innovations’. The Technology Transfer Guidelines state that the parties will not be considered competitors where the technology being licensed represents such a drastic innovation over the existing technology of one of the parties that it will be sufficient to render that technology obsolete or uncompetitive.59 3.63 The more liberal approach for agreements between non-competitors in comparison with that for agreements between competitors is likely to be retained for further iterations of the block exemption regime. However, there is an inevitable concern that this distinction is often difficult to apply in practice. There can be significant difficulty in identification of the correct markets for assessment (given the need to identify both product and technology markets) as well as difficulties in identifying actual and potential competitors. This can be particularly tricky in circumstances where the existence of IPRs (and in particular patents) may have a foreclosing effect. In some situations, a patent, if valid and infringed, can prevent those who would like to be competitors from entering the market using technology on which the patent(s) in question read.60 1. Blocking positions

3.64 The Technology Transfer Guidelines explain that: ‘A … blocking position exists where a technology right cannot be exploited without infringing upon another valid technology right, or where one party cannot be active in a commercially viable way on the relevant market without infringing the other party’s valid technology right.’61 The Guidelines comment that, in principle, the parties to a licence agreement are not considered competitors if they are affected by a blocking position because a licence or a waiver would be necessary in such circumstances. Against such a background, a technology transfer licence is seen as fulfilling the procompetitive

58

59 60

61

The Commission states that it will rely on ‘objective factors’ to determine whether a blocking position exists. Where the parties have a common interest in claiming the existence of a blocking position – i.e., because this will allow them to be considered as non-competitors – the Commission states that it will require ‘particularly convincing evidence’ such as court decisions, including injunctions, and opinions of independent experts to show the existence of such a position. Technology Transfer Guidelines ibid., para 29. The Technology Transfer Guidelines mention CD technology replacing the LP as an example of a ‘drastic innovation’. Presumably VHS tapes and DVDs and celluloid film and digital imaging are other potential examples. Paragraph 21 of the Market Definition Guidelines also discusses this question in the context of ‘structural market transitions’.

The European Court of Justice held in its Paroxetine judgment (Case C-307/18 Generics (UK) and others v Competition and Markets Authority (ECLI:EU:C:2020:52) (Paroxetine CJEU)) that the existence of patents will not necessarily prevent a competitive relationship existing between an originator and generic manufacturer in the pharmaceutical industry and that preparatory steps taken by a generic are crucial to an assessment of whether potential competition exists. In January 2020, AG Kokott applied the same guidance in the context of the Lundbeck appeal against the 2016 decision of the General Court (GC) (Case C‑591/16 P H. Lundbeck A/S and Lundbeck Ltd v European Commission (ECLI:EU:C:2021:243) (Lundbeck CJEU), Opinion of AG Kokott delivered on 4 June 2020 (ECLI:EU:C:2020:428) reiterating that the existence of process patents cannot be regarded an insurmountable barrier to entry and was followed by the CJEU. This case and its implications for the definition of ‘competitors’ are considered in more detail above at para 3.75 ff. Technology Transfer Guidelines (n 5), para 29.

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function of enabling competition where none (or no effective competition) would otherwise exist. So far, so relatively straightforward. However, as the Commission wryly comments at the end 3.65 of paragraph 29, ‘… in practice, there will be cases where there is no certainty whether a particular technology right is valid and infringed’. This comment is an understatement: there is significant uncertainty about the validity and infringement of many patents.62 It is also crucial, because the drafting of paragraph 28 is couched in terms of certainty: ‘… where a technology right cannot be exploited without infringing upon another valid technology right …’ (emphasis added) or ‘… one party cannot be active in a commercially viable way on the relevant market without infringing the other party’s valid technology right …’ (emphasis added). What then are parties to do, who wish to conclude a licence and to know which of the hardcore restrictions are relevant? Paragraphs 30 and following of the Technology Transfer Guidelines encourage the parties 3.66 to take a realistic view of all the evidence about the existence of competition between them (whether actual or potential). The Technology Transfer Guidelines start by considering the position if both companies are already active on the relevant product market and state that this is a strong indicator that no blocking position exists. In such circumstances there will be a presumption that the parties are actual competitors ‘… unless and until a blocking position is proven (in particular by a final court judgment)’. This guidance assumes that the parties were previously aware of the allegedly blocking technol- 3.67 ogy and does not grapple with the implications of a situation where a party has entered a market (perhaps from a different geographic market) without having been alerted to the existence of potential blocking positions. While it may be good practice to undertake a review of the patent landscape before entry, such freedom to operate reviews are, inevitably, limited by the available budget (of time, money and other resources) and do not always identify all potential patent threats. The guidance also leaves unclear how the geographic (national) scope of patents and of patent judgments plays into this assessment – would a ruling on validity and infringement in one EU jurisdiction be sufficient to overturn the presumption? What if, for example, the final court judgment relates to a parallel patent in a non-EU jurisdiction?63 What is the status of a final decision on an opposition by a national patent office? The least risky approach when negotiating and drafting licence agreements between parties 3.68 who are already active on the same product market or have realistic plans to enter is to approach it as if the parties are competitors, as this reflects the existing position, irrespective of the 62

63

Given the enormous number of patents currently in force, and the number of further patents being granted every year it is inevitable that the validity of most is untested while infringement of a patent by a particular product or process is a matter which greatly exercises IP lawyers and attorneys. Indeed, even the finest judicial minds can differ on questions both of infringement and validity. This has been the subject of very significant economic and legal commentary: see, e.g., Mark A. Lemley and Carl Shapiro, ‘Probabilistic Patent’ (2005) 19 Journal of Economic Perspectives 75, Stanford Law and Economics Olin Working Paper No. 288 (https://​ssrn​.com/​abstract​=​567883 or http://​dx​.doi​.org/​10​.2139/​ssrn​ .567883 – accessed 15 November 2023). In future this issue may be a little easier to resolve if the patent in question is litigated through the UPC in Europe but, even then, not all EU Member States will be necessarily consider themselves to be bound as some, e.g., Poland, are currently outside the system.

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potential for blocking rights to emerge or be substantiated subsequently. To reduce risks, the competitor hardcore list should be applied. If the parties consider that this provides insufficient commercial freedom and will undermine the benefits of entering into the licence, the parties may decide to include some of the provisions that are hardcore for competitors with the intention of subsequently establishing, if necessary: either that they are not actual or potential competitors within the meaning of the block exemption and can therefore take advantage of the more generous list for non-competitors; or that the agreement in any event benefits from an exception under Article 101(3) TFEU. Given that the inclusion of hardcore provisions takes the entire agreement outside the scope of the block exemption, such an option will be attractive only if the commercial need is very great and the establishment of a blocking position is considered to be not only possible, but likely, meaning that in the absence of the licence, market withdrawal by one of the parties is regarded as probable. 3.69 If the parties intend to rely on a blocking position to establish that they are not competitors, they should ideally gather or obtain relevant evidence, perhaps including independent opinions by patent experts (which can be disclosed if necessary without concern about losing legal privilege over the advice of the parties’ own legal advisers), to establish the basis for their view. In principle, it might be possible to seek a court declaration of validity or infringement, but this is unlikely to be practical both given the time delay in the patent courts of most EU Member States and the fact that the incentives of the parties may be quite different – if it came to patent litigation, the licensee’s interest would be diametrically opposed to that of the patentee. 3.70 When considering potential competition, the standard test is repeated in the Guidelines: is it likely that ‘… in the absence of the agreement [the licensee] would undertake the necessary additional investments to enter the relevant market in response to a small but permanent increase in product prices’? The Guidelines refer to case law such as European Night Services64 and Visa65 and explain that companies are only to be regarded as potential competitors if a market entry strategy is commercially viable, meaning that there are real concrete possibilities to compete with incumbents. As far as evidence of potential entry is concerned, the Commission states that it will look at the objective position: does the potential entrant have relevant assets that would enable entry without significant sunk costs? Intention is also relevant to the extent that the Commission considers the existence of plans to enter, or of investment already undertaken to be evidence that the parties are potential competitors.66 3.71 The Technology Transfer Guidelines then turn to the implications of pre-existing patent rights in this scenario. For example, a company may have assets which are relevant to enable market entry, and may have begun making plans, and indeed some investments relevant to entry when it becomes aware of a potential issue with the patents of an incumbent. It may then decide to seek a licence to obtain freedom to operate: which hardcore list is relevant?

64

Joined Cases T-374/94 and others European Night Services v Commission of the European Communities [1998] ECR II-3141 (ECLI:EU:T:1998:198), para 137.

65 Case T-461/07 Visa Europe Ltd and Visa International Service v European Commission [2011] ECR II-1729 (ECLI:EU:T:2011:181), para 167.

66

As now confirmed in Paroxetine CJEU judgment and Lundbeck CJEU judgment (n 60) see also n 59 above.

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In this scenario, the Commission’s approach is again to indicate that the best and safest route to 3.72 certainty is to rely on a final court decision.67 The Commission does suggest that other evidence may be relied upon by the parties (and potentially national courts subsequently called on to rule on the enforceability of restrictions) to decide whether the parties are potential competitors or not. The Commission gives little guidance as to what this may be.68 The Commission seems to expect a degree of cooperation between the parties on this question. 3.73 The Guidelines suggests that the parties should assess ‘the possibilities that intellectual property rights are infringed and whether there are effective possibilities to work around existing intellectual property rights’. Assessments of this nature will almost certainly be regarded by each party as commercially sensitive. Dealing with such evidence in the negotiations could be very difficult. Perhaps the Commission foresees that the parties would instruct a joint expert, or share the opinions of independent experts as already suggested above? If so, how does that fit into the commercial realities of a situation where, if the negotiations fail, the parties may well find themselves in litigation? The implications in the event of future litigation (particularly in a jurisdiction which involves a disclosure obligation such as the US69 or England and Wales) may be sufficiently troublesome to cause the parties to abandon the effort and to conclude a licence based on the assumption that they are potential competitors, in an effort to benefit from the certainty provided by the block exemption or, at least, to have the best position to rely on under Article 101(3) TFEU if necessary. The difficulty of overturning the presumption that parties are potential competitors once sub- 3.74 stantial investments have been made, or advanced plans drawn up to enable entry is explained further in paragraph 33 of the Technology Transfer Guidelines. The Commission states that such activities ‘can support the view that the parties are at least potential competitors, even if a blocking position cannot be excluded’. The real-life consequence of that approach became apparent relatively recently in the context of the ‘pay for delay’ litigation in the pharmaceutical sector. The multiple aspects of that litigation are considered in more depth below when the impact of EU competition law in the pharmaceutical sector is discussed.70 In the context of the identification of potential competition in the presence of alleged blocking position, the CJEU’s judgment in Lundbeck is particularly pertinent.71

67

Technology Transfer Guidelines (n 5), para 33.

69

A further consideration for some undertakings may be the possibility of increased damages and an adverse award of costs in subsequent patent litigation if infringement of a patent found to be valid and infringed is considered to be ‘wilful’. This is the case in the US under 35 USC section 284. See, e.g., the discussion in SRI International Inc v Cisco Systems Inc in the US Court of Appeals for the Federal Circuit, 14 F.4th 1323 (2021), a long-running dispute in the US on this issue.

68

70 71

Technology Transfer Guidelines, ibid, para 33 contains only examples of evidence which may tend to suggest that the parties are competitors, e.g., whether substantial investments have been made or advanced plans for entry are in place – although it does accept that this does not exclude the possibility of a blocking position. It is thought that an absence of such investments and plans would assist in establishing a blocking position. Finally, the Guidelines note that ‘particularly convincing evidence of the existence of a blocking position may be required’ if the parties have a common interest in establishing that a blocking position exists. The contributors to Faull and Nikpay (eds), The EU Law of Competition (3rd edn, Oxford University Press, 20 March 2014), suggest at para 10.89 that the opinions of both independent experts and expert evidence from the parties may be taken into account, albeit with some scepticism in respect of the latter. Caution is sensible, given the subsequent case law, which is discussed below.

Chapter 8 below.

Lundbeck CJEU (n 60); see also Paroxetine CJEU (n 60) and consider CJEU Servier judgment when available.

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3.75 Lundbeck involved a series of agreements between the Danish pharmaceutical company Lundbeck and several manufacturers of generic pharmaceuticals. The market involved was that for Citalopram, an anti-depressant. Lundbeck had developed Citalopram and had obtained patents covering not only the compound itself, but also surrounding rights, including manufacturing methods. The patent surrounding the compound expired first. Lundbeck relied on some of its other patent rights to sue generic companies. Ultimately, Lundbeck settled its litigation with four separate generic companies. 3.76 The Commission decided that Lundbeck and the generic companies with whom it had entered into settlement agreements were competitors. This had been hotly contested during the Commission’s infringement proceedings. The companies contended that they were neither competitors nor potential competitors owing to Lundbeck’s patent portfolio. Eventually, the case made its way on appeal to the CJEU, where it was dealt with about a year after the Paroxetine case.72 The CJEU dismissed the appeals of the parties. It held that Lundbeck and the generic companies were potential competitors.73 3.77 The Court’s reasoning is summarized below. It has a number of the same elements as can be found in the Technology Transfer Guidelines and puts some flesh on the bones of the Commission’s thinking in the paragraphs which have been discussed above. The next iteration of the Technology Transfer Guidelines may be expanded to deal with some of the points that emerged from the CJEU’s Lundbeck and Paroxetine judgments. In the meanwhile, any company contemplating a technology transfer agreement which may involve an actual or potential competitor should carefully consider the CJEU’s judgment on potential competition and blocking positions. 3.78 The Court’s reasoning starts with the uncontroversial proposition, already reflected in the Technology Transfer Guidelines and reiterated in Paroxetine,74 that a company can be a potential competitor in a market if there are ‘real and concrete’ possibilities of entering the market and competing. The Court then notes that for a company to be a potential competitor does not require either certainty that it will in fact enter the market or any guarantee that even if it does enter it will be able to remain on the market – what is required is potential. It agreed with the GC that if certainty as to actual and successful entry were necessary in order to establish the existence of potential competition, it would erode or remove the distinction between potential competition and actual competition.75 3.79 The Court puts its assessment in the context of the actual agreements in issue. The Court asked whether in the absence of those agreements entry would have been possible. The specific case relates to potential entry by manufacturers of generic pharmaceuticals in the context of a pharmaceutical product where the patent covering the active ingredient has expired (and the Court noted that other constraints such as regulatory considerations may affect potential entrants). 72

Paroxetine CJEU, ibid.

74

Paroxetine CJEU (n 60), paras 37 and 39.

73

75

Some of the patents in issue were ultimately held to be valid by the EPO Board of Appeal (and the Netherlands Patent Office). It is unclear whether findings of infringement followed in any national court. This is not addressed in the EU proceedings. Lundbeck CJEU (n 60), para 63.

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In such circumstances, the Court held that the key factual questions are whether the potential generic entrant: has a firm intention to enter the market; has an inherent ability to enter the market; and does not face insurmountable barriers to entry. It concludes that in the pharmaceutical context once an active ingredient is in the public 3.80 domain and open to competition, a patent which protects means of manufacturing that active ingredient cannot be regarded ‘as such’ as an insurmountable barrier to entry. On this subject, the Court notes first that any ‘presumption of validity’ under patent law is irrelevant for the purposes of competition law, because it does not shed any light on what the outcome of litigation about validity may be. A company which is ready to challenge the validity of any putative blocking patent and to enter at risk of infringement proceedings faces the possibility of being characterized as a potential competitor of the incumbent – the mere fact that potentially relevant blocking patents exist does not prevent that conclusion. Against that background, the CJEU agreed with the GC that it was not necessary for the 3.81 Commission to establish that the generic companies would not infringe Lundbeck’s patents in order to find that there was potential competition between the generics and Lundbeck.76 It found that the generics had both a firm intention to enter (given the preparatory steps taken) and the inherent ability to enter (given their business of generic manufacturing and supply).77 When considering the question of whether Lundbeck’s patents created ‘insurmountable barriers to entry’, it reiterates the point already made in Paroxetine that it is not for the competition authorities to review or assess the strength or coverage of the patent or the possibility that it may ultimately be held to be valid and infringed in litigation between the parties.78 The parties had argued that the Commission’s approach in the infringement decision did not 3.82 accord with the guidance in the Technology Transfer Guidelines about blocking positions. The CJEU had no difficulty in holding that this argument did not change the analysis. It first noted that the guidance related only to technology transfer agreements and not to the type of arrangement under consideration. It then considered the specific language of paragraph 29 of the Technology Transfer Guidelines, commenting that while the Commission has indicated that the existence of a blocking position arising from IPRs may preclude a competitive relationship 76

77

78

Para 62 of the Lundbeck CJEU judgment, ibid., is interesting as it reiterates some of the specific considerations reviewed by the GC in upholding the Commission’s conclusion that on the facts of the case no insurmountable barriers existed. This required that due account be taken of ‘… the fundamental characteristics both of the patents and of the competitive relationships specific to the relevant market as well as the situation in the present case …’. The CJEU referred approvingly to paras 117, 119 and 129 of the GC judgment and to the findings that not only had Lundbeck’s patent over the active ingredient (Citalopram) expired, but its patents over two production processes had also expired and that other processes for the manufacture of generic Citalopram had already been held not to infringe other Lundbeck patents. Preparatory steps which would enable such entry make it possible to identify the ‘… the firm intention and inherent ability of a manufacturer of generic medicines to enter the market for a medicine containing an active ingredient that is in the public domain …’ Lundbeck CJEU, ibid., para 86. It may be possible to differentiate between the situation in the pharmaceutical sector and that of a company in a market with a less well-trodden route to entry, which is looking for markets to penetrate and undertakes some investment/draws up plans before then identifying potentially relevant IPR and seeking a licence. In assessing the concrete possibilities of entry, it may be relevant that in the pharma pay for delay cases the generics were already active in adjacent, or similar markets with relevant marketing, manufacturing and regulatory expertise and that they were most likely well aware of the patent situation when they began their market entry preparations. As already noted by the Court many years previously in, e.g., Windsurfing (n 8).

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between the parties to an agreement, it has stated that this is the case only ‘in principle’ and has specifically mentioned that ‘there is no certainty whether a particular technology right is valid and infringed’. The Court did not refer specifically to some of the other language in paragraph 29, discussed at paragraph 3.64 above, but its comments underline the difficulty for parties to technology transfer agreements in identifying and relying on potential blocking positions. 3.83 The Court adds some further colour to its analysis by looking at how and when potential entry is to be assessed. It holds that the key time is the date at which the agreement was entered into and whether at that date the generic manufacturer ‘had taken sufficient preparatory steps to enable it to enter the market concerned within such a period of time as would impose competitive pressure on the manufacturer of originator medicines’.79 The judgment also notes that the conclusion of an agreement between a generic and an originator at a time when the generic is not present on the market can be a factor tending to confirm the existence of potential competition between them. The Court refers explicitly to the uncertainty that both parties will have at that time as to the likely outcome of any litigation/validity challenges, which it regards as important to the nature of the competitive interaction between them. It observed that later events80 were not relevant to the assessment of the parties’ state of mind at the time when the agreements were concluded or to the competitive relationship between them. 3.84 Other factors taken into consideration by the Commission and the GC81 and discussed by the CJEU included the extent and nature of investments already made by the generic manufacturers; the conclusion by them of supply contracts with API manufacturers; Lundbeck’s subjective perception of the risk that the generic manufacturers presented to its commercial interests when concluding the settlement agreements; and, as previously mentioned, the fact that Lundbeck had chosen to conclude agreements to delay entry with the generics. 3.85 Finally, the Court considered a specific argument about the relevance of Marketing Authorisations (MAs) to the assessment of potential competition. Under the regulatory regime which governs the supply of pharmaceuticals, any undertaking wishing to place a pharmaceutical product on the market in the EU must hold a valid MA. Lundbeck argued that the generic manufacturers did not have MAs at the time the agreements were concluded and that the Commission and GC had erred in finding that undertakings without MAs could be potential competitors. 3.86 The CJEU held that actual competition between generics and originators is possible only if the generic manufacturer holds a valid MA. However, it continued (unsurprisingly in the light of its previous comments about potential competition in the context of patent rights) that ‘… it nevertheless remains the case that the fact that a manufacturer of generic medicines does not

79

Lundbeck CJEU (n 60), para 57.

81

Ibid., para 73 and subsequent contain an interesting discussion of the status of various types of evidence and of the weight to be placed on subjective and objective evidence respectively which is not directly relevant to our discussion here. These paragraphs also discuss the burden of proof and when it shifts.

80

Ibid., para 71. Such as the: … confirmation, by both the EPO Board of Appeal and the Netherlands Patent Office, of the validity of the crystallization patent in all relevant aspects in 2009, as well as the fact that Lundbeck had been ‘granted preliminary injunctions or other forms of interim relief’ in more than 50% of the proceedings it had initiated in 2002–2003.

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hold such an MA when it concludes an agreement with a manufacturer of originator medicines cannot, as Lundbeck maintains, preclude, as such, all potential competition between those two manufacturers of medicines’.82 The CJEU referred back to its earlier analysis of the necessary conditions for a finding of potential competition and reiterated that it requires only that: … the manufacturer of generic medicines has taken sufficient preparatory steps to enable it to enter the market concerned within a period of time capable of putting competitive pressure on the manufacturer of originator medicines, it being of no relevance whether those steps will in fact be finalised in due time or will be successful, …83

The CJEU then noted (as already identified in Paroxetine84) that manufacturers of generic 3.87 pharmaceuticals want to be ready to enter the market as soon as the patent protecting the compound expires and that this may exert competitive pressure on the originator before patent expiry. Preparatory steps which would enable such entry make it possible to identify ‘… the firm intention and inherent ability of a manufacturer of generic medicines to enter the market for a medicine containing an active ingredient that is in the public domain …’85 and may include not only the conclusion of supply contracts etc as already noted above, but also steps taken to enable the generic to obtain MAs or other equivalent authorization. In essence, therefore, the CJEU confirmed not only that the absence of an MA is not an insur- 3.88 mountable barrier to entry, but also that steps taken to obtain an MA are evidence of a generic manufacturer’s ability and intention to enter the market, meaning that competitive pressure is capable of being exerted and adding to the possibility that the generic may be characterized as a potential competitor of the incumbent. The CJEU was careful to reiterate that the legal test is whether the generic has the ability and 3.89 intent to enter and whether it faces insurmountable obstacles to doing so: in applying that test it is then necessary to assess all the evidence. The CJEU concluded that the Commission had carried out a sufficient review and had adduced sufficient evidence as it had put forward ‘a consistent body of evidence’ as to the inherent ability and intent of each of the generics to enter. This included a review of the specific situation of each generic company at the time when it had concluded a contract with Lundbeck, the actual preparatory steps each had taken (such as preparing to obtain an MA) and the subjective views of Lundbeck as to the competitive threat it faced, as reflected in its decision to enter into agreements with generic manufacturers who were not yet active on the product market. The implications of these ‘pay for delay’ judgments for licensors and licensees in other sectors 3.90 against a different factual and economic background will take some time to become clear and any changes in the forthcoming new Technology Transfer Guidelines on how to distinguish between competitors and non-competitors will be most helpful. The particular dynamics of the pharmaceutical sector may mean that it is easier to identify potential competition in that sector than elsewhere. In other words, the existence of a category of undertakings with a well-trodden route to market, and the inherent ability to obtain all the necessary materials, distribution 82

Ibid., para 83.

84

Paroxetine CJEU (n 60).

83 85

Ibid., para 84.

Lundbeck CJEU (n 60), para 86.

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routes and authorizations to enter (which is understood both by the incumbents and by the possible entrants) is part of the overall legal and economic context against which potential competition must be assessed. 3.91 A couple of general points can be made: ● first, the caveats around the identification of ‘blocking positions’ and ‘insurmountable obstacles’ in paragraph 29 of the Technology Transfer Guidelines have been shown to have real teeth and must be taken seriously; and ● secondly, if a potential entrant is negotiating a licence to help it to enter a market, it is important to consider the extent of any preparatory steps it may have taken towards entry before seeking the licence when assessing the risk that the parties may be regarded as potential competitors. 3.92 It is worth also noting that at the time of concluding a licence information about the necessary steps to be taken/already taken to enter and the likely timing and approach to market entry may be known only to the prospective entrant. The licensor may have no idea about the internal planning of the potential licensee. While the licensee may be willing freely to share information about its plans and preparedness, the likely commercial sensitivity of that information needs to be borne in mind. For example, the prospective licensee may consider disclosing some information to a ‘clean team’ within the licensor involved in negotiating the licence to avoid problematic restrictions being included in the agreement in circumstances where it is difficult for both parties to understand the objective position on potential competition. 3.93 Whilst it might be thought that the licensee may not care if restrictions imposed on it by the licensor ultimately fall outside the scope of the block exemption and are unenforceable, the licensee may be concerned that once an agreement falls outside the scope of the block exemption (owing to the inclusion of a restriction which is hardcore in a licence between competitors), then all of the restrictions in the agreement are no longer exempt. If not benefitting from an individual exception under Article 101(3) TFEU, those restrictions will also be unenforceable. This will include any restrictions of competition on which the licensee might wish to rely. In some cases, the result of such unenforceability might be for a national court to find that the entire nature of the agreement is changed to such an extent that it can no longer be enforced at all. 2. Key takeaways on blocking positions

3.94 For those preparing to negotiate a licence in which the difference between the hardcore restrictions permitted between competitors and those permitted between non-competitors is likely to be of real commercial importance, identifying whether there is a competitive nexus between the parties in advance of the conclusion of the possible licence is important. Some issues to consider are summarized below: ● If the potential licensee regards the licence as crucial to its successful entry; is unwilling to contemplate entry at risk; and is not willing to consider commencing litigation or action before the patent authorities to remove any barriers, this will be evidence that the parties are not potential competitors. ● The fewer steps the possible new entrant has taken towards actual entry, the less likely it is to be found to be a potential competitor. 146

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● If the market, product or territory is a new one for the potential entrant, where it does not already have necessary capabilities in place, and has taken only steps to establish feasibility, the risks are lower. ● If the possible deal is to be done in a sector where competition between inherently capable undertakings is not a regular feature of the commercial landscape, that will also reduce the risks of a finding of potential competition. ● Ultimately, all of the circumstances must be weighed up (bearing in mind that the parties’ state of knowledge will inevitably be incomplete), and taking comfort from the fact that, as noted by the Court in Lundbeck, settlement agreements of the kind identified in Lundbeck and the other ‘pay for delay’ cases are very different in nature from genuine technology transfer arrangements. B. Use of Market Share Thresholds Paragraphs 79–93 of the Technology Transfer Guidelines explain how the TTBER market 3.95 share thresholds operate. The application of those thresholds can be challenging owing to the inherent difficulty of reliably defining relevant markets where technology may be evolving rapidly, leading to frequent and often significant product differentiation, and where innovation and research and development is often confidential and not known to others in the relevant technical sector. In addition, many products in which innovative technology is relevant may well be at intermediate or non-consumer facing sectors where reliable market share data is difficult to obtain. The Guidelines do helpfully note that the fact that market shares exceed the relevant threshold 3.96 to take advantage of the safe harbour provided by the TTBER gives rise to no presumption of infringement. This means in practice that when negotiating and drafting licences parties will often seek to get as close as possible to what is permitted by the block exemption regulation (consistent with their commercial goals), avoiding hardcore restrictions, and hope either to fall within the safe harbour or to have a good chance of benefitting from the Article 101(3) TFEU exception if, ultimately, their assessment of the market share position turns out to have been rather optimistic or based on incomplete information. There are various reasons why parties may not be able either to define the relevant market precisely or to accurately assess the market shares which are relevant. For example, the TTBER requires that market shares be calculated by reference to the previous 3.97 year’s sales data. This can be problematic in the case of new technologies where no final product has been commercialized when the agreement is concluded. It may not be possible to identify the boundaries of the relevant market and calculate market share in the normal manner. In partial recognition of the difficulties to which this can give rise, the Technology Transfer Guidelines state that new technologies that have not yet generated any sales will have a zero market share assigned to them.86 New technologies may succeed quickly, with obvious consequences for the competition law analysis of any licence agreement affecting that technology. There are also difficulties in dynamic industries where market shares, even assuming they can

86

Technology Transfer Guidelines (n 5), para 90.

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be reliably ascertained in the first place,87 can change quickly. To help provide greater certainty in such circumstances, Article 8(e) of the block exemption allows a ‘grace period’ for two consecutive calendar years following the year in which the relevant threshold was exceeded. The parties will have to consider whether the agreement satisfies the Article 101(3) TFEU criteria if this situation persists for longer than two years.88 3.98 In addition, the Commission has noted the difficulties inherent in assessing market shares in technology markets89 and seeks to assess the importance of competing technologies by applying the market share thresholds downstream, rather than at the level of the licensing of the technology itself. This means that the market share of a licensor’s technology is assessed by taking into account the sales of the licensor and all of its licensees of products incorporating the technology as a proportion of all sales of competing products, whether they make use of the licensor’s technology or not. 3.99 As already explained above, different market share thresholds apply to licences in which the parties are competitors and those in which they are not competitors (paragraph 3.27 above). Where the relationship between the parties changes during the term of the licence, the 20 per cent threshold for the safe harbour applies from the moment at which they become competitors.90 However, as long as the parties comply with that threshold, the safe harbour will continue to apply and they can continue to benefit from the shorter (more generous) list of hardcore restrictions which apply to non-competitors under Article 4(2) of the TTBER for so long as they make no material amendments to the licence.91 3.100 By way of recap, those drafting and negotiating commercial agreements of which licenses form a part will need to have regard to a number of potentially applicable market share thresholds depending on the commercial context in which the licence is concluded and will operate in (see Table 3.1). Table 3.1

Potentially applicable market share thresholds

10%

Horizontal de minimis (joint market share)

20%

Specialisation (joint)

15%

Vertical de minimis (either party)

25%

R&D licences (joint market share)

20%

Technology licences between competitors (joint market share)

30%

Technology licences between non-competitors (either party)

30%

Vertical agreements (either party)

Source: Bristows LLP.

87 88 89 90 91

In relation to some of the problems of defining relevant markets and assessing market shares in industries where innovation is a key competitive driver, see the Economic Discussion paper on Competition and Innovation published by the UK’s Office of Fair Trading in March 2002, particularly pp 51–57. TTBER (n 2), Art 8(e).

Technology Transfer Guidelines (n 5), paras 86–89. Ibid., para 85.

Ibid., paras 85 and 39.

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This complex matrix of potentially applicable thresholds, with varying legal consequences as 3.101 to what may or may not be permissible, can cause uncertainty for commercial undertakings wishing to negotiate and grant (or accept) licences. As far as technology transfers are concerned, the complexity is increased by the fact that if a licence affects several markets or is part of a more complex arrangement, the market share thresholds must be applied separately to each aspect, meaning that the TTBER safe harbour may be available to some licensed products or services but not to others.92 While this makes sense in principle, in practice it makes the negotiation and drafting of licences of technology having an application in several products which may be sold in different markets more complex. In the light of these considerations, when having a quick ‘first look’ at a licensing arrangement to assess whether an in-depth analysis is required, a practical first step is to assume the largest plausible market share that may be held by each party and to take a cautious approach in identifying the applicable threshold. If that threshold is satisfied and no hardcore or by object restrictions are identified, the likely competition risks will be relatively low.

IV. THE APPLICATION OF THE CORE OPERATIVE PROVISIONS OF THE TTBER A. Hardcore Restrictions – Agreements Between Competitors Four classes of hardcore restriction in licences between competitors are set out in Article 4(1) of 3.102 the TTBER. They are discussed at paragraphs 97–116 of the Technology Transfer Guidelines and are summarized below. In each case, the TTBER is stated not to apply to agreements which ‘directly or indirectly, in isolation or in combination with other factors under the control of the parties, have as their object …’ any of the restrictions set out in Article 4(1)(a)–(d). 1. Price fixing

Article 4(1)(a) provides that no exemption is available under the TTBER to agreements which 3.103 restrict ‘a party’s ability to determine its prices when selling products to third parties’. The Technology Transfer Guidelines explain that any restrictions between competitors which 3.104 fix the prices of products to be sold to third parties (including products which incorporate the licensed technology) are hardcore. This is unsurprising given competition law’s antipathy towards horizontal price arrangements. The block exemption is not available for any form of agreement on price between competitors, including the fixing of maximum or recommended as well as minimum prices. Arrangements which have an indirect effect on prices or which are disguised forms of price 3.105 fixing, such as incentivizing parties to respect agreed price levels by providing that royalties will increase if prices fall, or by permitting only certain rebates off a list price, will also fall outside the block exemption.

92

Ibid., para 81.

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3.106 Notwithstanding this strict approach, the Technology Transfer Guidelines state that a minimum royalty obligation does not in itself amount to price fixing.93 Having said that, the words ‘does not in itself amount to price fixing’ do not give a carte blanche for all forms of minimum royalty obligation. Those who are negotiating licences should be careful to ensure that a minimum royalty is not set at such a level and in such a way that it is tantamount to setting a price. Risks will be involved if, for example, a licensor is aware of a licensee’s standard margin (particularly if this has been discussed between the parties) and the royalty is then set at a level which would enable the licensee to achieve that margin at ‘normal’ selling prices but would make it difficult or impossible for the licensee to sell the product below that price and still achieve a margin at or close to the required margin. Whether such a pattern of behaviour would in fact be tantamount to price fixing would depend on all the facts, but it is capable of giving rise to risks which should be carefully considered before concluding an arrangement of that type. 3.107 The Technology Transfer Guidelines state that the risks of price collusion are greater where competitors conclude reciprocal cross-licences as royalties can have a direct impact on downstream product price (because they are an input into marginal costs).94 The guidelines conclude that reciprocal running royalties in a cross-licence can enable the parties to coordinate downstream prices. Happily for parties who are concluding reciprocal licences, the Guidelines state that such arrangements will be treated as akin to price fixing only if the arrangement is, essentially, a sham and has no procompetitive purpose. If the arrangement is a bona fide licensing arrangement, creates value and has a valid business justification, cross-licences with reciprocal running royalties will continue to benefit from the block exemption – those which do not satisfy those criteria are likely to be regarded as tantamount to a cartel. 3.108 The Technology Transfer Guidelines then deal with a further aspect of royalty setting not strictly speaking related to price fixing: the calculation of royalties based on sales of all products, whether or not the licensed technology is being used.95 This issue was introduced above at paragraphs 2.245 ff and provisions of this sort have resulted (exceptionally) in Commission action.96 Article 4(1)(a) means that in licences between competitors such royalties fall within the hardcore restriction in Article 4(1)(a).97 The Technology Transfer Guidelines state that royalties which are charged on all products irrespective of the use of the licensed technology have the effect of raising the cost of using the licensee’s own technology, thereby restricting competition that existed in the absence of the agreement. 3.109 It appears that the Commission has recognized that in some licensing scenarios this form of royalty arrangement is necessary to allow the parties to conclude a licence as it is the only viable means of metering usage of the technology.98 The Technology Transfer Guidelines give a helpful indication that, notwithstanding the operation of Article 4(1)(a), an Article 101(3) 93

Ibid., para 99.

95

Ibid., paras 101, 102.

94

96 97 98

Ibid., para 100. Note that the footnote to this comment points out that other forms of cross-supply can have a similar effect, such as where one party grants a licence to another and agrees in return to purchase a physical input from the licensee. In that case, the purchase price is said to be capable of having the same effect as a royalty. Microsoft’s undertaking, XXIVth Report on Competition Policy (1994), p 364; Windsurfing (n 8). And also within the Art 4(1)(d) hardcore restriction in TTBER (n 2) – see below at para 3.132 ff. Technology Transfer Guidelines (n 5), para 102.

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TFEU exception may be available if it can be established that procompetitive licensing was able to occur only because the royalties would be calculated on all product sales. The Guidelines give an example of a situation in which the use of the licensed technology leaves no visible trace in the final product and where this is the only practical method of monitoring/metering use. Agreeing to such a provision nevertheless involves some risk. First, as the restriction is hard- 3.110 core, it takes the entire agreement outside the scope of the block exemption, with potential risks to the enforceability of other restrictions in the licence.99 Secondly, given that Article 101(3) TFEU will be applied, the test for assessing whether the chosen royalty arrangement is necessary is an objective one. To qualify for exemption it must be established that the provision is objectively indispensable for procompetitive licensing to occur. If parties wish to incorporate a royalty provision of this kind, the risks of doing so will be 3.111 reduced if other potentially viable alternative means of calculating royalties are considered and the reasons why those would not overcome the anticipated difficulties of calculating and monitoring the royalties payable are recorded. If the inclusion of the provision is subsequently challenged, having carried out this preparatory work (and retaining contemporaneous records of the steps taken) may make the task of establishing the indispensability of the provision much more straightforward. Again, the reasoning of the Court and the AG in Ottung v Klee100 (see paragraph 2.263 ff) about the acceptability of commercially rational metering arrangements between parties, even where it leads to royalties being payable on goods no longer covered by the licensed rights may be of assistance. 2. Output restriction

An output restriction exists where a party is subject to limitations on the quantity of goods 3.112 that may be produced or sold. Article 4(1)(b) provides that limitations of output in agreements between competitors are hardcore. Paragraphs 103 and 104 of the Technology Transfer Guidelines provide further guidance. Article 4(1)(b) contains two exceptions. First, if the competing parties are licensing 3.113 non-competing technology (i.e., the licence is not reciprocal), it is permissible to impose an output restriction on the licensee in respect of the technology which it is in-licensing. Even where the agreement concerns competing technologies and is a cross-licence, it is permissible to restrict the output of one of the party/licensees.101 Such output limitations are outside the hardcore provision only if and insofar as they relate to contract products which are produced using the licensed technology.

99

Ibid., para 95.

100 Case 320/87 Kai Ottung v Klee & Weilbach A/S and Thomas Schmidt A/S [1989] ECR 1177 (ECLI:EU:C:1989:195).

101 TTBER (n 2), Art 4(1)(b). These exceptions to the rule against restricting output follow the distinction between ‘reciprocal’ and ‘non-reciprocal’ agreements. Reciprocal agreements are cross-licensing arrangements between competitors in which the licensed technologies are competing or can be used to generate competing products. Non-reciprocal agreements are either those in which only one party licenses its technology, or where there is a cross-licence but the cross-licensed technologies are non-competing. See also Art 1(d) and (e), and Technology Transfer Guidelines (n 5), para 98.

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3.114 The Commission regards reciprocal output restrictions between competitors (and output limitations on a licensor’s exploitation of its own technology) as very likely to affect competition by reducing overall output. The hardcore restriction will, unsurprisingly, catch other arrangements that have the same effect such as those which undermine the parties’ incentives to expand output. The Technology Transfer Guidelines give the example of an agreement under which the structure of royalty payments operates to increase the royalty per unit as output increases or, perhaps more obviously, an obligation on the parties to make extra payments once a certain level of output is achieved. 3. Allocation of markets/customers

3.115 In principle, market sharing restrictions between competitors are prohibited. The Technology Transfer Guidelines state ‘Agreements whereby competitors share markets and customers have as their object the restriction of competition.’ The relevant provisions are to be found in Article 4(1)(c) and are discussed in paragraphs 105–115 of the Technology Transfer Guidelines. The application of these provisions in practice is complex as Article 4(1)(c) contains a number of exceptions, which can be useful, but require careful thought to apply. Both the TTBER itself and the related guidance must be reviewed carefully if market or customer exclusivity is to form part of an agreement between competitors. 3.116 The Commission considers any grant of reciprocal exclusive territories or customer groups between competitors to be, on its face, market sharing. In other words, a cross-licence which licenses competing technologies between competitors and carves out exclusive territories or customers will be hardcore and is unlikely to benefit from an individual exemption. This position is unlikely to change even if the parties remain free to use their own technology rights without restriction. The Technology Transfer Guidelines state that the concern is that the result of the reciprocal cross-licence will be that each party will concentrate on a single technology to avoid duplication of costs and concludes that such mutual restrictions are unlikely to be indispensable for bona fide licensing to take place. 3.117 Some customer and market exclusivity provisions102 are excepted from the list of hardcore restrictions, even in licences between competitors. In this respect the TTBER is significantly more generous than the VABE.103 As might be expected, the treatment of non‑reciprocal agreements is more generous than that of reciprocal agreements.104 a. Sole licences

3.118 It is permissible for a technology transfer agreement to be a sole licence, with the licensor prevented from licensing any other licensees within a particular territory. As long as both parties

102 Note that this discussion does not relate to ‘field of use’ restrictions. These are often included in licences if licensed technology can be used to make different products or can be incorporated into different products belonging to different product markets. Field of use restrictions are usually acceptable, as long as they do not amount to market sharing or the allocation of customers. 103 VABE (n 3).

104 The Technology Transfer Guidelines (n 5) categorize agreements into two types: reciprocal agreements and non-reciprocal agreements, see, n 101 above for explanation of the differences between them. See also TTBER (n 2), Arts 1(1)(d) and (e).

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are free to exploit the technology, both reciprocal and non‑reciprocal sole licences are block exempted.105 b. Restrictions protecting the parties from each other (i) Production restrictions (Article 4(1)(b))

It is not hardcore for a licensor in a non-reciprocal agreement between competitors to grant an 3.119 exclusive licence under which it refrains from producing in the exclusive territory granted to the licensee. This applies even if the territory in question is worldwide, implying that the licensor will exit, or refrain from entering, the relevant market. Still in the arena of non-reciprocal licences, it is not hardcore to provide that the licensee is precluded from producing in a territory reserved exclusively to the licensor. This is seen as consistent with the desire to give the parties an incentive to invest in and develop the licensed technology. (ii) Sales restrictions (Article 4(1)(c)(i))

Sales restrictions are commonly imposed to protect a licensee’s investment in the exploitation of 3.120 licensed technology and to prevent free-riding from other parties, including the licensor. Such restrictions concern either ‘active’ or ‘passive’ selling.106 Both the TTBER and the Technology Transfer Guidelines confirm that restrictions on active 3.121 and passive sales in a reciprocal agreement between competitors are hardcore. However, the parties can benefit from the block exemption in respect of a non-reciprocal agreement even if the licence includes restrictions precluding both active and passive sales by the licensor and licensee respectively into a territory or customer group reserved to the other.107 The effect of Article 4(1)(c) is therefore that non-reciprocal agreements between competitors 3.122 which otherwise qualify for exemption and satisfy the market share criteria will benefit from the block exemption even if the parties have complete protection from competition from each other. This applies to both territorial restrictions and to customer group allocations. As a matter of good drafting practice, it would be preferable to identify clearly the scope of the territories reserved to each. The Technology Transfer Guidelines stipulate that ‘Restrictions on licensee and licensor to sell actively and/or passively into the other party’s territory or customer group are only block exempted if that territory or customer group has been exclusively reserved to that other party’ (emphasis added). Once a licensor licenses a third party to operate in a territory it had originally reserved to itself, the protection that it can offer to that licensee from the actions of other licensees while still retaining the protection of the block exemption is more limited, and it may be worth making this clear in any licence likely to be affected by such a change. The Technology Transfer Guidelines indicate that even though shared exclusivity is in prin- 3.123 ciple hardcore and will fall outside the scope of the block exemption, there may be situations 105 Technology Transfer Guidelines, ibid., para 109.

106 Active sales are sales made by actively promoting the product (e.g., by soliciting orders and advertising). Passive sales are sales made in response to a purchaser independently approaching the licensee. See the Technology Transfer Guidelines, ibid., para 108; and Commission Notice, Guidelines on Vertical Restraints, 2022/C248/01 of 30 June 2022 (Vertical Guidelines). 107 TTBER (n 2), Art 4(1)(c)(i), and Technology Transfer Guidelines, ibid., para 108. These restrictions will be block exempted up to the 20 per cent market share threshold.

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when it could nevertheless benefit from an exemption under Article 101(3) TFEU. The example given is of a situation where it is necessary to share exclusivity (on an ad hoc basis) to deal with temporary production difficulties or shortages which may affect the territory or customer group exclusively allocated to one party. An arrangement allowing the other to supply in such circumstances is not seen by the Commission as likely significantly to undermine the parties’ incentives to invest in and exploit the licensed technology. The Technology Transfer Guidelines suggest that a temporary suspension of exclusivity will not significantly affect the general protection against active and/or passive sales in the reserved territory and thus the incentives to invest will remain.108 c. Restrictions protecting licensees from each other (and the licensor from the licensees) (i) Sales restrictions (Article 4(1)(c)(ii))

3.124 Where a licensor licenses several licensees, the TTBER exempts restrictions on one licensee actively selling into a territory or customer group allocated to another licensee.109 This exception is not quite as straightforward as it might appear. It applies only if the licensee on whom the restriction is imposed was not a competitor of the licensor at the time when its licence was concluded (i.e., that licence is non-reciprocal) and if the protected licensee was not itself a competitor of the licensor at the time when its own agreement was concluded. The drafting of the guidelines explaining this exception is not a model of clarity. However, it appears that the rationale is to make clear that restrictions protecting a new entrant from active sales by licensees who are already on the market will be acceptable, as they will support the new entrant’s incentives to invest and to exploit the licensed technology effectively. Implicitly, this rationale holds good only as long as none of the licensees was already on the market covered by the licence. The Technology Transfer Guidelines state for the avoidance of doubt that if there were to be an agreement between the licensees not to sell to particular territories or customer groups (whether actively or passively) that would be a licensee cartel. Restrictions on passive sales between licensees are hardcore. (ii) Captive use restrictions (Article 4(1)(c)(iii))

3.125 Captive use restrictions in licences between competitors are exempted under the TTBER.110 Such a restriction will be acceptable as long as it obliges the licensee to produce products incorporating the licensed technology only for its own use. If the contract product is a component, the licensee may be restricted in its ability to sell the component to other producers and obliged to reserve its production for use only in its own products. It is not permissible to prohibit the licensee from selling components to third parties to be used as spare parts for its own products. The licensee must remain free to supply the components it produces to third parties that perform aftersales services on its products. It must be free to sell both actively and passively to such third-party service providers. The Technology Transfer Guidelines state that captive use restrictions may be particularly necessary to encourage the dissemination of technology between competitors and that this justifies exemption up to the market share threshold.

108 Technology Transfer Guidelines, ibid., para 108.

109 TTBER (n 2), Art 4(1)(c)(ii) and Technology Transfer Guidelines, ibid., para 110.

110 TTBER, ibid., Art 4(1)(c)(iii) and Technology Transfer Guidelines, ibid., para 111.

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Outside the block exemption captive use restrictions between competitors may give rise to significant anticompetitive effects, as explained in the Technology Transfer Guidelines.111 (iii) Single customer supply obligations (Article 4(1)(c)(iv))

In non-reciprocal agreements between competitors, it is possible to restrict the licensee to 3.126 production of contract products for sale to one customer only, provided that the purpose of the technology transfer agreement is to generate an alternative source of supply for that customer.112 It is worth noting that the Technology Transfer Guidelines state clearly that more than one such licence may be granted, and the exception in Article 4(1)(c)(iv) will continue to apply even if several licensees are licensed to supply the same customer and regardless of the duration of the agreement, whether it be a one-off licence to meet a particular need or a longer term arrangement. The Technology Transfer Guidelines do not regard such restrictions as likely to lead to anti- 3.127 competitive market sharing, as the licence affects the requirements of only one customer. In addition, the Technology Transfer Guidelines note that such supply obligations cannot be assumed to disincentivize the licensee from continuing to exploit its own technology when supplying other customers. However, if networks of such agreements were to grow up and result in excessive market rigidity, the Commission or an affected Member State might consider whether the benefit of the block exemption should be withdrawn under Article 6(1) or 6(2) respectively. (iv) Field of use restrictions (not hardcore as neither a market nor a customer restriction – exempt up to market share threshold)

Field of use restrictions are commonly included in technology licences because technology 3.128 can frequently be used to make different products or can sometimes be incorporated into different products belonging to different product markets. Such restrictions commonly limit the exploitation of the licensed technology by the licensee to one or more particular fields of use without limiting the licensor’s ability to exploit the licensed technology. Such restrictions are usually acceptable, provided they do not in fact amount to market sharing or the allocation of customers. Field of use restrictions are not mentioned in the hardcore list at all. Genuine field of use 3.129 restrictions are not regarded as territorial or customer restrictions. Even in reciprocal licences between competitors they are exempted up to the market share thresholds. Above that threshold they are also likely to be acceptable.113 The Technology Transfer Guidelines make clear that the block exemption applies only if the 3.130 field of use restriction(s) accepted affect only the use of licensed technologies and the supply of contract products manufactured with the licensed technologies. If a restriction extends to non-licensed technologies, it is regarded as market sharing. The Technology Transfer Guidelines also state that a field of use restriction will be exempted even if the two parties 111 Technology Transfer Guidelines, ibid., para 217.

112 TTBER (n 2), Art 4(1)(c)(iv) and Technology Transfer Guidelines, ibid., para 112. 113 Technology Transfer Guidelines, ibid., paras 113, 114 and 208–215.

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are allocated different fields of use.114 In other words, even if the parties are allowed to use the licensed technology only in separate and different fields, that restriction will remain block exempt as long as they remain free to compete in any field they choose using their own technology. The Commission explains that this sort of asymmetry does not equate to market sharing as there can be no assumption that the parties will necessarily either abandon or choose not to enter a field licensed to the other party. 3.131 The Technology Transfer Guidelines add a warning that the exception applies only to genuine field of use restrictions (‘relates to distinct product markets, industrial sectors or fields of use and not to customers, allocated by territory or by group, who purchase products falling within the same product market or technical field of use’). The way in which the Commission or a court may approach this distinction is discussed in more detail elsewhere.115 (v) Restrictions on research or the licensee’s use of its own technology (Article 4(1)(d))

3.132 A restriction preventing the licensee from using its own technology or restricting either the licensee or the licensor from carrying out research and development is hardcore. There is an exception if that obligation is indispensable to prevent the disclosure of licensed knowhow to third parties. It is therefore possible for an agreement between competitors preventing the parties from carrying out research and development with third parties to benefit from the TTBER.116 3.133 The Technology Transfer Guidelines explain that the block exemption will be available only if the licensee is wholly unrestricted in the use of its own competing technology as long as this use does not involve the use of the licensor’s licensed technology. This means not only that the licensee must be free to produce and sell any products incorporating only its own technology anywhere, in any field of use, at any price and to any customer but also that it must not be obliged to pay royalties on products produced using its own technology,117 nor may it be restricted in its ability to license third parties with its own technology. 3.134 There is no discussion in the Technology Transfer Guidelines of how the parties may incorporate in their licence a suitable provision carving out situations in which it is permissible to limit the licensee’s freedom to carry on R&D owing to the risk of the disclosure of knowhow. It seems likely that such a provision will only be acceptable if knowhow is flowing from the licensor to the licensee in the first place. Parties wishing to rely on this exception should also note the high threshold (‘indispensable’): if other less restrictive means are available to prevent the risk of leakage (such as, e.g., the use of clean teams) they should be seriously considered

114 Ibid., para 114. 115 Ibid., para 208.

116 TTBER (n 2), Art 4(1)(d) and Technology Transfer Guidelines, ibid., para 116. There was previously some uncertainty over the application of the block exemption to non-compete clauses, but the Technology Transfer Guidelines now make clear that ordinary non-compete obligations are not caught by this hardcore restriction. They clarify that Art 4(1) (d): ‘does not extend to restrictions on the licensee’s use of third party technology which competes with the licensed technology’ and that ‘although such non-compete obligations may have foreclosure effects on third party technologies … they usually do not have the effect of reducing the incentive of licensees to invest in the development and improvement of their own technologies’. 117 Technology Transfer Guidelines, ibid., paras 101 and 116.

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as an alternative to an absolute restriction on R&D involving a third party. By considering the issue in advance and assessing the viability of alternative solutions (even if they are not ultimately adopted), the parties will reduce the risk that the protection of the block exemption may be lost for the licence because a restriction on third party R&D is ultimately deemed not to be indispensable. B. Hardcore Restrictions – Agreements Between Non-competitors The list of hardcore restrictions is much shorter for agreements between non-competitors. 3.135 They are set out in Article 4(2) of the TTBER, and discussed at paragraphs 117–127 of the Technology Transfer Guidelines. They cover only the following. 1. Price fixing (Article 4(2)(a))

In licences between non-competitors only minimum resale price fixing is hardcore under the 3.136 TTBER. Recommended resale prices and maximum resale prices are therefore block exempted, provided any recommendation does not in fact amount to a fixing of the price through indirect means.118 Price fixing by indirect means does not include merely providing a list of recommended prices 3.137 nor the imposition of a maximum resale price. The Commission gives several examples of conduct which may amount to indirect price fixing, 3.138 none of which will come as a surprise to anyone familiar with the Commission’s decisions on Resale Price Maintenance or the guidance given in the Vertical Guidelines. They include: ● margin fixing or fixing the maximum level of discount that may be offered to third parties; ● price linking (linking sales prices to those of competing third parties); and ● attempts to maintain prices through ‘threats, intimidation, warnings, penalties or contract termination’. The Commission also warns (implicitly, but in line with its decisional practice) that it will 3.139 be more likely to find indirect price fixing where measures that will make it easier to identify price cutting are instituted. These might include an obligation on the licensee to report price changes or the implementation of a price monitoring system. Finally, the Commission notes that its suspicions may also be aroused by other measures that will operate to reduce the licensees’ incentives to compete on price, such as imposing an obligation on the licensee to operate a most-favoured-nation approach to pricing, where any favourable prices provided to one customer must also be offered to others. 2. Passive sales restrictions on the licensee (Article 4(2)(b))

In an agreement between non-competitors all sales restrictions on the licensor are block 3.140 exempted up to the market share threshold of 30 per cent as are almost all restrictions on active sales by the licensee.119 In principle, however, restrictions on passive sales by the licensee of

118 TTBER (n 2), Art 4(2)(a) and Technology Transfer Guidelines, ibid., para 118.

119 Technology Transfer Guidelines, ibid., para 120 and exception in 125 explaining the effect of Article 4(2)(b)(v).

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products incorporating the licensed technology into the territory of other licensees are hardcore.120 This is subject to exceptions, discussed below at paragraph 3.144 ff. 3.141 The protection of the block exemption will be lost if explicit limitations on passive sales, such as obligations to refer enquiries from non-licensed territories or customer groups to other licensees, are included in the licence. The block exemption will also be inapplicable if indirect means of restricting the licensee’s freedom to make passive sales are used. Again, this may involve the use of threats or a monitoring system or the use of financial incentives (or disincentives) to encourage the licensee to ‘stay at home’. 3.142 The Technology Transfer Guidelines discuss whether the imposition of quantity limitations constitutes a restraint on passive sales. The Commission’s position is that quantity limitations of themselves are not assumed to have the object or effect of limiting passive sales. However, the Guidelines note that quantity limitations can be used to achieve that aim indirectly. It gives examples of circumstances where quantity limitations are likely to be regarded as a means to implement market partitioning. These include: ● obligations to track the destinations of a licensee’s sales; ● imposing differential royalties depending on the place of sale; ● situations where quantities are adjusted over time so as to be sufficient to cover local demand only; ● minimum royalty obligations for sales in the licensed territory; and ● obligations to sell a minimum quantity in the licensed territory. 3.143 Certain limitations on the licensee’s ability to respond to passive sales requests are permissible under the TTBER.121 a. Sales into reserved territories/customer groups (Article 4(2)(b)(i))

3.144 It is permitted to restrict passive sales into an exclusive territory or to an exclusive customer group reserved for the licensor up to the market share threshold. The Technology Transfer Guidelines are clear that ‘reservation’ of a territory or customer group does not require that the technology is currently being exploited by the licensor in the reserved territory or in respect of the reserved customer group.122 A licensor may reserve a territory or customer group for later exploitation, protecting that territory or customer group from passive and active sales by its licensees until such time as it is ready to start exploiting its technology or, presumably, to appoint a new licensee to do so. 3.145 The restriction of passive sales into an exclusive territory or to an exclusive customer group reserved for other licensees is not within any of the exceptions in Article 4(2)(b). Under the previous Technology Transfer Regulation, restrictions on passive sales by existing licensees into a territory or customer group reserved exclusively to a new licensee were block exempted, if they lasted for less than two years. This was intended to encourage new licensees to invest in

120 The Technology Transfer Guidelines, ibid., include a footnote (fn 62) explaining the position for products exported outside the EU and referring to the well-known case of Javico v Yves Saint Laurent (n 26), para 20. 121 TTBER (n 2), Art 4(2)(b) and Technology Transfer Guidelines, ibid., paras 119–127. 122 TTBER, ibid., Art 4(2)(b)(i) and Technology Transfer Guidelines, ibid., para 121.

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the exploitation of the licensed technology by giving them some initial protection from passive sales by other licensees. The current TTBER contains no equivalent, meaning that passive sales restrictions protecting licensees from other licensees are within the hardcore provision in Article 4.2(b): ‘… the restriction of the territory into which, or of the customers to whom, the licensee may passively sell the contract products’. The Technology Transfer Guidelines explain that passive sales restrictions may be acceptable 3.146 if they are ‘objectively necessary for the licensee to penetrate a new market’ and give examples of where this may be the case. These include where ‘substantial investments in production assets and promotional activities’ will need to be made by the licensee to develop a new market. Particularly where such investments are likely to be sunk, a new licensee may need a degree of protection against competition from existing licensees to persuade it to take a licence and make the necessary investment. Where this is the case, restrictions on passive sales by other licensees might then be tolerated ‘for the period necessary for the licensee to recoup those investments’. The Technology Transfer Guidelines state that in most cases this would be ‘for a period of up to two years’ but recognize that this will be fact specific and that in some cases longer might be necessary.123 The Technology Transfer Guidelines give some further comfort to licensors who wish to 3.147 license out technology which can be used to manufacture or supply dangerous products and therefore wish to restrict those who are licensed as to the categories of end-user to whom they can sell. The Commission notes that a prohibition on sales to certain categories of end-user which is objectively necessary owing to the dangerous nature of the product and related health and safety concerns may not be restrictive of competition (and therefore fall outside the scope of the prohibition in Article 101(1) TFEU). However, the Technology Transfer Guidelines suggest that this indication can only be relied on if the prohibition is ‘imposed on all licensees’.124 Despite this limitation, it would certainly be open to a licensor to argue that a health/safety 3.148 related limitation on the sort of customer to whom some licensees could sell, while allowing others to supply such customers, might also be outside the scope of the Article 101(1) TFEU prohibition. Such an argument would need to show that there is an objective necessity to distinguish between particular licensees based on relevant and objective criteria and that licensees who are precluded from supplying certain customers might be able to do so if the relevant health and safety/danger concerns were addressed. It is worth considering the potential significance of the approach taken in the Technology 3.149 Transfer Guidelines to the sort of restrictions discussed in the paragraphs immediately above. By making clear that such restrictions can, in the right legal and factual context, fall outside the scope of the prohibition in Article 101(1) TFEU entirely, carefully drafted provisions of this sort might be argued not to be hardcore restrictions even if ultimately they are held to fall

123 Technology Transfer Guidelines, ibid., para 126. It is rather difficult to see how this might work in practice if licences are awarded sequentially, particularly if the extent of investment and sunk costs required might vary over time or in different territories. Perhaps the licensor would need to insert in each licence it grants a provision enabling it to impose a period of protection against passive sales for new licensees to exceed no more than, for example, two years. 124 Ibid., para 127.

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within the scope of the prohibition in Article 101(1) TFEU (in which case the Article 101(3) TFEU exception might well apply). 3.150 Parties considering the implications of including limited passive sales restrictions or limiting the customers to be supplied by licensees on safety grounds will wish to assess all the criteria for successfully avoiding the hardcore restriction in Article 4.2(b)(i) carefully, given the potential consequences of getting it wrong.125 3.151 Factors militating against the success of an argument that such provisions should not necessarily be regarded as hardcore if they are clearly intended to support a procompetitive outcome but do not quite meet the threshold for falling outside Article 101(1) TFEU include the Commission’s clear concerns that the block exemption should be available only to those agreements which very clearly satisfy the criteria for exemption. However, if enforceability of other provisions in the licence were important (e.g., in national proceedings) and the only difficulty with block exemption of those provisions was the incorporation of a provision of a type which the Commission has acknowledged may fall outside the scope of the Article 101(1) TFEU prohibition entirely, it could be worth exploring (even potentially with the Commission) whether the inclusion of those limited restrictions should remove the protection of the block exemption from the remaining (otherwise block exempt) restrictions. b. Captive use limitation (Article 4(2)(b)(ii))

3.152 Unsurprisingly, captive use restrictions are permitted in technology licences between non-competitors, as between competitors. As discussed at paragraph 3.125 above, this applies provided the licensee can still sell the components as spare parts.126 c. Single customer supply obligations (Article 4(2)(b)(iii))

3.153 As in agreements between competitors, an obligation on the licensee to produce only for a particular customer are also exempt, provided the licence was granted to generate an alternative source of supply for that customer.127 d. Sales at the wholesale level only (Article 4(2)(b)(iv))

3.154 An obligation requiring a licensee to sell only to wholesale level customers and prohibiting it from selling contract products to end-users is also excluded from the hardcore list under Article 4(2)(b) and is block exempt. The Commission expresses the view that such agreements enabling the licensor to assign the wholesale function to the licensee are normally considered to fall outside Article 101(1) TFEU.128

125 In considering the risks of including a provision of this nature in a technology licence, the parties should also consider carefully the Commission’s comments on ancillary restraints in the Commission Communication, Guidelines on the application of Article 81(3) of the Treaty, OJ [2004] C 101/97, paras 28–31. See also Case T-112/99 Métropole Télévision (M6) and Others v Commission of the European Communities [2001] ECR II-2459 (ECLI:EU:T:2001:215), paras 104–117 on ancillary restraints (including the relationship between ancillary restraints and Art 101(3) TFEU). 126 TTBER (n 2), Art 4(2)(b)(ii) and Technology Transfer Guidelines (n 5), para 122.

127 TTBER, ibid., Art 4(2)(b)(iii) and Technology Transfer Guidelines, ibid., para 123. 128 TTBER, ibid., Art 4(2)(b)(iv) and Technology Transfer Guidelines, ibid., para 124.

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e. Sales to authorized distributors only (Article 4(2)(b)(v))/sales to end-users must be permitted (Article 4(2)(c))

A licensor can also require that the licensee becomes part of a selective distribution system (the 3.155 concept of which is described in the Vertical Guidelines129), and may therefore be prevented from selling to unauthorized distributors.130 It is hardcore for a licensor to restrict either active or passive sales to end-users by a licensee 3.156 who is a member of a selective distribution system.131 The Technology Transfer Guidelines make clear that this is without prejudice to the possibility to appoint the licensee to carry out only a wholesale function, as mentioned above, and explicitly permitted by Article 4(2)(b)(iv). A licensee may therefore be appointed as a wholesaler and such an appointment takes it outside the type of arrangement which is the subject of Article 4(2)(c). The TTBER and Technology Transfer Guidelines make clear that the licensor may also 3.157 prevent a licensee in a selective distribution system from operating from unauthorized premises. The block exemption will not apply to arrangements which combine selective distribution and 3.158 exclusive distribution in the same territory or for the same customer group in circumstances where such an arrangement would effectively give rise to a hardcore restriction under Article 4(2)(c) by restricting active or passive sales to end-users. The structure of the TTBER therefore requires any licensor wishing to combine elements of selective and exclusive downstream distribution to consider carefully the likely impact of such an arrangement on licensees’ ability to sell to end-users when assessing whether the block exemption will be available.132 C. A Change in the Competitive Relationship of the Parties (Article 4(3)) If undertakings are non-competitors when the technology transfer agreement is entered into, 3.159 but later become competitors, the TTBER provides that the hardcore restrictions applicable to non-competitors will apply for the life of the agreement ‘unless the agreement is subsequently amended in any material respect’. If the agreement remains unaltered, there is no need to reassess it.133 Once the parties’ competitive relationship changes then, in addition to material changes to the existing licence being sufficient to trigger a re-examination of the hardcore restrictions, the conclusion of a further licence between the parties concerning competing technology rights will also be considered a material amendment, meaning that the original licence will need to be reviewed. The competitive relationship between the parties may also change from one of competitor 3.160 to one of non-competitor. This might occur, for example, if one of the parties (most likely the licensee, for obvious reasons) finds that its previously competing technology has become

129 Vertical Guidelines (n 106), para 4.62.

130 TTBER (n 2), Art 4(2)(b)(v) and Technology Transfer Guidelines (n 5), para 125. 131 TTBER, ibid., Art 4(2)(c) and Technology Transfer Guidelines, ibid., para 125. 132 Technology Transfer Guidelines, ibid., para 125.

133 TTBER (n 2), Art 4(3) and Technology Transfer Guidelines, ibid., para 38. Although note that the market share threshold applicable for agreements between competitors will apply Technology Transfer Guidelines, para 85.

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obsolete or is not competitive. In such circumstances, the classification of the parties’ relationship will change. However, the Commission Guidelines caution that it is usually not possible to be certain at the time the licence is concluded that the licensed technology will render the older/existing technology obsolete and make clear that ‘The parties will … be considered to be competitors if at the time of the conclusion of the agreement it is not obvious that the licensee’s technology is obsolete or uncompetitive.’134 3.161 This warning should be taken seriously by parties who believe that the licensed technology is such a significant technological advance that previous technology is rendered obsolete. While this may be a genuine belief at the time the licence is concluded, and may subsequently come to pass, the Commission is clear that the competitor ‘hardcore’ list is the relevant part of the block exemption until such time as it becomes apparent on the market that the older technology has become obsolete. The Commission refers to the replacement of vinyl discs by CDs and notes that it took time for the replacement of one technology by the other to occur, and that at the time CD players and discs were first marketed it ‘was not obvious that this new technology would replace LP technology’.135 3.162 If a prospective licensee supplies competing products using existing technology but the parties believe that that technology will be superseded by the licensed technology, they may wish to include in a licence from the outset provisions which are hardcore for competitors, but permissible for non-competitors. Doing so before the new technology has actually supplanted the earlier technology will risk that the block exemption will not apply. If the parties believe that replacement will be quick and inevitable and that the competitor hardcore list really is not appropriate for their relationship, they will need to be need to be ready to provide evidence if challenged that the older technology has indeed become obsolete, and will also need to be prepared to argue that the obsolescence was the inevitable consequence of the successful launch of the new technology and not caused by the conclusion of a licence including ‘non-competitor’ hardcore restrictions. D. Excluded Restrictions (Article 5) 3.163 Excluded restrictions are not automatically exempted by the block exemption regulation. They require individual consideration because in certain circumstances they: may not fall within the scope of the Article 101(1) TFEU prohibition at all (because they do not adversely affect competition); or may be individually exempted under Article 101(3) TFEU. If their legitimacy or enforceability comes into question, such provisions must be assessed under Article 101(1) and (3) TFEU to determine whether they are valid and enforceable. The inclusion of an excluded restriction in a licence does not remove the protection of the TTBER from that licence as a whole. 3.164 Unlike hardcore provisions, there is an assumption that excluded restrictions can benefit from an exemption under Article 101(3) TFEU if needed. If after examination an excluded provision is held to be caught by Article 101(1) TFEU, and not exempted under Article 101(3) TFEU,

134 Technology Transfer Guidelines, ibid., para 37. 135 Ibid., para 37.

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it means that the particular provision is void and unenforceable but can (subject to the relevant national law) be severed from the remainder of the licence. The effect of that severance on the enforceability of the remaining licence is also a matter for national law. The TTBER contains three excluded restrictions. Some are treated as excluded restrictions only 3.165 in a licence between non-competitors. The excluded restrictions are, in essence, restrictions which may reduce the parties’ incentives to innovate and to engage in follow on competition. 1. Grant back obligations (Article 5(1)(a))

Certain obligations on a licensee to grant back or assign improvements to the licensor are 3.166 excluded from the block exemption.136 The concern is that they may reduce a licensee’s incentive to innovate around the licensed technology by hindering its freedom to benefit from and to exploit any improvement it makes either by using that improvement in its own business or by licensing it to third parties. An obligation on a licensee to license back rights to improvements or new applications which 3.167 it has developed is block exempt as long as the required licence back is non-exclusive, allowing the licensee to continue to exploit and to benefit from its own improvements.137 There are many different potential forms of grant back, even on a non-exclusive basis, and one or two of the more common are considered below. A type of grant back obligation which is often of interest to licensors with licensing programmes 3.168 involving a number of licensees enables the licensor to ‘feed on’ to other licensees across the network any improvements for which it receives a grant back licence. The Technology Transfer Guidelines explain that a grant back obligation on the licensee which is non-exclusive but enables the licensor to circulate improvements throughout its network of licensees can be an effective way of ensuring the dissemination of technology and of enabling licensees to compete more effectively downstream as they will be on an equal footing in respect of the technology to which they have access. It appears that the Commission considers that this will encourage licensees to join the licensing network.138 The Technology Transfer Guidelines do not address the impact of such a provision on the 3.169 potential incentives to innovate of licensees, if they know that any improvements they may make must be shared with the licensor and most likely will be shared with other licensees.139 It is true that the licensee will retain the right to license others with its improvements if the grant back provision is non-exclusive, but there may be some scepticism about the value of that right where many of those with an interest in exploiting the underlying technology will already be entitled to a licence from the head licensor. The Technology Transfer Guidelines say nothing about the consideration that may or may not be expected from the licensor in respect of any such non-exclusive grant back with a feed on provision other than to note (in the context of exclusive grant backs) that when grant backs are made for consideration, they are less likely

136 TTBER (n 2), Art 5(1)(a), and Technology Transfer Guidelines, ibid., paras 129–132. 137 Technology Transfer Guidelines, ibid., para 131. 138 Ibid., para 131.

139 See the discussion of relevant decisions pre-dating the TTBER at paras 2.259 ff above.

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to create a disincentive to innovate.140 In reality, licensees may be reluctant to agree to such provisions without the prospect of payment, unless they are confident that they are most likely to be the recipient of such ‘feed on’ rights, rather than the party licensing them to the licensor. 3.170 When addressing non-exclusive grant back obligations in cross-licences between competitors, the Commission notes that an arrangement under which both parties are obliged to share improvements with each other may prevent one party from gaining a competitive lead over the other on a technical issue.141 The Commission does not address the impact of this on incentives to innovate but does go on to observe that any competition concerns are less likely to arise where, for example, the purpose of the licence is to provide freedom to operate and to enable the parties to develop their pre-existing (different) technologies, rather than improve the respective technical bases of the parties. 3.171 Given the focus of the Commission in the broader context on maintaining or improving incentives to innovate, even non-exclusive grant back provisions (particularly including feed on clauses) might give rise to concerns under Article 101(1) TFEU once a licence is no longer covered by the TTBER. Parties drafting such provisions should carefully consider the extent to which the obligations are necessary and proportionate to achieve their commercial goals. When drafting the agreement, parties should bear in mind that provisions that will help to achieve the widespread dissemination of technology are seen as procompetitive while provisions likely to undermine incentives to innovate and/or which mean that parties may find it impossible to achieve and maintain a competitive technical edge could give rise to concerns. 3.172 The Commission clearly has a concern about the risk that such incentives may be undermined by widespread grant back and feed through obligations, albeit it appears to consider the concern more acute in respect of head licensors. The Guidelines state that it is acceptable for a licensor to obtain grant back commitments from licensees while declining to accept them itself. In other words, non-reciprocal grant back obligations can be imposed by the licensor, and this is the case even where the licensor obtains the right to feed on any licensee improvements it obtains throughout the licensee network. The Commission’s reasoning is that this ‘… may promote the dissemination of new technology by permitting the licensor to freely determine whether and to what extent to pass on its own improvements to its licensees’.142 3.173 The Commission’s overall position in respect of grant backs appears to be that licensors require greater incentives to license technology to third parties than licensees do to enter into such licences; that licensors will be more likely to license technology if they can maintain a degree of control over the technical package to be licensed (and may be able to maintain some technical advantage for themselves); and that licensors may wish to stimulate downstream sales competition between licensees and to be able to promise them that they will be on an equal footing as between themselves.

140 Technology Transfer Guidelines (n 5), para 130.

141 A point that also arises in settlement agreements, and is discussed in that context at para 241 of the Technology Transfer Guidelines, ibid. 142 Ibid., para 131.

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It is interesting that the Commission appears to be particularly concerned about the issue of 3.174 competitive technical advantage (and, implicitly, incentives to innovate) where grant backs are occurring directly between competitors who are counterparties to an agreement,143 but apparently not where grant backs are occurring indirectly between licensees who are competitors at the downstream level but who are obliged to share improvements indirectly through a licensor feed on clause. The Guidelines imply that less weight is given to follow on innovation by licensees and to the protection of licensees’ interests in obtaining or maintaining a technical edge through follow‑on innovation, and hence their incentives to innovate. Indeed, the TTBER permits licensors to impose non-reciprocal grant back obligations on licensees that enable licensors to disseminate licensee technology – and this appears to apply whether or not that licensee technology has applications separate from the originally licensed technology. Those who are familiar with previous block exemptions for technology licences will recall 3.175 that the 2004 TTBER distinguished between ‘severable’ and ‘non-severable’ improvements,144 exempting even exclusive grant backs in the latter case.145 That distinction no longer exists in the current TTBER: all licensee improvements, severable or non-severable, may be the subject of a non-exclusive license back obligation and still benefit from the TTBER. However, it is foreseeable that if a licence falls outside the scope of the TTBER an obligation on the licensee to grant back licences of improvements, even on a non-exclusive basis, will be carefully scrutinized if it applies to improvements which could have alternative applications and value outside the originally licensed technical field. In such circumstances, if the grant back obligation were to apply only in respect of a limited 3.176 field of use (perhaps that covered by the original licence) it would be less likely to be objectionable from a competition law perspective. Such a provision would assist in demonstrating that the parties had sought to balance the licensor’s desire to have access to and disseminate improvements to its original technology with the incentives to innovate of the licensees. The Commission is clearly trying to strike a balance between enabling parties to enter into 3.177 licences which reflect commercial practice and encourage licensing and a desire to guard against wider competition concerns when granting a block exemption. Whether it has struck quite the right balance as between licensors and licensees when it comes to grant back provisions, even on a non-exclusive basis, will doubtless be a focus during the consultations for the successor to the current block exemption. In summary, therefore, an obligation on the licensee to license on an exclusive basis or to assign 3.178 the licensee’s improvements, in whole or in part, to the licensor or a third party designated by the licensor is not block exempt. This applies whether the obligation is direct and explicit or 143 Ibid., para 132.

144 ‘Non-severable’ improvements are those which cannot be exploited without infringing the originally licensed IPRs.

145 The Commission subsequently expressed concern that this discouraged follow on innovation by licensees, hence the removal of the block exemption for all kinds of exclusive grant back obligations, regardless of whether they relate to ‘severable’ or ‘non-severable’ improvements. Non-exclusive grant back clauses, on the other hand (which allow the licensee to exploit the improvements itself or license them to others) still fall within the TTBER’s safe harbour. As explored earlier in this section, even an obligation to license back on a non-exclusive basis may have an impact on the licensee’s incentive to innovate, particularly if combined with a feed on right for the licensor and if the licensor is not subject to a reciprocal obligation.

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indirect and implicit. If the parties wish to include an obligation of this type in a licence, they should be aware of the possibility that it may need to be defended under Article 101(3) TFEU. 3.179 It is irrelevant under Article 5(1)(a) whether the licensor agrees to, or is bound to, pay the licensee for improvements licensed or assigned back under a mandatory grant back provision: any mandatory exclusive grant back or assignment is outside the scope of the block exemption. However, the Guidelines note146 that payment or other consideration in return for a mandatory exclusive grant back is likely to be relevant in an Article 101(3) TFEU analysis as a disincentive effect on the licensee is less likely where the licensee is paid for the improvements or new discoveries it makes.147 The level of any consideration, and how it is determined will also be relevant in that analysis. 3.180 It may be very difficult to decide in advance what is to be paid for improvements. If the parties are concerned to reduce the risks that a mandatory grant back provision may be held to be unenforceable, it would be wise to include provisions in the agreement which are liable to ensure that the licensee has a justified expectation of reasonable compensation, as this will protect the incentives which are of concern to the Commission. 3.181 Other factors will also affect the Article 101(3) TFEU analysis of mandatory exclusive grant back provisions, although these will be more difficult for the parties to affect or adjust through their approach to the drafting of the licence itself.148 The first is the overall importance of the licensor and its technology: the stronger its position, the more likely that exclusive grant back provisions will affect competition in innovation and the more important the possible contribution of the licensee through its follow on innovation. The second is the structure of the market and the prevalence of grant back obligations in licences which affect it: the Commission’s view is that if only a limited number of players control technology which competes in the relevant technology market and those players often impose exclusive grant back obligations, this exacerbates the risk to competition which arises from a reduction in incentives or ability to innovate on the part of the licensees who are exploiting and working with the technology. 2. No challenge provisions (Article 5(2)(b))

3.182 No challenge provisions oblige licensees not to challenge the validity of an IPR. As explained above,149 EU competition law regards no challenge provisions as generally contrary to public policy and likely to have an adverse effect on competition, although it is accepted that in certain circumstances limited no challenge provisions may be acceptable. Contractual no challenge provisions were ‘excluded restrictions’ in the 2004 TTBER and this remains the case in the current TTBER. 3.183 Competition law objections to no challenge clauses stem primarily from a desire to prevent invalid IPRs from stifling innovation and distorting competition.150 Licensees are considered

146 Technology Transfer Guidelines (n 5), para 130.

147 This is also likely to be relevant in assessing non-exclusive grant back provisions outside the scope of the block exemption. 148 Technology Transfer Guidelines (n 5), para 130. 149 See paras 2.294–2.295.

150 Technology Transfer Guidelines (n 5), para 134.

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to be in the best position to determine whether or not an IPR is invalid. If licensees are prohibited from mounting challenges, competition is therefore likely to be harmed by the continued existence of invalid rights. It is recognized that licensors may be unwilling to out-license technology where that exposes them to the risk of a time-consuming, expensive and risky invalidity challenge from the licensee. However, the Technology Transfer Guidelines suggest that the public interest in encouraging out-licensing will usually be outweighed by the public interest in eliminating invalid IPRs. Terminate on challenge provisions (which allow licensors to terminate the licence if the licen- 3.184 see challenges the validity of the licensed rights) were previously block exempt up to the market share threshold. This is no longer always the case. Where such clauses are included in exclusive licensing agreements, they are exempted under the current TTBER. The Commission reasons that otherwise licensors may find themselves ‘locked into an agreement with an exclusive licensee which no longer makes efforts to develop produce and market the product’.151 However, a terminate on challenge provision in a non-exclusive licence no longer falls within the safe harbour.152 Because of the change in the treatment of terminate on challenge provisions in non-exclusive 3.185 licences, the Technology Transfer Guidelines spend a couple of paragraphs discussing the rationale and the competition law considerations that are relevant to such provisions, now that they need to be separately assessed.153 The Guidelines make the rather obvious point that terminate on challenge provisions can have 3.186 the same effect as a contractual no challenge clause, giving the example of circumstances where the licensee has sunk costs in production machinery or where the licensed technology is an essential input. The Technology Transfer Guidelines cite both standard essential patents154 and also licences of technology with a very significant market position and which would therefore be difficult to replace as examples of a practical situation in which this is the case. It is implicit that not all terminate on challenge provisions will have an anticompetitive effect, because they will not all provide the same disincentive to challenge, and the Technology Transfer Guidelines acknowledge this at paragraph 137. The key question when assessing the likely anticompetitive effect of such a provision is whether in all the circumstances the licensee’s loss of profit from losing the licence would be sufficiently significant to act as a disincentive to challenge, something that can be assessed only on a case-to-case basis. The Technology Transfer Guidelines note that if a licensor seeks to enforce a terminate on 3.187 challenge clause, it will be relevant to consider whether the licensee is in all other respects a compliant licensee – in other words, is the licensee respecting all the other obligations to which it is subject under the licence and, most particularly, is it continuing to pay any royalties due. If so, the decision of a licensor to trigger a termination on challenge clause may be scrutinized more critically.

151 Ibid., para 139.

152 TTBER (n 2), Art 5(1)(b) and Technology Transfer Guidelines, ibid., paras 133–140. 153 Technology Transfer Guidelines, ibid., paras 136–139.

154 See the longer discussion below of no challenge provisions in licences of standard essential patents.

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3.188 The Technology Transfer Guidelines make a few other fairly unsurprising points about no challenge provisions, reflecting the CJEU’s jurisprudence in cases such as Bayer v Süllhöfer155 that a no challenge clause is unlikely to be anticompetitive if, for example, it relates to an outdated process which the licensee is unlikely to use or if the licence is granted free of charge. The rationale is that in such circumstances the licensee is not placed at a competitive disadvantage, either because the technology is not being used in any event or because it is not paying for potentially invalid technology. Having said that, the mere fact that a licence is granted free of charge does not automatically mean that an obligation on a licensee not to challenge the underlying IP cannot affect competition. There may be circumstances in which the IPR in question is affecting those who are not party to the licence, for example, by creating a barrier to entry. Those advising on no challenge clauses should always be particularly careful to look at them in their entire commercial and legal context before concluding that they are unlikely to affect competition. 3.189 Provisions prohibiting a challenge to the ownership of licensed technology rights are unlikely to fall within the scope of the prohibition in Article 101(1) TFEU. As long as the right is valid, its ownership is competitively irrelevant because the use of the technology by any third party requires a licence: the fact that ownership is wrongly asserted should not affect the competitive context. 3.190 Finally, no challenge and terminate on challenge provisions relating only to knowhow are covered by the TTBER up to the relevant market share threshold and are likely to be exempted beyond that because of the specific nature of knowhow.156 The Technology Transfer Guidelines note that the recovery of licensed knowhow is likely to be difficult once it is provided to the licensee. Given that context, permitting the licensor to include an obligation prohibiting the licensee from challenging the licensed knowhow is thought to encourage the dissemination of knowhow, particularly in circumstances where the licensor may be smaller and less powerful than the licensee and may fear that once the knowhow has been absorbed, the licensee may then seek to challenge it. 3.191 A countervailing consideration may arise where licence obligations, restrictions and royalties relate only or primarily to knowhow which may initially (perhaps during the negotiation of the licence) have appeared to be valuable and to satisfy the criteria for knowhow but which, on further inspection or after time has passed, turn out not to do so. As knowhow is not a statutory good protected by law but a species of confidential information which can be protected indefinitely under contract, it is foreseeable that situations might arise where a licensee becomes aware or has good reason to believe that the knowhow package licensed to it is, in fact, no longer capable of constituting knowhow within the meaning of the TTBER (if it ever was).157 In such circumstances it is certainly arguable that, notwithstanding the fact that no challenge clauses relating to knowhow are exempted under the TTBER, a licensee should not be precluded from arguing that the ‘knowhow’ licensed under the agreement does not satisfy the requirements of Article 1(1)(i) of the TTBER and thus the no challenge provision is not 155 Case 65/86 Bayer AG and Maschinenfabrik Hennecke GmbH v Heinz Süllhöfer [1988] ECR 5249 (ECLI:EU:C:1988:448), discussed at para 2.284 ff.

156 Technology Transfer Guidelines (n 5), para 140.

157 Technology Transfer Guidelines, ibid., paras 44–45; TTBER (n 2), Art 1(1)(i).

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automatically exempt. This may of course have significant consequences for the compatibility with competition law, and thus enforceability, of other obligations and restrictions in the agreement, particularly if other rights originally licensed have expired as may be the case in mixed patent and knowhow licences. 3. Limiting developments outside the licence (Article 5(2))

As discussed above,158 in an agreement between competitors a restriction on the licensee’s 3.192 ability to exploit its own IPR and technology rights, and a restriction on either party’s right to conduct R&D are both hardcore (subject only to the proviso that such a restriction may be acceptable if it is indispensable to prevent the disclosure of licensed knowhow to third parties). Such restrictions are not hardcore where the parties to a licence are not competitors, but they are excluded from the automatic exemption provided by the TTBER and will require individual assessment.159 In reality, the licensee in a licence between non-competitors is unlikely to own a competing 3.193 technology. In the event that the licensee does own such a technology, but the parties are not within the technical definition of ‘competitors’ for the purpose of the block exemption,160 the Commission regards it as important to ensure that the licence does not inhibit the licensee’s ability to further develop and exploit its technology in future. This preserves a competitive constraint on the licensor meaning that restrictions on the licensee’s further activities are regarded as likely to restrict competition. Provisions which reduce the licensee’s incentives to exploit its own technology such as, for example, an obligation to pay royalties on all products (including those which it may produce using its own technology) are excluded from the block exemption and will have to be individually assessed. As discussed above,161 such provisions may be necessary and capable of benefitting from the Article 101(3) TFEU exception but this will depend on all the circumstances. Whether or not a licensee owns or is developing a competing technology, a restriction on the 3.194 freedom of either party to carry out independent R&D is not covered by the block exemption. Whether such a provision ultimately affects competition or can be exempt under Article 101(3) TFEU will depend on the market circumstances and on the importance of the parties as a source (actual or potential) of innovation. In circumstances where alternative technologies are limited in number and/or where the parties 3.195 have the necessary resources (whether that be technical skills or other assets) to carry out further R&D, a restriction on further R&D is likely to be scrutinized closely. The Technology Transfer Guidelines suggest that, in such a context, the restriction is likely to be caught by Article 101(1) TFEU and is unlikely to be exempt under Article 101(3) TFEU. Outside such situations, for example, where the parties do not possess special skills or assets and a variety of potential alternatives are available, the Commission suggests that a restriction on their ability 158 See para 3.132.

159 TTBER (n 2), Art 5(2) and Technology Transfer Guidelines (n 5), paras 141–143.

160 The Technology Transfer Guidelines, ibid., paras 141–143 and para 36, give the example of a situation where the licensee owns a competing technology but does not license it out and the licensor does not compete on the product market, meaning that the parties compete on neither the relevant technology market nor the relevant product market. 161 See (n 159).

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to pursue R&D is unlikely to have an appreciable effect on competition and, if necessary, is likely to satisfy the Article 101(3) TFEU criteria because it may reassure the licensor that the licensee will focus on the development and exploitation of the licensed technology rather than developing an alternative. 3.196 One way of reducing the risk of such restrictions further would be to replace a complete prohibition on R&D with a provision giving the licensor the right to terminate the licence in the event that the licensee commercializes its own technology. The Technology Transfer Guidelines make the point that such a provision does not undermine the licensee’s incentives to innovate as the licensee will be protected from termination until such point as it has a commercially viable alternative.162

162 Technology Transfer Guidelines (n 5), para 143.

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CHAPTER 4 COMPETITION LAW ASSESSMENT OF TECHNOLOGY LICENCES OUTSIDE THE TTBER I. OVER THE MARKET SHARE THRESHOLD 4.07 II. MULTILATERAL LICENCES AND POOLING AGREEMENTS4.10 A. The Creation and Operation of

a Technology Pool 4.15 B. Agreements Between the Pool and Licensees4.21 III. SETTLEMENT AGREEMENTS 4.31

Many technology licences will fall outside the scope of the block exemption. Even where 4.01 block exemption is potentially available, those negotiating licences may be uncertain as to the application of the Technology Transfer Block Exemption (TTBER)1 to their agreement. As discussed in the previous two chapters, parties wishing to reduce competition law risks will use the TTBER as a guide to what is likely to be problematic (the various hardcore restrictions) and what gives rise to risks but may be acceptable (the excluded provisions). Parties in that situation will find the second half of the Technology Transfer Guidelines from paragraph 156 onwards helpful in assessing the likely risks involved in including particular provisions in their agreement. The following paragraphs summarize key considerations for those drafting licences which may fall outside the block exemption. It builds on the discussion of the overall approach to technology licensing in Chapters 2 and 3 above and comments on two specific types of technology agreement falling outside the TTBER: multilateral agreements and settler agreements. The inclusion of hardcore provisions will significantly increase risks of unenforceability of (or, 4.02 at the very least, increase the risks of significant difficulty in enforcing) any agreement. It will also cause potential problems if the agreement needs to be assigned (e.g., in the case of a sale of a company or of a technology portfolio). This is because the inclusion of such provisions not only risks losing the protection of the block exemption for otherwise exempt agreements, but also because such provisions are likely to be found to fall foul of Article 101(1) TFEU and unlikely to be covered by the exception in Article 101(3) for an agreement outside the safe harbour of a block exemption. As a practical rule of thumb, from a competition law perspective provisions which have a significant potential of being ‘hardcore’ should not be included in a technology licence without very good commercial reasons. It will be important to consider the risks involved carefully, as well as seeking to understand the commercial drivers for the

1

European Commission (Commission) Regulation No 316/2014 of 21 March 2014 on the application of Article 101(3) of the TFEU to categories of technology transfer agreements, OJ [2014] L 93/17 (TTBER).

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inclusion of such provisions and whether there are other means of achieving the commercial aims involved. 4.03 The inclusion of provisions which are excluded from the coverage of the TTBER under Article 5 also gives rise to potential risks, but these are much less significant: first, because the remainder of the agreement will remain within the scope of the block exemption and enforceable (assuming that the market share and other threshold criteria are met); and secondly, because the excluded provisions may, as explained above, not fall within the scope of the prohibition under Article 101(1) TFEU at all and, if they do, are explicitly stated by the Commission to be capable of exemption under Article 101(3) TFEU. Having said that, parties should bear in mind the increased risks of unenforceability of at least the excluded provision itself and the potential that uncertainty about enforceability and competition law concerns may cause problems in the future. 4.04 If parties are considering the inclusion of an ‘excluded’ provision in a technology licence, it is sensible: first, to fully articulate and examine the commercial rational for doing so; then, to consider the market context and whether that increases or decreases any risk; and, finally, to review whether any less restrictive or alternative provisions might achieve the same commercial goal without the same potential to affect competition. 4.05 Finally, provisions which are potentially anticompetitive but neither hardcore nor excluded give rise to lower risks than excluded restrictions as they are provisions which are inherently capable of exemption and would fall within the safe harbour provided by the TTBER if all other requirements are fulfilled. Parties should analyse the likely impact of such restrictions on competition in the context in which the agreement will operate to assess whether there are arguments that any (or all) may fall outside the scope of the prohibition in Article 101(1) TFEU or, in the alternative, whether there are grounds to consider that the exemption criteria in Article 101(3) TFEU will be fulfilled if necessary. 4.06 The way in which Article 101(3) TFEU may apply to restrictions in technology licences has been discussed above in Chapter 2 as part of the general discussion of restrictions in licences. Section 4 of the Technology Transfer Guidelines draws together and explains the Commission’s view of potential competition concerns and the possible procompetitive justifications for common types of restriction. The assessment of any particular licence will be fact specific depending on all the commercial and legal circumstances. This means that the more information, and the better the quality of the information, available to the parties when carrying out that assessment the more robust and dependable the assessment is likely to be. It is also important to remember that the analysis may change over time as the facts and the surrounding context change. If the competition law assessment of a particular provision is key, parties might wish to review it periodically during the lifetime of the licence as circumstances change.

I. OVER THE MARKET SHARE THRESHOLD 4.07 Agreements which exceed the applicable market share threshold in the TTBER will not benefit from the block exemption. In practice, if the market share threshold is not significantly exceeded, the risks of falling outside the precise scope of the block exemption may not be 172

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particularly significant for agreements which would otherwise have been block exempted. This is because provisions of the type which are covered by the block exemption are restrictions for which there is generally a procompetitive rationale, as has been accepted by the Commission in bringing them within the scope of the block exemption in the first place: the question is whether the market circumstances and the importance of the parties is such that the procompetitive rationale does not outweigh the risks to competition in the context of the particular arrangement. The inclusion of the market share thresholds is a ‘failsafe’ to ensure that block exemption is 4.08 available only to ‘agreements which can be assumed with sufficient certainty to satisfy the conditions of Article 101(3) of the Treaty’.2 There is no presumption that agreements which exceed the applicable thresholds fall within the scope of the Article 101(1) TFEU prohibition nor that, if they do, they will not satisfy the conditions for exemption under Article 101(3) TFEU – they must simply be assessed on their merits because ‘… it can also not be presumed that they will usually give rise to objective advantages of such a character and size as to compensate for the disadvantages they create for competition’.3 As described at paragraphs 3.52–3.55 above, the TTBER provides a degree of flexibility in 4.09 applying the market share thresholds.4

II. MULTILATERAL LICENCES AND POOLING AGREEMENTS The TTBER applies only to bilateral agreements. Multilateral licences do not fall within its 4.10 scope and will need to be individually assessed under Article 101(1) and (3) TFEU, applying the overall approach set out in Section 4.3 of the Technology Transfer Guidelines. The Technology Transfer Guidelines give more detailed guidance on one specific type of multilateral agreement: technology pools.5 A technology pool (also often referred to as a patent pool) is an arrangement between intellec- 4.11 tual property right (IPR) owners to create a combined package of rights for licensing. There are many forms of technology pool, but their essential feature is that they enable licensees to access a package of technology from a single source. Pools are established in many situations including in relation to standardized technology. They could be set up by those who create a standard,6 by some or all of those who own technology essential to a standard or by third-party organizations who offer a service to those who own technology in a specific field.

2

TTBER (n 1), Recitals, para 9.

4

Ibid., Art 8(e).

3 5 6

Ibid., Recitals, para 13.

Commission Notice, Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union (TFEU) to technology transfer agreements, OJ [2014] C 89/3 (Technology Transfer Guidelines), section 4.4, paras 244–273.

Commission Communication, Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, C(2023) 3445 final, 1 June 2023 (Horizontal Guidelines) (https://​competition​-policy​.ec​.europa​.eu/​system/​files/​2023​-07/​2023​_revised​_horizontal​_guidelines​_en​.pdf – accessed 20 October 2023) explore the competition law approach to multilateral standardization at para 436 and subsequently.

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4.12 Agreements which set up technology pools are not covered by the TTBER because, in addition to being multilateral, they do not of themselves permit the production of contract products.7 4.13 It is recognized that technology pools may have procompetitive effects, in particular where they reduce transaction costs by enabling licensees to obtain from a single source a number, or all, of the technology licences required to produce products and compete on a market. This may be particularly important in sectors with a high density of IPR and a large number of IPR owners, making the negotiation of multiple licences potentially costly. This can be a feature of sectors where industry standards play an important role, such as mobile communications. The role of patent pools has gained higher profile recently as a result both of the need to enable access to patents during the Covid pandemic and in response to the need for licences in the context of the Internet of Things. This has been a topic of considerable debate both in the EU and elsewhere.8 4.14 A technology pool involves joint licensing and therefore gives rise to risk of collusion. If a pool contains technologies which are primarily (or solely) substitutes rather than complements then joint licensing of those technologies is likely to be treated as equivalent to a price fixing cartel. As the Technology Transfer Guidelines make clear, agreements to create a pool will require consideration under the competition rules.9 A. The Creation and Operation of a Technology Pool 4.15 Technology pools cannot be assumed to be inherently either anti- or procompetitive. The Commission provides guidance on ways in which the risks of anticompetitive outcomes can be reduced.10 It focuses on: ● the way in which the pool is created (is participation open or is the pool limited to a selection of IPR owners?); ● the types of technology included in the pool (are all the technologies complements or does the pool contain technological substitutes; does the pool relate to standardized or non-standardized technology?); ● how the technology is selected and internal disputes resolved (are independent experts involved; is there an independent dispute resolution mechanism?); and ● the extent of safeguards against anticompetitive overspill (have the parties considered the risk that sensitive information (e.g., as to output and sales data provided by licensees to enable verification of royalties) may become available? Have steps been taken to limit the visibility of sensitive information to pool members who may compete on the affected markets to actual or potential competitors of those licensees?).

7

Technology Transfer Guidelines (n 5), para 247.

9

Technology Transfer Guidelines (n 5), para 247.

8

10

An interesting insight into some of the controversy from a US perspective can be found in Alden Abbott, Patent Pools, Innovation, and Antitrust Policy, Truth on the Market, 7 December 2022 (https://​truthonthemarket​.com/​2022/​12/​07/​ patent​-pools​-innovation​-and​-antitrust​-policy/​– accessed 12 March 2014). Ibid., paras 248–261.

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The Technology Transfer Guidelines reassure those involved in technology pools by explaining 4.16 that a pool (including its out-licensing activities) will generally fall outside the scope of the prohibition in Article 101(1) TFEU, and enjoy a safe harbour if: (a) participation in the pool creation process is open to all interested technology rights owners; (b) sufficient safeguards are adopted to ensure that only essential technologies (which therefore necessarily are also complements rather than substitutes) are pooled; (c) sufficient safeguards are adopted to ensure that exchange of sensitive information (such as pricing and output data) is restricted to what is necessary for the creation and operation of the pool; (d) the pooled technologies are licensed into the pool on a non-exclusive basis; (e) the pooled technologies are licensed out to all potential licensees on terms which are Fair, Reasonable and Non-Discriminatory (FRAND); (f) the parties contributing technology to the pool and the pool licensees are all free to challenge the validity and the essentiality of any of the pooled technologies; and (g) the parties contributing technology to the pool and the pool licensees remain free to develop competing products and technology.11 One of the Commission’s principal concerns is the risk that substitute technologies may be 4.17 included in the pool. A pool which includes significant substitute technologies is very likely to be held to infringe Article 101(1) TFEU and will not find it easy to satisfy the Article 101(3) TFEU criteria because joint licensing of these substitute technologies is regarded as equivalent to joint selling of substitute (competing) products by competitors in a bundle, reducing or eliminating competition.12 Another concern arises where a pool includes not only IPR which is required and essential to 4.18 manufacture the products/provide the services covered by the pool agreement, but also technology which is not essential.13 The Commission considers that this causes foreclosure concerns as licensees are unlikely to seek a licence from a third party for its competing non-essential technology if the royalty payable to the pool already covers complementary, but non-essential, technology. Further, the Commission takes the view that the inclusion of non-essential technology in a pool licence means that licensees are obliged to pay for technology which they may not need – all that licensees need from the pool is a licence to technologies which are necessary to produce the products or provide the services within the technical scope of the pool.14 The Commission identifies the combination of essential and non-essential technology in a pool

11

Ibid., para 261.

13

Technology Transfer Guidelines (n 5), paras 262–264.

12 Ibid., paras 250–255. See also the discussion of the steps that needed to be taken to obtain clearance from the Commission for the 3G Patent Platform Partnership. The Commission required that separate entities be set up to deal with different potentially competing air interface solutions for 3G technology: Competition Policy Newsletter Spring 2003/1: Competition law analysis of patent licensing arrangements – the particular case of 3G3P (https://​ec​.europa​.eu/​ competition/​publications/​cpn/​2003​_1​_41​.pdf – accessed 24 October 2023).

14

Any other technologies regarded as useful by individual licensees can be sought outside the pool, and alternatives may be available from competing licensors offering competing technical solutions.

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licence as collective bundling, which it regards as likely to be caught by Article 101(1) TFEU if the pool has a significant market position.15 4.19 The Commission identifies several factors which will be relevant when assessing the competition risks arising from pools which include complementary, but non-essential, technologies.16 In summary, they are: ● Are there any procompetitive/efficiency reasons for including both (e.g., the costs of assessing essentiality of multiple technologies)? ● Are licensors free to license independently, including as part of a different package? ● If some of the pooled technologies may be used in different applications, is a separate package available for each application which includes only the technologies relevant to the application in question? ● May a licensee obtain a licence for only part of the package (or terminate its licence for part of the package), if it does not/no longer needs access to all elements (say, e.g., if the licensee has access to some of the pooled technology perhaps through a previous licence with one of the contributors)? In such circumstances will a corresponding reduction in royalty be available? 4.20 Note, however, that these are only indications of the sort of factors that will be relevant to a competition assessment. The Commission is very clear that even pools which do not fall within its ‘safe harbour’ because they contain non-essential patents may satisfy the criteria in Article 101(3) TFEU because they give rise to procompetitive efficiencies overall.17 As a matter of practice, to reduce the overall risks, those involved in setting up pools will wish to bring the agreement as close as commercially feasible to the safe harbour, recognizing that if the pooling arrangements are scrutinized from a competition law perspective it may be necessary to justify any conditions or features which depart from it. B. Agreements Between the Pool and Licensees 4.21 The TTBER does not apply to agreements between the pool and its licensees.18 The Technology Transfer Guidelines provide some guidance on issues particular to technology pool licensing.19 That guidance is unsurprising: ● the more important the market position of the pool the greater the competition concern, particularly if there is no obligation to license all potential licensees on non‑discriminatory terms; ● foreclosure is to be avoided – third-party technologies and alternative pools must not be blocked; ● hardcore restrictions must not be included.

15

Technology Transfer Guidelines (n 5), para 262.

17

Ibid., para 265.

16 18 19

Ibid., para 264. Ibid., para 266. Ibid., para 267.

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The Technology Transfer Guidelines notes that in some circumstances the royalties that a tech- 4.22 nology pool will be able to charge will be constrained. This will be the case, for example, if the technology in question relates to a standard and a commitment has been given by the owners of the IPR included in the pool to license their standard essential IPR on FRAND terms.20 Another example given by the Commission is where the pool enjoys a dominant position. In such circumstances, the Commission expects the pool to charge royalties that are not excessive, to offer terms that are not discriminatory, and for the licences available to be non‑exclusive.21 Helpfully the Technology Transfer Guidelines provide comfort on two particular aspects of 4.23 pool licensing. First, (subject to the comments above about royalty setting in a dominant pool or where 4.24 FRAND is at play) undertakings setting up a pool do not engage in anticompetitive conduct if they discuss among themselves, negotiate and fix the royalties to be charged to licensees and how those royalties are to be divided between the individual licensors. Licensees must, unsurprisingly, be left free to determine the price of the downstream products, but an agreement between pool members as to the level of royalty to be charged is inherent in the establishment of a pool and, as long as the pool itself is procompetitive, is not restrictive of competition.22 Secondly, while pools with market power should offer licences on non-discriminatory 4.25 terms, this does not imply that all potential licensees should be offered the same terms. The Technology Transfer Guidelines point out that it is generally not considered to be anticompetitive to offer different royalty rates for different uses or in different product markets as long as there is no discrimination within product markets. However, the Commission’s position is that whether or not a licensee is also a licensor is irrelevant to the terms that should be available and there should be no discrimination between licensees on that basis.23 As foreshadowed earlier, the Commission’s view is that competition concerns relating to a pool 4.26 are more likely to arise if the pool imposes non-compete obligations. To reduce the risks of foreclosure, the pool terms should permit both licensors and licensees to develop competing products and standards and to join competing pools as well as to obtain or grant licences outside the pool.24 Non-exclusive grant back obligations are likely to give rise to only limited competition risk 4.27 as long as they extend only to improvements that are essential, or important to the use of the pooled technology.25 How a test based on ‘importance’ is to be applied is not considered in the 20 21

22 23 24 25

Issues relating to standard essential patent (SEP) licensing and FRAND obligations are discussed in more detail in Chapter 9.

It is interesting that the guidelines distinguish between pools licensing SEPs which are subject to a FRAND commitment from pools which are dominant. The Technology Transfer Guidelines (n 5) do not explore whether pools licensing SEPs are dominant, nor do they delve into the differences (if any) between the obligations which apply to dominant companies under Art 102 TFEU, and those which follow from a FRAND commitment in a formal standardization context. Technology Transfer Guidelines, ibid., para 268. Ibid., para 269. Ibid., para 270. Ibid., para 271.

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Technology Transfer Guidelines. Essentiality is a clearer concept, at least in principle26 and the Guidelines state that it is legitimate for pool members licensing technology required to comply with a standard to ensure that licensees who themselves own or obtain essential patents license them back so that the exploitation of the pooled technology is not held up. 4.28 The Commission is particularly concerned about the risk that pool agreements may shield invalid or unnecessary patents, as is evident from the focus on including only essential and complementary patents discussed above, and it is therefore unsurprising that the inclusion of no challenge obligations, or terminate on challenge obligations in a pool licence is likely to fall within the scope of Article 101(1) TFEU.27 If a provision of this nature is included in a pool licence, it is likely to give rise to significant questions not only about the nature of the pool licence, but also about the underlying procompetitive nature of the pool. 4.29 Overall, the Technology Transfer Guidelines provide a significant degree of comfort for those seeking to license technology via a pool arrangement. There is no question that such initiatives can significantly enhance efficiency, particularly in sectors where very significant patenting activity means that licences from multiple patentees are needed to compete without concern about litigation.28 The overall guidance from the Commission is that genuine pools involving only complementary technology and seeking to offer licensees and licensors an efficient and transparent route to concluding licences will give rise to little competition law concern, even where the technologies in the pool are themselves of real competitive importance, as will be the case, for example, for SEPs.29 4.30 If the pool is set up in a transparent fashion, does not discriminate against potential pool members, includes only complementary and necessary technologies, and offers licences that are non-exclusive and broadly follow the relevant principles from the TTBER, it is likely to be acceptable under EU competition law.30 The Commission has expressed support for the use

26

27 28 29

30

Art 1.6 of the ETSI IPR policy provides the following definition: ESSENTIAL as applied to IPR means that it is not possible on technical (but not commercial) grounds, taking into account normal technical practice and the state of the art generally available at the time of standardization, to make, sell, lease, otherwise dispose of, repair, use or operate EQUIPMENT or METHODS which comply with a STANDARD without infringing that IPR. Technology Transfer Guidelines (n 5), para 272.

Patent pools have been favourably reviewed by the Commission in the TMT sector and are seen as a possible solution to some difficulties arising in patent rich sectors.

Significant support for pools has been expressed in the context of standardization initiatives relating to standardized telecommunications technology and the Internet of Things. See, e.g., the recent feedback to the UKIPO SEP consultation: https://​www​.gov​.uk/​government/​consultations/​standard​-essential​-patents​-and​-innovation​-call​-for​-views/​outcome/​ standard​-essential​-patents​-and​-innovation​-summary​-of​-responses​-to​-the​-call​-for​-views​#licensing​-of​-seps – accessed 16 November 2023 at para 5.19 and Commission Communication COM(2017) 712 final, Setting Out the EU Approach to Standard Essential Patents, 29 November 2017, section 2.3 (2017 SEP Communication). For a discussion of patent pools in high technology industries from an antitrust perspective see, e.g., the discussion by Erik Hovenkamp and Herbert Hovenkamp, ‘Patent Pools and Related Technology Sharing’ (Chapter 18, pp 358–76) in Roger D. Blair and D. Daniel Sokol (eds), The Cambridge Handbook of Antitrust, Intellectual Property, and High Tech (Cambridge University Press, May 2017).

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of pool licensing in the context of standardization and the licensing of SEPs on a number of occasions31 including, for example in its recent 2017 Communication on IP licensing: The creation of patent pools or other licensing platforms, within the scope of EU competition law, should be encouraged. They can address many of the SEP licensing challenges by offering better scrutiny on essentiality, more clarity on aggregate licensing fees and one-stop shop solutions. For IoT industries, and particularly SMEs, newly exposed to SEP licensing disputes, this will bring more clarity to licensing conditions of SEP holders in a specific sector.32

III. SETTLEMENT AGREEMENTS Disputes about the ownership, infringement or validity of IPRs happen in all sectors of the 4.31 economy and it is common for such disputes to be settled, before or during litigation, by terminating the litigation/dispute and concluding a licence. Settlement agreements are capable of giving rise to considerable efficiencies, both public and private. They can save public resources in court time or in the time and administrative effort of the competent intellectual property (IP) authorities, such as the national patent or trademark offices, the European Patent Office (EPO) or European Union Intellectual Property Office (EU IPO). They can also reduce costs for the parties (both of time and of money) and can be a valuable means of avoiding uncertainty. Notwithstanding this, the treatment of IP licences in settlement agreements has given rise to 4.32 considerable controversy over the last 15–20 years. This has been particularly prevalent in the pharmaceutical sector. The treatment of settlements in that context is discussed in more detail below when discussing some of the particular competition issues that arise from the ownership and exploitation of IP in that sector.33 One reason for the unease which has surrounded agreements settling IPR disputes is the 4.33 concern (already discussed above in the context of no challenge clauses34) to remove the barriers to entry and innovation which are caused by the existence of invalid IPRs, particularly patents. Allowing parties to settle disputes about the validity of an IPR inevitably means that a concern about validity, presumably raised with some justification, has not been finally resolved by judicial adjudication (or a final decision of the competent authority). As a consequence, while a settlement agreement enables the parties to then exploit their respective technologies without fear of litigation, the same is not true for third parties for whom the disputed IPR may still constitute a barrier to entry. Despite this concern about the continued chilling effect that can

31

32 33 34

DG Comp has indeed analysed the compatibility of patent pools with Art 101(3) TFEU in specific instances such as its grant of negative clearance to a platform formed to license 3G W-CDMA technology: Commission Press Release IP/02/1651, Antitrust clearance for licensing of patents for third generation mobile services, 12 November 2002 (https://​ec​ .europa​.eu/​commission/​presscorner/​detail/​en/​IP​_02​_1651 – accessed 1 December 2023). The Commission’s discussion of the licensing arrangements in its assessment of the Canon/Kodak (APS) arrangements is also interesting: OJ [1997] C330/10 Notice pursuant to Article 19(3) of Council Regulation No 17 concerning Case No IV/34.796 – Canon/ Kodak. The US DoJ has also granted favourable business review letters to patent pools covering technologies such as MPEG, compression technology, CDs and DVDs. 2017 SEP Communication (n 29), section 2.3, p 7. See the discussion in Chapter 8. See para 2.282 ff.

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result from the settlement of litigation, the competition authorities recognize that it would be disproportionate to force parties to continue litigation where they do not wish to do so. 4.34 Unilateral discontinuance of litigation is not caught by Article 101 TFEU35 but most disputes are settled by agreement and, where the subject matter is IPR, it is common for the settlement to involve some form of licence, cross-licence or non-assert provision. A pure licence or non-assert is unlikely to fall within the scope of the prohibition in Article 101(1) TFEU36 but specific provisions going beyond that ‘vanilla’ outcome are capable of falling within the scope of the Article 101(1) TFEU prohibition. The Technology Transfer Guidelines explain in broad terms the approach to be taken in assessing the compliance of settlement agreements with the competition rules.37 4.35 The Technology Transfer Guidelines make clear that if the dispute is not a sham then a licence settling the dispute and allowing the licensees to access the market is essentially procompetitive: ‘In cases where, in the absence of the licence, it is possible that the licensee could be excluded from the market, access to the technology at issue for the licensee by means of a settlement agreement is generally not caught by Article 101(1)’38 (emphasis added). However, as for all licences,39 the terms on which the IPR is licensed in a settlement agreement may give rise to concern. 4.36 The fundamental concern explored by the TTBER is that a settlement agreement may be an agreement between competitors which will enable them to manipulate or share the market. The difficulty lies in assessing whether the parties are actual or potential competitors in the absence of the agreement. This issue has been discussed at paragraph 3.58 ff above and is further considered in the specific context of the pharmaceutical sector in Chapter 8. 4.37 Any arrangement through which the owner of an IPR seeks to settle litigation by transferring value to an alleged infringer or a party who is challenging the validity of the IPR is likely to be carefully scrutinized. Such agreements give rise to particular concern when concluded by actual or potential competitors. A licence between actual or potential competitors involving delayed or limited entry,40 combined with a significant transfer of value from the licensor to the licensee, will be very risky. The Commission has made clear that it considers that in such circumstances

35

It is also unusual unless the likely outcome is clear or there are other external pressures.

37

Technology Transfer Guidelines (n 5), paras 234–243.

36 38

39

40

Unless, e.g., it formed part of some wider arrangement designed to foreclose third parties. Ibid., para 236.

See the comments of the CJEU on this issue in Case 65/86 Bayer AG and Maschinenfabrik Hennecke GmbH v Heinz Süllhöfer [1988] ECR 5249 (ECLI:EU:C:1988:448) (Bayer v Süllhöfer), para 15, disagreeing with the Commission’s arguments in that case that licences in settlement agreements could be analysed differently from other licences. The point of view put forward by the Commission cannot be accepted. In its prohibition of certain ‘agreements’ between undertakings, Art 85 (1) makes no distinction between agreements whose purpose is to put an end to litigation and those concluded with other aims in mind. It should also be noted that this assessment of such a settlement is without prejudice to the question whether, and to what extent, a judicial settlement reached before a national court which constitutes a judicial act may be invalid for breach of Community competition rules. This is discussed at some length at para 2.284 ff. See Chapter 8.

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a significant risk of anticompetitive market allocation or market sharing contrary to Article 101(1) TFEU will arise.41 Cross-licensing in settlement agreements gives rise to concerns which will vary depending 4.38 on the market context and the competitive relationship between the parties. The risks of cross-licensing in a settlement arrangement are much lower if the cross-licence goes no further than is required merely to ‘unblock’ market access, for example, a pure non-assert or freedom to operate agreement which does not extend beyond the technologies and IPRs which were the subject matter of the dispute. Even if it is likely that a mutual blocking position exists, an agreement which goes beyond what 4.39 is required to unblock will give rise to competition law concern if the parties have significant market power; even more so if the terms of the arrangement share markets or involve royalties, such as reciprocal running royalties, that may significantly affect market prices. The overall approach in the TTBER to cross-licences between competitors is useful guidance when drafting cross-licences in settlement of litigation. One issue to be wary of is an ostensibly procompetitive provision allowing the parties to use 4.40 not only each other’s existing technology, but also future developments. The Technology Transfer Guidelines identify a potential concern about the impact of such an arrangement on the parties’ incentives to innovate. Again, the extent of the risk under Article 101(1) TFEU will depend on the market power of the parties and the particular factual circumstances. Where the parties have significant market power and the likely effect of the agreement is to reduce or largely remove the ability of one or both parties to establish a competitive advantage through innovation, Article 101(1) TFEU is likely to be engaged. The Commission is concerned that the reduction of incentives to innovate affects the com- 4.41 petitive process and may have a significant adverse effect on competition when it involves substantial players. The Technology Transfer Guidelines also note that arrangements of this sort falling within the scope of the prohibition in Article 101(1) TFEU are unlikely to benefit from an exemption under Article 101(3) TFEU. In the Commission’s view, an agreement which is intended to settle a dispute by ‘unblocking’ can normally be expected to achieve that aim without an agreement to share future technical developments. In particular circumstances it might be possible to argue that the specific provisions as to improvements or future technical developments the parties wish to include in a settlement cross-licence do satisfy the Article 101(3) TFEU criteria. This might be the case, for example, if the sort of improvements covered and the extent of any right to use are limited in a way that is directly related to the success of the ‘unblocking’ and necessary for it to be effective. The Technology Transfer Guidelines indicate that if the purpose of the licence and the settlement is to allow the parties to develop their respective technologies and to provide ‘design freedom’, this is unlikely to chill innovation. No challenge clauses are an intrinsic part of settlement agreements to avoid the risk that 4.42 a dispute which has been settled subsequently resumes through a new challenge. The inclusion in a settlement agreement of an obligation not to challenge the validity of the IPRs in question 41

See Technology Transfer Guidelines (n 5), para 242 and the discussion of pay for delay agreements in the pharmaceutical sector in Chapter 8.

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(or not only those rights but also surrounding rights) is capable of falling within the scope of the prohibition in Article 101(1) TFEU on the basis that: ● public policy requires that everyone ought to be able to bring proceedings challenging the validity of monopoly rights which have been wrongly granted or are being wrongly maintained; and ● an obligation not to challenge the validity of a right may restrict competition within the meaning of Article 101(1) TFEU as it may leave intact a right inhibiting companies wishing to compete on a market, i.e., the continuing existence of rights which should be invalid may amount to a significant barrier to entry. 4.43 Until relatively recently, the general position was that no challenge clauses in respect of any IPR were regarded by the Commission and the CJEU as within the scope of the prohibition in Article 101(1) TFEU and not capable of exemption. In Windsurfing,42 the CJEU held that a clause requiring a licensee to acknowledge the validity of a trademark clearly infringed Article 101(1) TFEU. In addition, no challenge clauses were ‘blacklisted’ in the original knowhow and patent licensing block exemptions. 4.44 The attitude of the authorities towards no challenge clauses subsequently appeared to soften. In Bayer v Süllhöfer,43 the CJEU held that not all no challenge clauses in a settlement agreement relating to patent litigation fell automatically within the scope of the prohibition in Article 101(1) TFEU.44 No challenge clauses are not hardcore restrictions under the TTBER, but fall within the Article 5 list of excluded restrictions. The clause must therefore be assessed individually to determine whether it can benefit from exemption. 4.45 The Technology Transfer Guidelines currently state that no challenge clauses in settlement and non-assertion agreements are generally considered to be outside the scope of the prohibition in Article 101(1) TFEU, as the purpose of the agreement is inherently procompetitive: to avoid dispute and to permit both parties freedom to continue to exploit the licensed technology.45 The Guidelines also mention circumstances in which no challenge clauses in settlement agreements are likely to be prohibited under Article 101(1) TFEU, including where an IPR was granted following the provision of incorrect or misleading information to the relevant authorities and/or where there is financial inducement to the no challenge provision. 4.46 In summary, when analysing the competition law treatment of any settlement agreement, it is essential to consider carefully the scope of any proposed ‘no challenge’ clause and its possible effect on competition. The compatibility of no challenge clauses with Article 101(1) TFEU should be analysed in the light of the principles embodied in the TTBER and the explanation in the accompanying Technology Transfer Guidelines. No challenge clauses which are directly related, necessary and proportionate to achieve the aims of a fundamentally procompetitive 42 Case 1983/83 Windsurfing International Inc. v Commission of the European Communities [1986] ECR 611 (ECLI:EU:C:1986:75) and see the discussion of no challenge clauses above at para 2.282 ff. 43

Bayer v Süllhöfer (n 39).

45

Technology Transfer Guidelines (n 5), para 242.

44

Although the exceptions envisaged by the Court were very limited – if the licence were free or the technology superseded and therefore effectively worthless and it disagreed with the Commission’s position that certain settlement agreements should, as a category of agreement, be presumed to fall outside the scope of the Article 101(1) prohibition.

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settlement agreement should, in principle, be acceptable as long as the no challenge agreement was not made because of an inducement from the patentee to the challenger nor given in respect of a right obtained through misleading conduct.

183

CHAPTER 5 OTHER AGREEMENTS INVOLVING IP LICENCES I. VERTICAL AGREEMENTS AND ANALOGOUS ARRANGEMENTS5.02 II. APPLICATION OF ARTICLE 101 TFEU TO OTHER AGREEMENTS RELATING TO IPRS 5.22 III. HORIZONTAL AGREEMENTS AND IP – GENERAL PRINCIPLES5.24 IV. R&D AGREEMENTS/SPECIALIZATION AGREEMENTS5.29 A. The Definitions – Article 1 5.42 B. The Exemption – Article 2 5.43 C. Access to the Results of the Collaboration and to IPR – Articles 3 and 4 5.44 1. Access to results: ‘foreground’ IPR and knowhow 5.47 2. Access to pre-existing knowhow 5.53 3. Limits to permissible joint exploitation5.56 4. Obligations to supply 5.59 D. Market Share and Duration – Articles 6 and 7 5.60 E. The Hardcore Restrictions – Article 8 5.65

1. 2. 3. 4.

Restrictions on R&D 5.67 Restrictions on output or sales 5.68 Restrictions on pricing or royalties 5.70 Restrictions on active and passive sales/sales to resellers 5.71 F. The Excluded Restrictions – Article 9 5.73 V. SPECIALIZATION AGREEMENTS OR PRODUCTION AGREEMENTS 5.79 VI. STANDARDIZATION AGREEMENTS 5.84 A. Introduction 5.84 B. The Approach of the Commission under Article 101(1) TFEU – Introduction 5.89 C. Standardization Agreements – ‘By Object’ Restrictions5.100 D. Standardization Agreements – ‘By Effect’ Restrictions5.102 E. FRAND 5.107 F. Good Faith Disclosure 5.125 G. Article 101 TFEU, IP and Standardization – Conclusion5.133 VII. SUBCONTRACTING 5.136

5.01 Previous chapters have dealt with the treatment of technology licences under Article 101(1) TFEU, in particular how they are analysed under the Technology Transfer Block Exemption.1 As noted above, that block exemption applies only to licences of technology rights for the purpose of manufacturing, or having manufactured, contract products. Licences of other IPRs such as trademarks and copyright are not covered by the TTBER (unless they are genuinely ancillary to a technology transfer licence) and the guidance in the Technology Transfer Guidelines2 cannot simply be applied by analogy to non‑technology transfer licences.

1 2

European Commission (Commission) Regulation No 316/2014 of 21 March 2014 on the application of Article 101(3) of the Treaty on the functioning of the European Union (TFEU) to categories of technology transfer agreements, OJ [2014] L 93/17 (TTBER).

Commission Notice, Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union (TFEU) to technology transfer agreements, OJ [2014] C 89/3 (Technology Transfer Guidelines).

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I. VERTICAL AGREEMENTS AND ANALOGOUS ARRANGEMENTS While licences of IPRs such as trademarks are excluded from the technology transfer regime, 5.02 those drafting licences affecting IPRs which are not within the scope of the TTBER can find assistance elsewhere. For example, it is common for arrangements relating to the sale and purchase of goods and services to include provisions relating to IPR and/or IPR licences. The most important alternative source of help and guidance for such arrangements can be found in the regime which applies to vertical agreements, that is, agreements establishing the terms on which the parties buy, sell or resell goods and services. As with technology transfer agreements, vertical agreements benefit from a bespoke block 5.03 exemption regulation and a set of accompanying guidelines. The overall structure of the arrangements for vertical agreements similar to that for technology transfer agreements. The block exemption has the same format, with recitals, definitions, market share thresholds, a hardcore list, a list of excluded provisions and various additional operative provisions. A full description of the regime which applies to vertical restraints can be found in general competition law textbooks.3 The current Vertical Agreements Block Exemption4 was adopted in May 2022 and came 5.04 into force on 1 June 2022.5 The recitals make clear that, in addition to covering those vertical agreements which are within its scope, it also covers agreements and restrictions relating to the assignment or use of IPR as long as those agreements or restrictions are ancillary to the main vertical arrangement. This recital is given effect in Article 2(3) which provides that the exemption shall apply to vertical agreements which: … relate to the assignment to the buyer or use by the buyer of intellectual property rights, provided that those provisions do not constitute the primary object of such agreements and are directly related to the use, sale or resale of goods or services by the buyer or its customers. The exemption applies on the condition that, in relation to the contract goods or services, those provisions do not contain restrictions of competition having the same object as vertical restraints which are not exempted under this Regulation.

It is worth noting one or two key differences between the regime that applies to vertical 5.05 arrangements and that for technology transfer agreements. First, the verticals regime does not generally apply to agreements between competitors;6 and, secondly, the exemption it provides is in some respects less generous than that available under the TTBER.7

3 4 5 6 7

See, e.g., Bellamy and Child, European Union Law of Competition (8th edn, Oxford University Press, 20 December 2018); Richard Whish and David Bailey, Competition Law (10th edn, Oxford University Press, 26 August 2021). Commission Regulation No 2022/720 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, OJ [2022] L 134/4 (VABE).

The UK adopted a new Vertical Agreements Block Exemption Order on the same date: The Competition Act 1998 (Vertical Agreements Block Exemption) Order 2022 (https://​www​.legislation​.gov​.uk/​uksi/​2022/​516/​contents/​made – accessed 17 November 2023). VABE (n 4), Art 2(4).

See discussion in Chapter 3.

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5.06 The Vertical Guidelines8 which accompany the VABE explain the relationship between the two regimes. Only some vertical agreements involving IPR can benefit from the VABE. The following conditions must be met: 1. the IPR provisions must be part of a vertical agreement the purpose of which is the purchase, sale or resale of goods and/or services; 2. the IPRs must be assigned to, or licensed for use by, the buyer; 3. the IPR provisions must not constitute the primary object of the agreement; 4. the IPR provisions must be directly related to the use, sale or resale of goods or services by the buyer or its customers. In the case of franchising, where marketing is the object of the exploitation of the IPRs, the goods or services are distributed by the master franchisee or the franchisees; 5. the IPR provisions must not contain restrictions of competition having the same object as vertical restraints that are not exempted under the VABE.9 5.07 While apparently fairly straightforward (and not having changed significantly since the previous block exemption regulation), these conditions contain some nuances, which are worth noting. 5.08 As is clear from the first and third conditions, the purpose of including some IPR provisions in the scope of the VABE and Vertical Guidelines is to ensure that the verticals regime works effectively. For that reason, only IPR provisions in an arrangement which is primarily for the purchase or distribution of goods or services are within the scope of the VABE. For example, pure copyright licensing relating to performance or broadcasting; agreements which merely license a recipe for a drink; or pure merchandising or sponsorship arrangements do not benefit from the block exemption and must be analysed under Articles 101(1) and 101(3) TFEU. 5.09 This is further reflected in the second and fourth conditions. The fourth condition stipulates that to benefit from the VABE the IPR terms must relate to and facilitate the use or sale (including resale) of the contract goods or services by the buyer or its customers. Goods covered by the arrangement may be supplied directly by the licensor but might also be purchased from a third-party supplier, as might be the case in franchising agreements where the franchisee is licensed to use a licensor’s trademark and knowhow to market identified goods or services. Another example given by the Vertical Guidelines is where the supplier of a concentrated extract licenses the purchaser to dilute and bottle the extract before selling it. 5.10 The second condition also emphasizes that an arrangement under which IPRs are provided/ licensed to the supplier by the purchaser is not covered by the VABE. If such a licence is concluded, possible restrictions on sales by the supplier are not block exempted under the VABE. Thus, subcontracting arrangements under which the head contractor licenses or otherwise transfers knowhow to a subcontractor are not covered by the VABE.10 However, if the buyer

8

Commission Notice, Guidelines on Vertical Restraints, 2022/C248/01 of 30 June 2022 (Vertical Guidelines).

10

Although they may be covered by the Commission Notice of 18 December 1978 concerning its assessment of certain subcontracting agreements in relation to Article [101(1) TFEU], OJ [1979] C 1/2 (Subcontracting Notice), section 3.3, discussed below at paras 5.136–5.145.

9

Ibid., para 72.

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merely gives the supplier specifications describing the goods or services to be supplied, such an arrangement is covered by the VABE. Finally, unsurprisingly and entirely in line with fundamental case law such as Consten and 5.11 Grundig,11 if the IPR provisions have the same effect as any of the hardcore or excluded restrictions listed in Articles 4 and 5 respectively of the VABE, the IPR arrangements cannot benefit from the VABE. The Vertical Guidelines then discuss the way in which various IP licences are treated in the 5.12 verticals regime, focusing on trademarks, copyright and knowhow in turn. As far as trademarks are concerned, the Vertical Guidelines note that when a distributor is the 5.13 beneficiary of a trademark licence, that licence may relate to the distribution of the licensor’s products in a particular territory. Where such a licence is exclusive, then the distribution arrangement will be characterized as an exclusive distribution relationship. The Technology Transfer Guidelines make clear that agreements relating to copyright pro- 5.14 tected works are not covered by the technology transfer regime.12 To the extent that they relate to the sale or resale of copyright protected works such arrangements may benefit from the VABE. In copyright agreements of that sort, the reseller may be obliged by the supplier/ copyright owner to resell only on the condition that the purchaser (whether end-user or a licensee who will engage in further dealing) does not infringe the copyright covering the work in question. If such a provision falls within the scope of the prohibition in Article 101(1) TFEU, it is covered by analogy under the VABE and the Vertical Guidelines. Some supplies of products subject to a software licence will also fall within the verticals regime. 5.15 This will be the case if hard copies of the licensed software are supplied to a reseller which receives only a limited licence entitling it to resell the hard copies, that is, if the reseller does not receive a licence to rights in the software itself, but only a right to distribute. In such circumstances, the software licence takes effect between the user of the software (who purchases the hard copy from the reseller) and the copyright owner. This may occur in the case of so-called ‘shrink wrap’ licences where the end-user is deemed to accept the licence and any applicable conditions once the hard copy package containing the software licence and conditions is opened. Those who purchase hardware incorporating software which is subject to copyright protection 5.16 may be subject to obligations not to infringe that copyright. This implicitly restricts the ability to copy and resell the licensed software and/or to use it other than in conjunction with the hardware with which it was supplied. If, in all the circumstances, the effect of those obligations falls within the scope of the prohibition in Article 101(1) TFEU, they can benefit from the VABE. Knowhow is frequently licensed in a vertical context, particularly in franchising arrangements 5.17 where both knowhow and trademarks almost always form a core part of the franchise package. 11 12

Joined Cases 56/64 and 58/64 Consten SaRL and Grundig GmbH v Commission of the EEC Case [1966] ECR 299. As discussed above at para 1.36. Technology Transfer Guidelines (n 2), para 62.

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It is also common for the franchisor to provide other intangibles to franchisees, most commonly training, advice, financial knowhow and planning or procurement assistance. The final element is usually the supply of goods and/or services by the franchisor or by someone designated by the franchisor. 5.18 Where knowhow and trademarks are licensed in a franchising arrangement, those licences will be covered by the VABE as long as the franchisor provides goods and or services directly or indirectly to the franchisee and the five conditions set out at paragraph 5.06 above are fulfilled. Where the franchising arrangement concerns only or primarily the licensing of IPRs, the VABE will not apply but its principles and the guidance provided by the Vertical Guidelines will be applied by analogy.13 5.19 The Vertical Guidelines provide a list of obligations relating to IPRs generally considered necessary to protect the franchisor’s rights. Such provisions may not fall within the scope of Article 101(1) TFEU at all, but if they do, they will be covered by the VABE as long as the other conditions of that exemption are fulfilled. The provisions are all common to most franchise agreements. They are directly related to franchising operations and required for franchising to work effectively.14 It will be helpful for those drafting IPR licences in franchise arrangements to be aware of what is generally permitted: (a) an obligation on the franchisee not to engage, directly or indirectly, in any similar business; (b) an obligation on the franchisee not to acquire financial interests in the capital of a competing undertaking such as to give the franchisee the power to influence the economic conduct of such undertaking; (c) an obligation on the franchisee not to disclose to third parties the knowhow provided by the franchisor as long as such knowhow is not in the public domain; (d) an obligation on the franchisee to communicate to the franchisor any experience gained in exploiting the franchise and to grant the franchisor and other franchisees a non-exclusive licence for the knowhow resulting from that experience; (e) an obligation on the franchisee to inform the franchisor of infringements of licensed IPRs, to take legal action against infringers or to assist the franchisor in any legal actions against infringers; (f) an obligation on the franchisee not to use knowhow licensed by the franchisor for purposes other than the exploitation of the franchise; (g) an obligation on the franchisee not to assign the rights and obligations under the franchise agreement without the franchisor’s consent.15 5.20 In short, the Commission recognizes that successful franchising arrangements are likely to require that the franchisor and its business are: ● protected from competition by a franchisee outside the franchise network;

13

Vertical Guidelines (n 8), para 86.

15

Vertical Guidelines (n 8), para 87.

14 For example, Case 161/84 Pronuptia de Paris GmbH v Pronuptia de Paris Irmgard Schillgallis [1986] ECR 353 (ECLI:EU:C:1986:41).

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● confident that the licensed knowhow will not be disclosed to third parties or assigned without consent; ● sure of receiving back information about ways in which the franchise can work better, based on a franchisee’s experience; and ● sure that the franchisee will assist in protecting the licensed IPR if necessary. All of these requirements are integral to the protection of the business model and it will be 5.21 unusual for them to give rise to cause for competition law concern.16

II. APPLICATION OF ARTICLE 101 TFEU TO OTHER AGREEMENTS RELATING TO IPRS Inevitably, many types of commercial agreement other than technology licences and vertical 5.22 arrangements involve IPRs used under licence. The overall approach set out in the Technology Transfer Guidelines will assist in analysing such agreements, even though it may not be possible to apply all the principles by analogy in all circumstances. Unless clearly within an applicable block exemption regulation each potential restriction of competition needs to be analysed having regard to its legal and economic context. Some of the most common commercial arrangements in which IP licensing plays a significant 5.23 role are discussed below. Like technology transfer arrangements, most other licences of IP are procompetitive but specific provisions may entail some degree of risk. As a general rule, whatever the type of arrangement involved, those assessing the potential competition law risks of an IP provision will have regard to the following considerations: ● Does the provision have any of the characteristics of/is it likely to have a similar effect to a ‘by object’ restriction of competition or a provision which falls within the hardcore list of any analogous block exemption regulation? If so, it will need to be particularly carefully considered. Competition law risks will be reduced by finding an alternative approach to achieving any legitimate commercial goal and removing the provision in question. By object restrictions of competition do not benefit from the presumptions in the De Minimis Notice,17 nor do they benefit from any block exemption. The inclusion of such a provision will significantly increase the competition law risk and undermine the parties’ ability to enforce the commercial arrangement. Hardcore and/or by object restrictions are the equivalent of a flashing red light. In some circumstances, the parties may identify a strong procompetitive rationale for the inclusion of a hardcore or by object provision and may decide that it is appropriate to proceed. If so, they should thoroughly assess the competitive impact and whether it can be reduced, as well as the application of the Article 101(3) TFEU exception. This will involve consideration of all the relevant circumstances, the justifications for including the provision and the reasons why no other less restrictive alternative will suffice.

16

17

See,, ibid, s 4.6.3, paras 165–169, for a discussion of other aspects of franchising agreements.

Commission Communication, Notice on agreements of minor importance which do not appreciably restrict competition under Article 101(1) of the Treaty on the Functioning of the European Union, OJ [2014] C 291/01 (De Minimis Notice).

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● If the arrangement does not contain any hardcore or by object restrictions, consider whether the agreement may be capable of benefitting from the De Minimis Notice. If so, the competition risks may be relatively low. ● Consider the overall market context in which the agreement will operate: how important are the parties; how intense is the competition; what are the alternative sources of technology, innovation, reputation or other attributes encompassed in the IPR being licensed; is the agreement in an innovative and quickly changing market, or is the market mature; who is likely to be adversely affected by any of the restrictive provisions in the agreement; are any such effects likely to be significant. This understanding of the overall context in which the arrangement operates will be important to any meaningful analysis of the risks of the overall arrangement and of any individual provisions. ● Does the agreement contain any restrictions which are similar to those in the ‘excluded list’ in any potentially analogous block exemption? If so, it is sensible to consider thoroughly the potential adverse effects on competition of the restriction in question and the specific procompetitive rationale for its inclusion in the arrangement. Excluded restrictions may be thought of as an amber light, to be approached with care and reviewed in the overall context of the arrangement as discussed above, and also having regard to the following considerations: how important is the provision to achieving an overall procompetitive aim; is there a potentially less restrictive alternative means of achieving that aim; if such potential alternatives have not been adopted, what are the reasons? Provisions which can be broadly categorized as analogous with excluded restrictions may fall outside the scope of the prohibition in Article 101(1) TFEU altogether or may benefit from the Article 101(3) TFEU exception, so their inclusion does not in itself give rise to serious concern, but it does increase potential risks which need to be carefully considered before concluding an agreement which contains such provisions. ● Does the agreement contain other restrictions or limitations which are analogous with those covered by an analogous block exemption regulation (e.g., by way of exception to a hardcore restriction) or which have previously been held to be capable of falling within the scope of the prohibition in Article 101(1) TFEU, but capable of exemption. If so, these should be assessed in line with the potentially relevant guidelines and the previous case law of the European Courts and the decisions of the Commission. If covered by a block exemption regulation, these restrictions would be exempt, so they are inherently capable of satisfying the requirements of Article 101(3) TFEU. Where a hardcore restriction in a block exemption regulation is subject to a specific exception, such provisions are, in principle, often directly related and necessary to achieving an overall procompetitive aim. When checking quickly, they can be treated as a flashing yellow/green light – potentially problematic, but often in fact procompetitive. Having said that, it is good practice to check that the provisions in question are required in the context of the agreement in question, that the agreement itself is procompetitive, and that they go no further than necessary to achieve the conclusion of the procompetitive agreement. The risks can be reduced further by reviewing the drafting and scope of the restriction against the types of restriction that are covered by an analogous block exemption and/or which have been stated by the Commission to be acceptable (e.g., taking care to draft field of use restrictions by reference to the guidance in the Technology Transfer Guidelines).

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III. HORIZONTAL AGREEMENTS AND IP – GENERAL PRINCIPLES Horizontal agreements are agreements between companies who operate at the same level 5.24 in the market (e.g., between two wholesalers, or between two suppliers of products). Such agreements are, by their very nature, often concluded between undertakings which are actual or potential competitors. Despite this, horizontal collaboration does not necessarily have anticompetitive effects. In some circumstances it can be procompetitive and efficiency enhancing. For example, R&D arrangements between those operating at the same level in the market is often procompetitive, and the same can be true of other forms of horizontal cooperation, such as commercialization agreements, specialization agreements, standardization agreements and many forms of joint venture. A general discussion of the competition law treatment of horizontal agreements is outside the 5.25 scope of this book. Those who require information about the competition law approach to horizontal agreements can find helpful discussions in general textbooks.18 The Commission has also provided guidance on the approach of EU competition law to horizontal agreements in its Horizontal Guidelines.19 Many horizontal cooperation agreements will contain licensing provisions. Some such arrange- 5.26 ments, even when entered into between competitors, will fall within the regime applicable to Technology Transfer Agreements.20 Article 9 of the TTBER provides, however, that the TTBER does not apply to licensing arrangements in the context of R&D agreements or in the context of specialization agreements which are dealt with under the R&DBE21 and the SBE22 respectively. A brief discussion of the IP related aspects of the R&D regime and the specialization regime can be found below. To the extent that IP issues are relevant to longstanding joint venture arrangements of a struc- 5.27 tural nature, they are dealt with in the chapter discussing structural arrangements.23 Standardization agreements are a particular form of horizontal cooperation. The parties are 5.28 often competitors in various potentially relevant markets, but collaboration between them to introduce standardized solutions to technical problems can be procompetitive in many

18 19 20

See, e.g., Bellamy and Child (n 3); Whish and Bailey (n 3); Faull and Nikpay (eds), The EU Law of Competition (3rd edn, Oxford University Press, 20 March 2014), etc.

Commission Communication, Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, C(2023) 3445 final, 1 June 2023 (https://​competition​-policy​.ec​.europa​.eu/​ system/​files/​2023​-07/​2023​_revised​_horizontal​_guidelines​_en​.pdf – accessed 25 October 2023) (Horizontal Guidelines). See Chapter 3.

21 Commission Regulation No 2023/1066 of 1 June 2023 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements, OJ [2023] l 143/9. A transitional regime applies from 1 July 2023 until 30 June 2025 for agreements in force on 30 June which satisfied the requirements of the previous R&DBE, but not those of the 2023 R&DBE.

22 Commission Regulation 2023/1067 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of specialisation agreements, OJ [2023] L 143/20. A transitional regime applies from 1 July 2023 until 30 June 2025 for agreements in force on 30 June which satisfied the requirements of the previous SBE, but not those of the 2023 SBE. 23

See Chapter 7.

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circumstances. Standardization efforts are often affected by, and have a significant impact on, IPRs including the terms on which IPRs are made available to the parties involved in the standardization initiative and to third parties. The IPR related aspects of standardization are dealt with below.24

IV. R&D AGREEMENTS/SPECIALIZATION AGREEMENTS 5.29 R&D agreements take a multitude of forms.25 Irrespective of the form taken (outsourced R&D; joint development of existing products; pure research arrangements; arrangements involving joint or specialized commercialization; collaboration arrangements; or some form of cooperative joint venture), IPR and related knowhow is likely to play a key role. This will be the case with both existing IPR/knowhow and with any IPR/knowhow that results from collaboration. Access to relevant IPR and the ability to exploit it is almost always subject to some form of limitation. 5.30 A clear distinction exists between the regime that applies to licences between the parties to the R&D arrangement and that which applies to licences to third parties of the technology needed to utilize the results of any R&D programme. As between the parties (and between the parties and any third party that the parties establish to carry out the R&D) the applicable approach is that set out in the Horizontal Guidelines and the R&DBE. Licences to third parties who wish to utilize the results of the R&D programme to manufacture or have manufactured contract products are covered by the technology transfer regime and will be exempted by the TTBER as long as they fulfil its requirements. The discussion below considers only arrangements whereby the parties and any vehicles which they establish license IPR between themselves. 5.31 As with technology transfer arrangements, many R&D arrangements do not fall within the scope of the prohibition in Article 101(1) TFEU at all. Unsurprisingly, the analysis depends on the competitive relationship between the parties on the product markets likely to be affected by the cooperation, or their competitive relationship in innovation.26 5.32 If the parties are not, on a realistic view, actual or potential competitors27 in a market likely to be affected by the R&D collaboration then R&D cooperation between them is unlikely to have any significant effect on competition. The larger the market share of the parties on any market likely to be affected by the arrangement and the more concentrated that market (or those markets) the greater the likely competition concern. If the parties are not competitors and do not enjoy market power, R&D arrangements are unlikely to restrict competition.

24

See para 5.84 below.

26

The general understanding of how R&D may affect competition is summarized in the Horizontal Guidelines, ibid., para 54; this is expanded upon at paras 135–146.

25

27

As explained in the Horizontal Guidelines (n 19), in relation to horizontal agreements generally: ‘Given the large number of possible types and combinations of horizontal cooperation, and the wide range of market contexts in which they may occur, it is difficult to provide specific guidance for every possible scenario. … Each case must be assessed on the basis of its own facts’ (para 4, also paras 52 and 53).

Ibid., para 16.

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If the subject of the R&D is early stage, well-removed from market exploitation (e.g., ‘blue sky’ 5.33 research projects); if the collaboration does not extend to joint exploitation; and if both parties are free to use the results, concern is only likely to arise if the cooperation between the parties appreciably reduces competition in innovation,28 for example, because there are few other sources of innovation in the affected innovation space.29 The Horizontal Guidelines note that relevant considerations will include the nature of the innovation envisaged, its objectives and the success or results of previous ‘innovation efforts’ undertaken by the parties.30 R&D collaboration relating to basic research (‘… experimental or theoretical work undertaken 5.34 primarily to acquire new knowledge of the underlying foundations of phenomena and observable facts’)31 generally will not restrict competition. If the collaboration is a form of outsourcing of previously captive R&D – rather like a sub- 5.35 contracting arrangement in a research field – it is also unlikely to affect competition. Such arrangements are often with academic institutions or research bodies who are not involved in the exploitation of the results of the research they undertake.32 Competition concerns are more likely to arise the closer the project is to commercialization 5.36 because later stage cooperation may lead to a slowing down or abandonment of alternative projects to allow the parties to concentrate on the collaboration project. Where the R&D collaboration itself is not within the scope of the prohibition in Article 5.37 101(1) TFEU then any IPR or knowhow licence which is directly related to and necessary for the success of that project is unlikely to give rise to concern as long as the specific licensing provisions go no further than is necessary and do not have an effect similar to any hardcore restriction of competition. Notwithstanding the generally positive approach to R&D collaboration, which is part of the 5.38 EU’s innovation agenda, the Commission has identified various ways in which R&D arrangements may adversely affect competition. Particular concerns relate to the potential to slow down innovation or to reduce the amount of innovation, leading to fewer, or less advanced products.33 Where the parties are already competitors, there is also a concern that R&D collaboration in one aspect of their operations may have ‘spillover’ effects, affecting the intensity of competition between them outside the context of the R&D project. 28

Ibid., para 144.

30

The Horizontal Guidelines (n 19) adopted in 2023 show a greater interest in the potential competition implications of early innovation efforts than in the past. They indicate that assessing the competitive position of the parties may involve the use of metrics including the numbers of patents or patent citations related to the parties in the specific field of research (para 134).

29 In line with the Commission’s overall increasing concern with protecting competition in innovation (discussed in Chapter 7 in the context of merger control), the Commission had proposed limiting the availability of the new R&DBE (n 21), to situations in which the parties were in competition with at least three alternative programmes/efforts. That proposal met significant resistance and was ultimately withdrawn, although the Commission foresees that the exemption might be withdrawn if there is a substantial restriction in innovation competition (Art 10.2(e)).

31 32 33

Ibid., para 140. Ibid., para 139.

Ibid., paras 54 and 143 ff.

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5.39 Where competition concerns arise, the R&DBE is likely to be the first place where parties will look for guidance as to the way in which particular aspects of an R&D collaboration may be assessed. Unlike their previous iteration, the 2023 Horizontal Guidelines contain detailed provision-by-provision guidance to specific provisions in the R&DBE similar to that in the Technology Transfer Guidelines for the TTBER.34 5.40 The R&DBE is helpful in identifying the types of provision that may be regarded as particularly problematic, or particular considerations that may lead to the block exemption being inapplicable. The overall approach to analysis outlined above in respect of the TTBER and VABE applies. There is no presumption that agreements capable of being exempted by the R&DBE actually fall within the scope of the prohibition in Article 101(1) TFEU, nor that agreements that are outside its scope necessarily infringe: in both cases an assessment of the whole arrangement would be required. 5.41 The R&DBE will help parties drafting the IP aspects of any R&D collaboration. Restrictions between the parties as to the exploitation of IPR (and knowhow) are likely to be acceptable as long as the rights in question substantially contribute to technical or economic progress and arise from the joint R&D. The most relevant aspects of the R&DBE can be found in Articles 2–6.35 Those who were familiar with the previous R&DBE will find few substantive changes in the latest iteration although the structure has been changed and it has been clarified in some respects. A. The Definitions – Article 1 5.42 The definitions are crucial to understanding the scope of any block exemption regulation. This applies very much to the R&DBE, which can only be understood, and its principles applied, if a number of particularly central definitions are borne clearly in mind. The definitions are set out in Article 1 of the R&DBE and discussed at paragraphs 58 and subsequently in the Horizontal Guidelines. All of them are important, particularly the definition of ‘research and development’ at Article 1.1(3) and ‘research and development agreement’ at Article 1.1(3). For ease of reference some of the other important definitions in Article 1.1 are reproduced below (emphases added): (5) ‘contract technology’ means a technology or process arising out of the joint or paid-for research and development; (6) ‘contract product’ means a product arising out of the joint or paid-for research and development or manufactured or produced by applying the contract technologies; (7) ‘exploitation of the results’ means the production or distribution of the contract products or the application of the contract technologies or the assignment or licensing of IPRs or the communication of knowhow required for such production, distribution or application; (8) ‘intellectual property rights’ includes industrial property rights, for example, patents and trademarks, as well as copyright and neighbouring rights; (9) ‘know-how’ means a package of practical information, resulting from experience and testing, which is secret, substantial and identified; (a) ‘secret’, meaning that it is not generally known or easily accessible;

34 35

Ibid., para 56 ff.

R&DBE (n 21), Art 4, deals with the market share provisions for the actual application of the block exemption regime.

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OTHER AGREEMENTS INVOLVING IP LICENCES (b) ‘substantial’, meaning that it is significant and useful for the production of the contract products or the application of the contract technologies; and (c) ‘identified’, meaning that it is described in a sufficiently comprehensive manner so as to make it possible to verify that it fulfils the criteria of secrecy and substantiality; (10) ‘joint’, in the context of activities carried out under a research and development agreement, means activities where the work involved is: (i) carried out by a joint team, organisation or undertaking; (ii) jointly entrusted to a third party; or (iii) allocated between the parties by way of specialisation in the context of research and development or specialisation in the context of exploitation; (11) ‘specialisation in the context of research and development’ means that each of the parties is involved in the research and development activities covered by the research and development agreement and they divide the research and development work between them in any way that they consider appropriate; this does not include paid-for research and development; (12) ‘specialisation in the context of exploitation’ means that the parties allocate between them individual tasks such as production or distribution, or impose restrictions upon each other regarding the exploitation of the results, such as restrictions in relation to certain territories, customers or fields of use; this includes a scenario where only one party produces and distributes the contract products or applies the contract technologies on the basis of an exclusive licence granted by the other parties.

B. The Exemption – Article 2 Article 2 sets out the scope of the exemption. From a licensing perspective, the key provision is 5.43 Article 2(3) which makes clear that, as already mentioned above, licences between the parties are covered by the R&DBE as long as the licences are ancillary to the R&D collaboration and are not the primary object of the arrangement. C. Access to the Results of the Collaboration and to IPR – Articles 3 and 4 The R&DBE exempts only agreements which meet a number of positive criteria. These are 5.44 set out in Articles 3–5. For those considering the IPR aspects of an R&D collaboration, the pre-conditions relating to access to IPR and knowhow indicate the sort of issues that may give rise to competition law concern. Each pre-condition is discussed briefly below, but standing back and reviewing them as 5.45 a whole, it is clear that the Commission considers that R&D arrangements are most likely to be procompetitive when they seek to ensure both the dissemination of the results of the R&D collaboration and also that products or technologies which are developed will be widely distributed. In the Commission’s view, agreements most likely to achieve those goals will start from the 5.46 position that all parties should in principle have access to the results of the collaboration and that any party which is free to exploit the resulting technologies independently should have access to background knowhow which is essential to enable it to do so. If there is to be specialization in manufacture, those who are entitled to distribute should have the right to obtain supplies. This position can be varied by agreement within certain parameters set out in the exemption itself. Differences in contribution can be compensated for. Finally, where an R&D collaboration envisages joint exploitation, this must extend only to the meaningful results of the R&D itself. 195

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1. Access to results: ‘foreground’ IPR and knowhow

5.47 The first pre-condition is that all of the parties to the collaboration should have full access to the results of the collaboration for the purposes of further R&D and exploitation, as soon as they become available. This includes any IPRs and knowhow36 that result from the R&D collaboration (‘foreground’ rights). The rationale for this requirement is the Commission’s concern to ensure that the benefits and results of joint R&D are shared and available for further use, enhancing innovation. Note that access is required only to final results (not interim results) but that once the results are final, access should be available without delay. 5.48 Some have criticized the requirement that all parties should have immediate full access to the results of the R&D plus related IPR and knowhow, concerned that it may chill otherwise procompetitive collaborations. However, against that concern, the condition is not absolute and is subject to some helpful caveats which reflect later provisions in the R&DBE permitting the division of (‘specialization in’) exploitation rights. 5.49 Recital 11 to the R&DBE explains that the expectation underpinning the block exemption is that all parties will be able to use the results of the project for the purposes of further R&D. This is a procompetitive justification for the arrangement and any restrictions within it which would also play a part in any individual assessment under Article 101(3) TFEU. The recital also explains that where the parties decide to limit or divide their rights to exploit the results, then access for the purposes of exploitation may be limited to reflect that commercial arrangement. In addition, the R&DBE recognizes that if one of the parties is a body (e.g., a research institute or an academic establishment) which is not normally active in the exploitation of the results of R&D, or which provides R&D as a commercial service, then that body may agree to use the result for further research only without the agreement losing the protection of the block exemption. Finally, Recital 12 notes that parties may make unequal contributions to the collaboration in which case the condition will still be met if one party agrees to compensate another for access – as long as the compensation does not operate to impede access. These explanations in the Recitals are implemented in Article 3.4–6. 5.50 In summary, therefore: ● all parties should have immediate full access to the final results for the purposes of future R&D; but ● if the parties have agreed to limit their rights of exploitation (as permitted by the R&DBE) then rights of access to the results and related IPR/knowhow may be limited to reflect that agreement,37 meaning that access needs to be for the purpose of future R&D only and only in any field in which there is specialization in exploitation; and ● if one party is not normally involved in the commercial exploitation of the results of R&D, it need only receive full immediate access for the purposes of further research; and ● the differing contributions of the parties may be reflected in an obligation to pay for access to the results, including IPR and knowhow – but this should not operate as a barrier to access. 36 R&DBE, ibid., Art 3.2–6. See the definition of IPRs at Art 1(1)(h) of the R&DBE, ibid., and the definition of knowhow at TTBER (n 1), Art 1(1)(i)-(l), reproduced above at para 2.308. 37

This may involve limiting exploitation by reference to specific technical fields of use, territories or customers.

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In principle the various caveats to the condition in Article 3(2) should mean that it will have 5.51 limited impact as it allows the parties a significant degree of freedom in agreeing how project IPR and knowhow will be used. This reflects the R&DBE’s exemption of agreements which limit the parties’ rights of exploitation and the broad definition of ‘exploitation’. The ability to limit the rights of academic or research institutes who are not generally involved in commercialization has been welcomed. In practice the provision can give rise to commercial questions when drafting collaboration 5.52 arrangements. Prospective parties who are commercially active in exploitation sometimes express concern about the future uses of the results of R&D carried out by research institutes or academic researchers using the results and whether there may be any obligation to license project/foreground IPR or knowhow later for exploitation of such future results. As far as is known at the time of writing, there is no reported instance of such an issue being considered by the Commission, a National Competition Authority or national court. The wording of Article 3 does not suggest that this is what the Commission had in mind. In practice, if a research institute or similar body which had agreed to use the results and related IPR for the purpose of research only subsequently wished to exploit or commercialize the results of that further research, it would be necessary for it to seek a licence under the project IPR to do so and the normal rules on obligations to license would apply.38 As the R&DBE permits specialization in exploitation and as the both the TTBER and Article 101 TFEU itself permit field of use restrictions, a procompetitive outcome should be possible. It does not appear that those drafting R&D collaboration agreements are obliged to deal with such a possibility pre-emptively. 2. Access to pre-existing knowhow

The second condition relates to circumstances in which the research collaboration arrangement 5.53 provides for joint R&D only and makes no provision for exploitation following the R&D collaboration.39 In such circumstances, exploitation of the results will take place outside the scope of the R&D collaboration and will not be ‘joint exploitation’ within the meaning of the block exemption.40 Such situations may be rare but where such a situation does exist, Article 4 of the R&DBE provides that it is a further condition of qualifying for the block exemption that each party must be granted access to pre-existing (‘background’) knowhow of the other parties. The requirement does not extend to background IPR. The purpose of this requirement is to ensure that parties who engage in joint R&D cannot be 5.54 blocked from exploiting the results by a lack of access to background knowhow. The access requirement is qualified. Access must be made available only if the knowhow is indispensable to the exploitation of the results of the R&D collaboration and only for the purposes of the exploitation of those results. It is not sufficient that the background knowhow is merely helpful or useful. In addition, the block exemption will be available even if the R&D agreement provides that parties shall compensate each other for access to pre-existing knowhow. As is the case with the equivalent condition in Article 3(4), any compensation should not act as an effective impediment to access.

38

See the discussion below of Art 102 TFEU and refusals to license/compulsory licensing obligations (Chapter 6).

40

Ibid., Art 1(1)(7) and (10).

39

R&DBE (n 21), Art 4.

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5.55 In summary, if an R&D collaboration arrangement does not provide for exploitation, both parties must in principle have full access to the final results and to foreground IPR and knowhow (potentially in return for compensation) for further R&D and exploitation. Both parties must also have access to any background knowhow which is indispensable for exploitation, for the purposes of exploitation only, again potentially in return for compensation. 3. Limits to permissible joint exploitation

5.56 If the agreement permits joint exploitation, this should extend only to the results of the R&D collaboration which are sufficient to constitute knowhow (as defined in the regulation) or which are protected by IPRs and only if that knowhow or those rights are necessary for the exploitation, that is, ‘… are indispensable for the manufacture of the contract products or the application of the contract technologies’.41 5.57 This pre-condition can only fully be understood if it is read carefully alongside the relevant definitions from Article 1 as set out above. 5.58 The purpose of this pre-condition is to ensure that collaboration in exploiting technologies is block exempted only where it relates to procompetitive R&D which has had tangible results, capable of protection either as IPR or as knowhow. This is to avoid the possibility that an ostensibly procompetitive R&D agreement with limited benefits for innovation might be used as a Trojan Horse to obtain exemption for a much broader cooperation in manufacturing or production. 4. Obligations to supply

5.59 The final pre-condition deals with a situation in which only one party will manufacture products resulting from the joint R&D project. If more than one party is entitled to exploit by way of distribution, then the party which is appointed to specialize in manufacturing must be required to supply the others.42 There are exceptions to this requirement: if the agreement provides for joint distribution through a joint team; or is jointly entrusted to a third party as described in Article 1(1)(10); or if it has been agreed that only the party manufacturing the contract products may distribute them, for example, by way of an exclusive licence from the non-distributing party to the other. D. Market Share and Duration – Articles 6 and 7 5.60 Article 6 contains market share thresholds for the application of the R&DBE and deals with the duration of the exemption in particular circumstances. These provisions are not considered in detail here.43 In summary, as long as any combined market share is less than 25 per cent, competition concerns are likely to be less serious and exemption is a realistic prospect for so long as that remains the case, whether under the block exemption or outside it (as long as no ‘by object’ restrictions are included), although any agreement which is not clearly within the block exemption will need to be assessed and drafted in the light of all the surrounding circumstances. 41

R&DBE, ibid., Art 5(1) and Horizontal Guidelines (n 19), para 84.

43

They are discussed in the Horizontal Guidelines, ibid., paras 86–104.

42

R&DBE, ibid., Art 5(2) and Horizontal Guidelines, ibid., para 85.

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The market share thresholds reflect that R&D agreements between non-competitors are least 5.61 likely to have an adverse effect on competition: there is no market share threshold for such agreements and they will be block exempted for so long as the R&D continues. If a collaboration is entered into between non-competitors and joint exploitation of the results 5.62 of joint or paid for R&D takes place, the agreement continues to benefit from the block exemption until a period of seven years from market entry.44 If the parties are competitors, the position is more complex but the key threshold is 25 per cent 5.63 combined market share on any relevant market at the time the R&D agreement is concluded. As long as that threshold is not exceeded, the agreement continues to benefit from the block exemption until a period of seven years from market entry. At that point, combined 25 per cent share of the relevant product or technology market(s) is the critical level.45 The Horizontal Guidelines state that if an R&D collaboration seeks to develop an entirely new 5.64 technology, product or process, where it is not possible to identify a product or technology that will be improved, substituted or replaced by the contract product or technology, the agreement will be exempt for the duration of the project and no market share threshold applies (i.e., it is treated as an agreement between non-competitors).46 Various other complexities in the identification of actual or potential competitors and the calculation of market shares are explored in the Horizontal Guidelines.47 E. The Hardcore Restrictions – Article 8 These provisions should be avoided when drafting an R&D collaboration agreement unless 5.65 there are clear procompetitive reasons for their inclusion. Even then it reduces risk and uncertainty to proceed without them, which parties may wish to consider, having regard to the overall commercial importance of the hardcore provision. The inclusion of a hardcore restriction in an R&D agreement means that the entire agreement falls outside the safe harbour provided by the block exemption.48 Merely because a provision might be justified, does not mean that it is always sensible to include it in an agreement where the real possibility of enforcement may be important to the parties. The inclusion of a hardcore or by object provision in an agreement significantly increases the complexity of arguments around enforceability and will make enforcement through the courts or alternative dispute mechanisms more complex, expensive and time consuming owing to the resulting competition law dispute. The hardcore restrictions cover familiar ground, dealing with issues such as limitations on inde- 5.66 pendent R&D; price and output restrictions; and territorial or customer restrictions. Few of them are directly related to IP licences as such, but it is important to note that indirect hardcore restrictions are also caught.49 This means that restrictions which are not included in the body 44

R&DBE (n 21), Art 6(1)–(4).

46

Horizontal Guidelines (n 19), para 99.

45 47 48 49

Ibid., Art 6(4)(a) and (b).

Ibid., paras 87–90 and 92–96. R&DBE (n 21), Art 7. Horizontal Guidelines, ibid., para 105. R&DBE (n 21), Art 8.

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of the collaboration agreement but arise in the context of an ancillary IP licence, will also be extremely risky if they have an equivalent effect to a hardcore restriction. The application of the hardcore restrictions is made more complex by the cooperative context of R&D collaboration and the fact that the regime explicitly envisages ‘specialization’50 between the parties in both R&D and exploitation, meaning that certain divisions of responsibility are acceptable. 1. Restrictions on R&D

5.67 There is no difficulty with the parties agreeing that they will cooperate exclusively with each other in the field of research which is the subject of the collaboration project until such time as the joint R&D is complete. It is a hardcore restriction to restrict the parties’ freedom to carry out R&D in a field other than that covered by the collaboration agreement or unconnected with that field at any time.51 This applies to pure independent research or research in cooperation with a third party. Once the joint R&D in the subject field is complete, the parties must be free to carry out further research in the field and connected fields.52 The joint R&D is complete once the research activities are complete.53 2. Restrictions on output or sales

5.68 Some restrictions on output or sales are not hardcore. This reflects the fact that specialization between the parties is permitted as part of an overall arrangement to engage in joint exploitation. Any other restrictions on output or sales are not permitted within the scope of the block exemption54 and will give rise to significant risks in other R&D agreements. 5.69 It is permitted to: ● set production targets as long as joint production of contract products is part of the agreed collaboration;55 ● set sales targets as long as joint distribution56 of contract products or joint licensing of contract technologies is part of the exploitation regime agreed in the collaboration;57 ● agree to specialization practices58 as part of the exploitation regime agreed in the collaboration;59

50 51 52 53 54 55 56

57

58 59

R&DBE, ibid. See definition of ‘specialisation in the context of research and development’ (Article 1(1)(11)) and ‘specialisation in the context of exploitation’ (Art 1(1)(10)) (see also para 5.42 above). Ibid., Art 8(a). Ibid., Art 8(a).

See, ibid., Art 1.1(3) for the definition of research and development. Ibid., Art 8(b).

Ibid., Art 8(b)(i).

The ‘joint exploitation’ relevant here is only that described in R&DBE, ibid., Art 1(1)(10)(a) and (b), where a joint team or organization is involved or where it is jointly entrusted to a third party. Ibid., Art 8(b)(ii).

Field of use restrictions are part of such permitted specialization. See, ibid., Art 1(1)(11) and Recital 19 which states explicitly that ‘In this context, field of use restrictions do not constitute limitations of output or sales, and also do not constitute territorial or customer restrictions.’ R&DBE, ibid., Art 8(b)(iii).

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● accept a non-compete obligation in respect of the contract products or technologies for so long as joint exploitation is agreed.60 3. Restrictions on pricing or royalties

It is permitted to agree prices or royalty levels to immediate customers or licensees when joint 5.70 distribution or joint licensing is part of the exploitation regime agreed in the collaboration.61 4. Restrictions on active and passive sales/sales to resellers

It is permitted to:

5.71

● exclusively license the results of the R&D to one party or exclusively sell manufactured contract products to the other party where one party is appointed to exploit the results by way of specialization – but otherwise restrictions on passive sales, whether territorially or to customers are hardcore62 so as to retain the possibility of downstream competition; ● exclusively allocate specific territories or particular customer groups to one party or the other where this is part of the exploitation regime agreed in the collaboration – but otherwise territorial or customer restrictions on active dealing are hardcore63 meaning that if particular territories or customer groups have not been allocated between the parties by way of specialization in exploitation, both parties must remain free to deal in those territories or with those customer groups. Despite the significant exceptions to the hardcore list for restrictions on output or sales when 5.72 specialization in exploitation is part of the R&D collaboration arrangement, some restrictions remain hardcore. So it is not permitted to impose indirect parallel trade obligations by obliging a party to refuse orders from customers who wish to market the products in other territories within the internal market. This applies irrespective of the location of those customers and even if otherwise allocated between the parties as part of a regime intended to create specialization in exploitation.64 Equally, the parties must not agree to make it difficult for users or resellers to obtain contract products from resellers within the internal market.65 F. The Excluded Restrictions – Article 9 The excluded restrictions in Article 9 are of particular interest to those considering IP licensing 5.73 in the context of an R&D arrangement.

60 Ibid., Art 8(b)(iv). Once the joint exploitation comes to an end a continued non-compete would be hardcore. A non-compete which takes effect before the joint exploitation begins is also not covered by this exception. 61

62 63 64 65

Ibid., Art 8(c). The same comment relating to ‘joint exploitation’ applies here as in relation to (n 57) above. If the parties have agreed to exploit the results of the R&D by way of specialization, rather than through joint teams or a single third-party undertaking jointly appointed, it is not necessary to exclude price competition as the parties are operating separately on the market and the possibility of downstream competition must remain, albeit there may be territorial or customer allocation as part of that specialization (see Art 8(d)–(g)). Ibid., Art 8(d). Ibid., Art 8(e). Ibid., Art 8(f).

Ibid., Art 8(g).

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5.74 The first set of excluded restrictions relate to no challenge obligations.66 An obligation: 1. not to challenge the validity of rights relevant to the R&D owned by the parties, once the R&D phase is complete; and/or 2. not to challenge the validity of the parties’ rights which protect the results of the R&D, once the agreement has expired are both excluded restrictions. 5.75 The R&DBE provides that this is without prejudice to the possibility that the agreement may be terminated in the event of challenge. It is unclear whether outside the R&DBE this exception could still be relied on to indicate that such a provision would be acceptable, given the approach now adopted in the TTBER (see paragraph 3.182 ff). However, there may be arguments, similar to those which apply to such provisions in the context of exclusive technology transfer arrangements, that the specific context of an R&D collaboration involves such a significant degree of commercial trust between the parties that a challenge to relevant IP by one party would render the continuing relationship unviable and that the possibility to terminate on challenge is an essential reflection of the nature of that relationship. 5.76 The second set of excluded restrictions relate to obligations on the parties not to license third parties to manufacture contract products or use contract technologies.67 The Horizontal Guidelines state that in principle the parties should be free to license third parties so provisions precluding such licences are excluded unless the agreement provides: (i) for the exploitation of the results of the joint R&D by at least one of the parties; and (ii) that such exploitation does, in fact, take place vis-à-vis third parties. This reflects the underlying desire to ensure that the efficiencies and benefits of an exempted R&D collaboration can be shared not only by the parties, but also by third parties. 5.77 Overall, significant restrictions on the freedom of the parties to license IPR, and restrictions on their freedom to exploit IPR that is licensed as a result of the collaboration arrangement can be accepted and will give rise to only limited competition risks. 5.78 When advising on IP related issues in R&D agreements, important things to bear in mind are: ● the Horizontal Guidelines and the recitals to the R&DBE provide a very useful overview of the circumstances in which collaboration in R&D may give rise to competition concerns, and give significant comfort on the circumstances in which competition concerns are unlikely to materialize; ● market power and the foreclosure of product or innovation markets is important when analysing the potential anticompetitive effects of R&D collaboration, particularly, but not only, when the parties are competitors.68 In assessing market power and competitive constraints, it is important to look at the overall context and what the R&D is directed toward. This could be products or technologies competing with existing technologies; products or technologies that compete with existing technologies but which are sufficiently novel to replace existing technology over time; or completely new products or technologies. In all of those

66

Ibid., Art 9(a). Horizontal Guidelines (n 19), paras 118–119.

68

Horizontal Guidelines (n 19), para 54.

67

Ibid., Art 9(b).

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●

●

●

●

●

cases, but most particularly in the third scenario, the extent to which there is competition in innovation will be important. If a number of alternative efforts (‘research poles’) to address the same problem can be identified, collaboration between two alternative sources of innovation will be of less concern than if innovative efforts are concentrated. However, other relevant issues will also be considered such as the parties’ prior efforts in innovation and the extent of their IPR interests in the field including patents and patent citations; R&D collaborations are more likely to give rise to competition concerns where the parties have market power in existing markets or where the collaboration will appreciably reduce competition in innovation. A market share of around 25 per cent affected by the collaboration is, as a rule of thumb, the level where significant concerns may arise, and when the parties should consider carefully the restrictions they accept. Market shares or market power in product or technology markets may both be relevant.69 In addition, the Commission has increased its focus on the parties’ competitive position in early innovation efforts;70 R&D collaboration with the following features is itself generally unlikely to give rise to significant competition law risk. Generally the more of these features the collaboration has, the lower the risk:71 early stage or blue sky R&D; cooperation between non-competitors; pure R&D, without collaboration in exploitation but with sharing of the results; R&D where the parties could not previously have carried out the project separately, bringing together complementary skills; outsourcing of previously captive R&D to specialist bodies, such as academic institutes or research undertakings; paid for R&D, commissioned by one party but carried out by another where the payor obtains the IP rights and the exclusive right to exploit vis-à-vis third parties; and R&D directed at improving existing products but which affects only a minor input in to those products; when analysing particular licence provisions and considering the risk that they pose the pre-conditions in Articles 3–6 of the R&DBE; the hardcore list in Article 8 of the R&DBE; and the excluded list in Article 9 of the R&DBE provide very useful indicators of the types of restriction that are and are not likely to be acceptable and those which will pose more or less risk; Factors which will increase risk include collaboration in R&D which is close to final stage or commercialization and collaboration arrangements which foresee joint exploitation of the results72 where the main purpose of an arrangement is not innovation or R&D. Where it goes beyond what is necessary to achieve the R&D outcome to facilitate other goals it may be analysed as a cartel;73 where an R&D agreement is itself procompetitive, IP related arrangements between the parties which are indispensable to achieve the procompetitive outcome of the overall agreement are unlikely to give rise to significant competition concerns. Similar considerations apply to indispensable information exchanges between the parties.74

69

Ibid., paras 129–132.

71

Ibid., paras 138–140.

70 72 73

74

Ibid., paras 133 and 134. Ibid., paras 143 and 144.

An example cited in the Horizontal Guidelines, ibid., is Case AT.40178 – Car Emissions, Commission decision of 8 July 2021, which resulted in a fine of €875 million Euros. See Commission Press Release IP/21/3581, Antitrust: Commission fines car manufacturers €875 million for restricting competition in emission cleaning for new diesel passenger cars, 8 July 2021 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​ip​_21​_3581 – accessed 16 November 2023). Horizontal Guidelines, ibid., paras 152 and 153.

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V. SPECIALIZATION AGREEMENTS OR PRODUCTION AGREEMENTS 5.79 Specialization agreements are arrangements under which one or more parties agree to specialize their production efforts by fully or partially ceasing production of certain products or refraining from producing those products and to purchase them from one or more parties who agree to produce and supply those products. They can be unilateral or reciprocal. A joint production agreement is an agreement where two or more parties agree to produce certain products jointly. They can take many forms, including the creation of a joint venture, an agreement whereby the parties agree to produce jointly, or through a form of subcontracting where one party entrusts the other to produce a particular good or category of goods. 5.80 Horizontal subcontracting arrangements are those entered into between parties at the same level in the market, whether or not they are competitors. Vertical subcontracting arrangements are those between parties operating at different levels in the market. Vertical subcontracting agreements are the subject of a separate Subcontracting Notice,75 discussed below at paragraph 5.138 ff. Only the Horizontal Guidelines’ guidance applies to horizontal subcontracting. 5.81 Part 3 of the Horizontal Guidelines deals with the competition implications of specialization and joint production agreements. Subject to certain conditions, they may benefit from the SBE.76 The types of agreement covered by that block exemption are defined in Article 11(1) (a)–(c) of the regulation. It applies only to agreements where the combined market share of the parties does not exceed 20 per cent on any relevant market.77 5.82 The SBE deals specifically with the IPR licensing aspects of arrangements which fall within its scope, providing that provisions in a specialization agreement relating to the assignment or licensing of IPR between the parties are covered by the exemption as long as they are required for the success of the arrangement, that is: ‘provided that those provisions do not constitute the primary object of such agreements, but are directly related to and necessary for their implementation’.78 5.83 Textbooks on general competition law or on horizontal arrangements are a good source of commentary on arrangements which have as their primary focus specialization, joint production or horizontal subcontracting arrangements.79 The overall approach to the application of Article 101(1) and (3) TFEU to licensing set out above will generally apply to the IP licensing aspects of such arrangements.

75

Subcontracting Notice (n 10).

77

Ibid., Art 3.

76 78 79

SBE (n 22).

Ibid., Art 2(3).

Some examples: Whish and Bailey (n 3); Bavasso and Tolley (eds), Competition Law Handbook (23rd edn, Butterworths, 23 November 2017); Bellamy and Child (n 3); Van Bael and Bellis, Competition Law of the European Union (6th edn, Wolters Kluwer, February 2021); and Faull and Nikpay (n 18).

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VI. STANDARDIZATION AGREEMENTS A. Introduction This section deals primarily with joint standardization arrangements directed at defining 5.84 technical standards with which products may comply. Such arrangements can occur through formal standardization by recognized standards bodies at national, regional or international level; private arrangements between two or more independent companies; or through industry consortia which are not formal standards organizations as such. Standardization may also come about de facto through unilateral conduct of, for example, a market leader in a particular product area. It is recognized that access to IPR will be crucial when a standard is created which can be 5.85 implemented only by utilizing patented technology.80 This gives rise to interesting issues relating to whether, and the terms on which, such patented technology should be licensed.81 From the IP perspective WIPO explains that: The potential for conflict between patents and standards arises when the implementation of the standard necessitates the use of technology protected by one or more patents. Although the objective of a standard setting body (SSB) as well as of participating companies is to establish standardized technology that can be used as widely as possible, rightholders may have a commercial interest in pushing for the adoption of their own patented technology in the framework of the standard, so that they could benefit from royalties. If a patent owner can, however, block the implementation of the standard by refusing a license or claiming unreasonably high royalties, this would obviously be against the objective of the technical standardization process.82

Much has been written about the interrelationship between IP and standards, particularly in 5.86 the ‘ICT’ sector.83 The main controversies and the competition law implications that have arisen specifically in that sector are dealt with in some detail in Chapter 9 below.

80 81

82

83

In this section, the IPRs referred to are most often patents. If other IPRs had a similar exclusionary effect, similar considerations would apply. This approach is also taken by the Commission in the Horizontal Guidelines (n 19), fn 312.

Given the degree of controversy over recent years, many descriptions of the issues are available. WIPO has been chosen as a useful, and hopefully non-controversial brief introductory statement for non‑specialists. It is not in any way to be taken as a complete description of the multiple ways in which IPRs and standards can interact or of the many business models or commercial strategies which have evolved. https://​www​.wipo​.int/​patent​-law/​en/​developments/​standards​.html – accessed 9 December 2022.

Also known as the TMT sector. If undertaking further reading around this issue, bear in mind that the controversies which have arisen in respect of licensing in, e.g., the mobile phone and IoT sectors have led to significant polarization of views and it is sensible to review a number of sources in seeking an overview of the issues and how they have developed. Several EU sources explore standardization issues which have become increasingly prominent over the last 15 years. Some useful EU sources include: Commission Communication COM(2017) 712 final, Setting Out the EU Approach to Standard Essential Patents, 29 November 2017 (2017 SEP Communication); and COM(2022) 31 final, An EU Strategy on Standardisation – Setting global standards in support of a resilient, green and digital EU single market, 2 February 2022. For a relatively recent non-EU review of views, see the report published by the UK IPO following a public consultation and call for views: Standard Essential Patents and Innovation (updated 5 July 2023): https://​www​.gov​.uk/​government/​ consultations/​standard​-essential​-patents​-and​-innovation​-call​-for​-views/​outcome/​standard​-essential​-patents​-and​ -innovation​-executive​-summary​-and​-next​-steps – accessed 17 November 2023.

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5.87 Those who are involved in collective standard setting are generally aware of the risk of conflict when collectively set standards and individually owned IPRs overlap. They often seek to smooth the path to the adoption of standardized technology by establishing some form of IPR or patent policy designed to reduce the risk that the implementation of a standard will be delayed or prevented by the unavailability of necessary IPRs. This may involve agreeing that obligations should be imposed on those who are involved in the standard setting effort to disclose information about any IPR they own that is (or may become) essential to the use of the standard, so that there can be no later ‘ambush’.84 It may also involve some form of obligation to abide by agreed licensing conditions, such as an agreement to make any necessary85 IPR available for license to anyone who seeks to implement the standard, and to do so on particular terms or within certain parameters. 5.88 This section deals primarily with the initial considerations relating to IPR that those seeking to create and promulgate technical standards must have in mind when setting up any collaborative standardization initiative so as to reduce the risk of later competition law concerns. B. The Approach of the Commission under Article 101(1) TFEU – Introduction 5.89 The overall approach of the EU competition authorities to the competition law treatment of IPRs in collaborative standard setting is set out in the Horizontal Guidelines.86 The Commission starts from the position it has held for at least 30 years87 that standardization agreements in principle produce efficiencies and significant positive effects. Since the late 1980s the institutions of the EU have consistently promoted the benefits of standardization within Europe. This remains a strong theme in EU policies relating to technical harmonization, the role of intellectual property and the creation of competitive markets today. The Commission has stated that: Standardisation has played a leading role in creating the EU Single Market. Standards support market-based competition and help ensure the interoperability of complementary products and services. They reduce costs, improve safety, and enhance competition. Due to their role in protecting health, safety, security, and the environment, standards are important to the public. The EU has an active standardisation policy that promotes standards as a way to better regulation and enhance the competitiveness of European industry.88

5.90 In the EU a particular benefit of standardization is that the adoption of common standards can promote economic interpenetration in the internal market, breaking down technical and commercial barriers between Member States. Other benefits are identified as: ● the development of new and improved products or markets and improved supply conditions; ● increased competition and lower output and sales costs; 84

The Commission defines a patent ambush in the Horizontal Guidelines (n 19), fn 328.

86

Horizontal Guidelines (n 19), section 7.

85

87 88

The exact scope of each policy and what it covers may vary significantly. The extent of any licensing obligation that may (or should) safely be adopted under EU competition law is discussed below. See, e.g., Commission Communications: COM(87) 290 final, Towards a Dynamic European Economy, 30 June 1987; COM(91) 521 final, Standardisation in the European Economy, 16 December 1991; COM(92) 445, Intellectual Property Rights and Standardization, 27 October 1992; and the 2017 SEP Communication (n 83). https://​ec​.europa​.eu/​growth/​single​-market/​european​-standards/​policy​_en – accessed 11 March 2023.

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● ● ● ●

the maintenance and enhancement of quality and security; the avoidance of lock-in; the reduction of transaction costs; and enabling interoperability and compatibility (thus increasing value for consumers).89

Given the benefits which are anticipated to flow from successful standardization, agreements 5.91 to engage in genuine90 standard setting arrangements might expect to be favourably looked on by competition authorities. However, competition law risks also exist, particularly when those involved in collaborative standard setting are competitors. This will often be the case as undertakings involved in the supply of particular goods and services may be best placed both to understand where and how standards may be beneficial and to contribute knowledge, experience and technical developments to the creation of a standard. The Commission observes: Standard development can, however, in specific circumstances where competitors are involved, also give rise to restrictive effects on competition by restricting price competition and limiting or controlling production, markets, innovation or technical development. As further explained below, this can occur in three main ways, namely (a) reduction in price competition, (b) foreclosure of innovative technologies and (c) exclusion of, or discrimination against, certain undertakings by preventing effective access to the standard.91

The competition authorities are also concerned that standardization may by its nature limit 5.92 innovation. The setting of a successful standard which adopts a particular technical base and approach is likely to create increased barriers to success for technical solutions which were unsuccessful in the competition to become part of the standard.92 Such risks will be exacerbated if the standard unnecessarily excludes particular technologies93 or obliges those adopting a standard to use only that standard to the exclusion of possible alternatives.94 Such risks are

89 90

91 92

93 94

Horizontal Guidelines (n 19), paras 439 and 475.

As opposed to agreements to create barriers against competitors as identified in cases such as 1999/60/EC: Commission Decision of 21 October 1998 relating to a proceeding under Article 85 of the EC Treaty (Case No IV/35.691/E-4: – Pre-Insulated Pipe Cartel) OJ [1999] L 24/1 (Pre-insulated Pipes) where the Commission found, among other things, that standards and technical norms were being used ‘to prevent or delay the introduction of new technology which would result in price reductions’ (para 147). These and similar issues are discussed at some length in the joint report of the US DoJ and FTC, Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition, April 2007 (https://​www​.justice​.gov/​sites/​default/​files/​atr/​legacy/​2007/​07/​11/​222655​.pdf – accessed 27 October 2023), see particularly Chapter 2 and Chapter 3. Horizontal Guidelines (n 19), para 441. Ibid., para 443.

It may be that in some areas of technical standardization where interoperability is essential and technical complexity is intense only one technical solution can be adopted.

See, e.g., 78/156/EEC: Commission Decision of 20 December 1977 relating to a proceeding under Article 85 of the EEC Treaty (IV/29.151 – Video cassette recorders) OJ [1977] L 47/42 where the Commission held that agreements between various undertakings engaged in the production of VCR machines and the implementation of VCR technology infringed the competition rules by agreeing to adopt only one technical solution to the exclusion of others. It held that an agreement between a number of manufacturers to use exclusively the VCR standard ‘led to the exclusion of other, perhaps better, systems’ (para 29). This was part of a much earlier generation of ‘Standards wars’ and is also notable because the Commission found that in the particular context, the terms of the licences involved meant that the overall arrangement made agreements which should otherwise have been bilateral into a ‘horizontal complex of licensing agreements’ (para 24).

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further increased if those who have a legitimate interest in being involved in the standard setting process are unjustifiably excluded.95 5.93 Where innovation exists, IPRs are unlikely to be far behind. The interplay of standardization initiatives with IPR acquisition, licensing and assertion has been one of the key areas of controversy relating to standardization since the late 1980s.96 This has become even more pronounced in recent years.97 In part, this has resulted from the success of standardization in some key industries. That success has seen the evolution of business models designed to benefit from the growing markets for the products and services which have developed following successful standardization. The mobile communications sector is, perhaps, the best-known example of this and the evolution of attitudes to IPR in that sector are discussed in more detail below in Chapter 9. 5.94 The Commission identifies three broad groups of undertaking affected by standards development who will have differing interests relating to IPR:98 1. those who are involved only in ‘upstream’ activities; being those who do not implement the standard in products or service delivery but whose interest is in developing technologies and contributing them to the standard and/or in exploiting by way of licensing any IPRs that may be required by those implementing the standard. Undertakings in this category may in the past have engaged in manufacturing or other downstream activities but no longer do so, may be involved only in R&D activities (for example, academic or state funded research bodies) or may be companies who have acquired IPRs with a view to licensing them; 2. those who operate only downstream; who implement standardized technologies, developing and selling products or services utilizing the standard but owning no IPRs that read on to the standards; and 3. those who operate both upstream and downstream; who are participants in the standardization process and develop and obtain IP protection for technologies that are incorporated in the standard while also developing and selling products and services which rely on standardized technology. 5.95 The Commission notes that when it comes to IPR issues relevant to standardization, the incentives and interests of undertakings may be different depending on which category they fall into, with some having an interest principally in maximizing royalties, some having an interest primarily in reducing royalties, and some having mixed incentives. Undertakings may adopt a variety of approaches to IP licensing which will vary depending on the particular circumstances.

95

96 97 98

The Horizontal Guidelines (n 19) place considerable weight on the procompetitive benefits of unrestricted participation in standard setting or standard development initiatives (see, e.g., paras 451–452) while recognizing that this may not always be feasible or efficient (para 470). An interesting early Commission decision on standard setting which looked at the potential anticompetitive effects of restrictions on participation and potential justifications for such restrictions/less restrictive alternatives is 87/69/EEC: Commission Decision of 15 December 1986 relating to a proceeding under Article 85 of the EEC Treaty (IV/31.458 – X/Open Group). Intellectual Property Rights and Standardization (n 87). 2017 SEP Communication (n 83).

Horizontal Guidelines (n 19), para 440.

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The approach taken by a company to licensing IPRs relevant to a standard and to the rules 5.96 which should govern access to licences may vary over time as that company’s own business evolves. For example, it is not unknown for companies originally closely involved in standardization initiatives, and in the subsequent commercial implementation of standardized technology, subsequently to withdraw from some or all downstream manufacturing activities and to seek a return on their investment in the standardization process through the licensing of IPRs which are relevant to the standard. Companies also make the journey in the opposite direction, beginning as pure manufacturers with limited or no IPR relevant to the standard,99 but through continued involvement in the standardization process then building up a significant interest in IPRs relevant to further standards or new iterations of the standardized technology. All of these aspects of business evolution can significantly affect the way in which standardization agreements are drafted as they affect the ways in which those involved in setting the rules of the organization behave. Having reiterated the statement from paragraph 7 of the Technology Transfer Guidelines (see 5.97 paragraph 1.06 above) that IP law and competition law share the same overall objectives, the Horizontal Guidelines reflect the potential for different business models to give rise to different behaviours, identifying two particular types of potentially concerning conduct. The first is the possibility for an owner of essential IPR to inhibit effective access by refusing to license its IPR or to do so only by seeking discriminatory or excessive royalties.100 This phenomenon has come to be referred to as ‘hold up’. The second is the obverse: given the intangible nature of IPRs, it is possible for a company wishing to use a standard to do so without first obtaining licences to use any necessary IPRs. Often (but not always) such use will be accompanied by negotiations with the relevant IPR owner(s) to obtain the necessary licences. If those licensing negotiations are drawn out in ways that are not reasonable and are attributable to the company using the standard, perhaps by using dilatory strategies or refusing to pay a non-excessive royalty, this has become known as ‘hold out’.101 The specific consequences under competition law of ‘hold up’ and of ‘hold out’ are potentially 5.98 quite different, as is discussed below, when considering these issues in the context of the technology sector.102 As far as the application of Article 101 TFEU to standardization agreements 99

Although they may invest in innovation or development (and own IPR) which is not directly related to the standardized technology itself, e.g., relating to specific product design and functionality.

100 One interesting comment in the Horizontal Guidelines (n 19) is that anticompetitive behaviour will occur if a licensor charges ‘excessive’ royalties. (para 444). The Horizontal Guidelines clarify in fn 316 that high royalty fees can be characterized as ‘excessive’ only if the pre-conditions for abuse of dominance under Art 102 TFEU are satisfied, meaning that the licensor must have market power sufficient to give rise to dominance and that the requirements for excessive pricing set out in CJEU jurisprudence such as Case 27/76 United Brands Company and United Brands Continentaal BV v Commission of the European Communities (United Brands) (ECLI:EU:C:1978:22) must be established. This question is discussed further in Chapter 9 in the context of the Commission’s investigation into Qualcomm’s SEP licensing practices (para 9.46 ff).

101 Horizontal Guidelines, ibid., para 444. See also the discussion of this phenomenon by the UK Supreme Court in Unwired Planet International Ltd and Another (Respondents) v Huawei Technologies (UK) Co Ltd and Another (Appellants) [2020] UKSC 37 (Unwired Planet UKSC), paras 59 et seq.

102 See Chapter 9. Note that when considering ‘hold up’ and ‘hold out’ in the Unwired Planet litigation the English courts were considering those concepts as reflected in the ETSI IPR Policy, essentially an exercise in contractual construction in a commercial context against a specific drafting background, rather than an application of Art 101 or 102 TFEU (Unwired Planet UKSC, ibid., para 58).

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is concerned, it is the potential for those involved in the standard setting agreement to use IPRs to foreclose or inhibit effective access to the standard that is the principal concern.103 An agreement which could lead to such outcomes gives rise to potential anticompetitive effects and may fall within the scope of the prohibition in Article 101(1) TFEU.104 5.99 The risks which could arise under Article 101 TFEU from IPR related conduct can be reduced through adopting strategies and policies suggested in the Horizontal Guidelines. These include: requiring the disclosure of potentially relevant IPR during the standard setting process so as to enable those setting the standard to identify which technical solutions are potentially subject to IPR and may require a licence; and requiring those involved in the standard setting process to agree to license any IPR that may be essential to the implementation of the standard on terms that will allow effective access, so-called FRAND terms. These broad approaches are discussed in more detail below. Of particular interest to those potentially engaged in standard setting is the Commission’s position that a collaboration agreement which respects those principles may benefit from a safe harbour in that such an agreement would normally not be within the scope of the prohibition in Article 101(1) TFEU at all. C. Standardization Agreements – ‘By Object’ Restrictions 5.100 The Commission identifies a couple of types of arrangement which will be equally anticompetitive when implemented through standardization as when pursued in other contexts. Any arrangement that aims at excluding competitors will fall into the ‘by object’ category, meaning that it is highly likely to infringe Article 101(1) TFEU and unlikely to benefit from exemption under Article 101(3) TFEU. Examples based on the Commission’s previous case practice include colluding to exclude new technology from a standard or setting a standard and pressuring market participants to sell only products that comply with that standard.105 5.101 Other by object restrictions that might arise in the standardization context include information exchange which acts as a cover for joint price fixing. For example, parties to a standard setting arrangement might agree to disclose aspects of their downstream pricing intentions. This could have a legitimate purpose such as the disclosure of the most restrictive licensing terms or highest royalty rate to enable those choosing between substitute technologies to choose the most cost effective.106 It could also disguise or facilitate collusion on prices by acting as a form of price umbrella or price anchor. In the latter case it would be regarded as restrictive by object.

103 The Horizontal Guidelines (n 19), para 444, refer explicitly to the concern that those who wish to implement a standard may be prevented from obtaining effective access either to the specification of the standard (so that they cannot understand its requirements and effectively comply with them) or to the IPRs required to enable implementation of the standard. The concern arises whether the exclusion is complete (i.e., it is not possible to apply the standard at all because it is secret or it is not possible to comply with the standard at all because IPRs block access and no licence is available) or whether it is partial, but creates barriers to implementation (i.e., access is granted only on prohibitive or discriminatory terms). 104 Ibid., fn 317.

105 See above (n 94), and Pre-insulated Pipes (n 90), decisions.

106 Horizontal Guidelines (n 19), fn 320 and paras 474. Note that this concern will not arise in the context of patent pools covered by the Technology Transfer Guidelines (n 2), or an agreement to license essential patents on royalty free terms.

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D. Standardization Agreements – ‘By Effect’ Restrictions The bulk of the guidance in the Horizontal Guidelines concentrates on standardization 5.102 arrangements which might have an adverse effect on competition and, as usual, cautions that such arrangements must be analysed in the concrete economic and legal context in which they operate. One consideration which is emphasized is the requirement for a degree of market power before a standardization agreement is likely to be capable of producing adverse effects on competition, meaning that if there is effective competition between voluntary standards competition concerns are unlikely to arise by effect.107 The Horizontal Guidelines then set out a number of conditions or principles which, if 5.103 respected, will reduce the risks of competition law infringement for those involved in standardization. Compliance with the requirements of this ‘soft safe harbour’ is not mandatory. A standardization arrangement which does not meet one (or even all) of the conditions will not necessarily infringe Article 101 TFEU – it may fall outside the scope of the prohibition in Article 101(1) TFEU or satisfy the exemption requirements of Article 101(3) TFEU. However, while it is true (and explicitly stated by the Commission108) that other rules and safeguards may also be entirely compatible with EU competition law, those who are party to a standardization arrangement which does not satisfy the requirements of paragraphs 451–462 of the Horizontal Guidelines face greater competition law risk and uncertainty and may wish to assess the situation carefully under both Articles 101(1) and 101(3) TFEU to understand the scope and seriousness of those risks. The pre-conditions in the Horizontal Guidelines are, in summary, that the standardization 5.104 collaboration should ensure: ● ● ● ● ●

open participation in the standardization process;109 transparent procedures for standard adoption;110 voluntary compliance only with the standard;111 access to the standard (including the standard specification) on FRAND terms;112 and if IPR is involved, a clear and balanced IPR policy.113

From the perspective of IPR owners/users, by far the most important of these are (i) the focus 5.105 on access and (ii) the benefits of adopting an IPR policy. The Commission summarizes the characteristics that it would expect such a policy to have. These have not changed significantly since the earlier Horizontal Guidelines, adopted in 2010, although some of the more detailed commentary has changed, drawing on the Commission’s experience including its own decisions

107 Horizontal Guidelines, ibid., para 448. 108 Ibid., para 450.

109 Ibid., paras 451–453. 110 Ibid., paras 451–453.

111 Ibid., paras 451 and 464.

112 Ibid., paras 454 and subsequently. 113 Ibid., para 455.

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in cases such as Motorola GPRS114 and Samsung Commitments115 as well as the CJEU’s Huawei v ZTE judgment.116 The Horizontal Guidelines consider from a specific Article 101 TFEU perspective many of the matters discussed in the Commission’s 2017 communication on the EU approach to essential patents in standards.117 5.106 There is a good deal that could be said about some of these requirements but, for current purposes, it is probably sufficient to outline what the Commission says so as to indicate where the risks lie.118 In summary, the Commission indicates that an IPR policy which would allow the collaboration to benefit from the soft harbour provided by the Horizontal Guidelines would include at least a FRAND commitment and an obligation to make good faith disclosure of IPR that might be necessary to implement the standard. E. FRAND 5.107 Taking those in turn, the safe harbour will be available where the standardization agreement provides for an IPR policy which obliges those involved in setting the standard to commit in writing, irrevocably, before the standard is adopted, to offer to license essential IPR to all third parties on FRAND terms. The Commission states that the FRAND commitment will be certain of being effective only if the IPR policy also requires those who give a FRAND commitment to ensure that any undertaking to whom they transfer IPR subject to that FRAND commitment is also bound by that commitment.119 The Commission also states that the IPR policy should allow IP owners to exclude certain technologies from the standard setting process. Where this is done, no FRAND commitment would be necessary in respect of those technologies, although the Commission states that the FRAND commitment can be avoided only if the exclusion takes place early in the standard development process.120

114 Case AT.39985 – Motorola – Enforcement of GPRS Standard Essential Patents, Commission Decision of 29 April 2014, OJ [2014] C 344/06.

115 Case AT.39939 – Samsung – Enforcement of UMTS Standard Essential Patents, Commission Decision of 29 April 2014, OJ [2014] C 2891 final (Samsung Commitments Decision). 116 Case C-170/13 Huawei Technologies Company Limited v ZTE Corporation and ZTE Deutschland GmbH (ECLI:EU:C:2015:477) (Huawei v ZTE CJEU). 117 2017 SEP Communication (n 83).

118 For those who require a more granular analysis, specific aspects issues are discussed in more detail below in Chapter 9 when dealing with essential IPR in the telecoms sector. A review of the responses to the Commission’s consultation is also worthwhile, although not all of them deal with this issue. They can be accessed at https://​competition​-policy​.ec​ .europa​.eu/​public​-consultations/​2022​-hbers​_en – accessed 24 January 2023. 119 This reflects the outcome of a private dispute and parallel Commission investigation in respect of various SEPs for mobile communications acquired by IPCom from the original patentee Robert Bosch. IPCom had not been part of the original standard setting initiative. Following discussions with the Commission, IPCom declared publicly that it was willing to grant licences on FRAND terms: Commission Memo MEMO/09/549, Antitrust: Commission welcomes IPCom’s public FRAND declaration, 10 December 2009 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​ MEMO​_09​_549 – accessed 17 November 2023).

120 It is unclear from the Horizontal Guidelines (n 19) (there is no footnote to this effect) but this may reflect the Commission’s experience during the establishment of the ETSI IPR Policy (n 126), when a number of patent owners complained that aspects of the ETSI policy were effectively compulsory licensing obligations (see the discussion of Case IV/34.760 CBEMA v ETSI in the Commission’s Article 19(3) notice in Case IV/35.006 ETSI Interim IPR Policy, OJ [1995] C 76/5). Giving patentees the right specifically to exclude technology from the process would address this concern, although there is no guidance as to precisely what ‘early’ might mean.

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One aspect of FRAND and IPR licensing which is absent from the main body of the 5.108 Horizontal Guidelines is any reference to conduct during negotiations to conclude a licence.121 The competition law implications if an SEP owner licensor begins litigation to enforce its IPR against an implementer are also not discussed. Some have argued that parties’ conduct during negotiation and enforcement should be dealt with as part of the overall IPR policy of a standards body as it can affect both ‘hold up’ and ‘hold out’ opportunities. Some formal standards bodies include limited guidance on conduct, but the principal requirement under the Horizontal Guidelines for access to the ‘safe harbour’ is to incorporate a transferable FRAND obligation in the IPR policy. This may be because the question of how IPRs are enforced by patentees and how conduct in negotiations affects FRAND rights and obligations has been dealt with primarily in the context of Article 102 TFEU.122 The Commission does refer to the issue in a couple of footnotes123 and quotes the CJEU’s Huawei v ZTE judgment that giving a FRAND commitment under the IPR policy of a standard setting organization (or even unilaterally, it appears) creates a legitimate expectation that a licence will be granted and a refusal to do so may infringe Article 102 TFEU. This issue is dealt with further below as part of the discussion of FRAND commitments and 5.109 obligations more generally.124 A general description of the Commission’s position following Huawei v ZTE can be found in part 3 of the Commission’s 2017 SEP Communication.125 The European Telecommunications Standards Institute (ETSI) is the EU standard setting 5.110 body whose IPR policy has been most closely scrutinized in Europe and to whom FRAND commitments had been given in the Huawei, Motorola and Samsung cases dealt with by the EU authorities. It does not deal in its IPR policy with conduct during negotiations.126 ETSI has resisted various efforts to ‘clarify’ its IPR policy to deal with such issues. These have included, for example, suggestions that it would be helpful to include language about whether seeking an injunction during litigation seeking to enforce standard essential technology is FRAND and if so when. ETSI’s explanatory document (ETSI’s IPR Guide127) contains only a brief comment on conduct during licensing negotiations: ‘… ETSI expects its members (as well as non ETSI members) to engage in an impartial and honest Essential IPR licensing negotiation process for FRAND terms and conditions’.128 ETSI’s general stance on enforcement and negotiation is clearly set out in its IPR guide: ‘Specific licensing terms and negotiations are commercial issues between the companies and shall not be addressed within ETSI.’129 121 It is interesting to note that the UKSC has held that as a matter of contractual interpretation of the ETSI IPR policy ‘… the FRAND obligation in the IPR Policy extends to the fairness of the process by which the parties negotiate a licence’, Unwired Planet UKSC (n 101).

122 The Horizontal Guidelines (n 19), para 459, provide that access to the ’safe harbour’ by the standardization body does not require it to check whether licensing terms in fact fulfil the FRAND commitment. The Guidelines note in a footnote that standardization bodies are involved in neither licensing negotiations nor the conclusion of licences (fn 332). 123 Ibid., fns 317, 326.

124 See para 5.110 ff and see also Chapter 9. 125 See (n 83).

126 https://​www​.etsi​.org/​images/​files/​IPR/​etsi​-ipr​-policy​.pdf – accessed 19 January 2023 (ETSI IPR Policy). But see the interpretation of the UK Supreme Court in Unwired Planet UKSC (n 101), para 64. 127 https://​www​.etsi​.org/​images/​files/​IPR/​etsi​-guide​-on​-ipr​.pdf – accessed 19 January 2023. 128 ETSI IPR Guide, ibid., clause 4.4. 129 Ibid., clause 4.1.

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5.111 Given the overall tenor of the Horizontal Guidelines on this issue, other standardization collaborations may wish to take a similar non-committal line for various reasons: first, because the Commission does not appear to regard it as necessary for an IPR policy to deal with that sort of issue in order to comply with its guidance and thus benefit from the safe harbour; and, secondly, because it is likely that members will have differing interests in negotiations and trying to set rules (or even articulate expectations) relating to such an issue will very probably result only in distraction from the key standardization purpose of the agreement (as has indeed proved to be the case in both ETSI and the IEEE, which has dealt rather more with commercial issues than ETSI).130 5.112 Leaving aside the vexed issue of the procedural aspects of FRAND, the equally vexing problem of how to assess the FRAND value of patents necessary to implement a standard has given rise to an increasing number of court cases (mainly before national courts in the context of litigation brought to enforce an IPR against an unlicensed user). It has also been addressed in many hundreds of articles, blogs and miscellaneous commentary in the fields of economics, licensing and competition law all over the world, as well as being discussed from time to time within standard development bodies themselves, generating very significant commentary from members whose views vary (perhaps unsurprisingly) depending on whether their current business model depends more critically on obtaining licences to IPRs or granting such licences. 5.113 The concept of FRAND access has a long and honourable history, often in fields far removed from standardization,131 and has been put forward as a solution to potential problems about access to essential IPR in standards since at least the middle of the last century.132 5.114 As far as the requirements in the Horizontal Guidelines are concerned, the Commission notes that a FRAND commitment is intended to benefit both those who own and those who use IPR which is essential to the implementation of standardized technologies. The Commission explains that it should permit those who have invested in R&D to obtain a monetary return on their investment, incentivizing continued participation in standardization activity (and that the ‘best available technology’ is contributed) while also preventing them from blocking or inhibiting implementation of the standard by ‘requesting unfair or unreasonable fees (in

130 By way of example, the dispute in which Alcatel-Lucent, Ericsson and Qualcomm challenged the IEEE after it made changes to its IP policy, including introducing a requirement that patent holders make their patents available to component makers as well as end-users. A number of developers felt unable to provide assurances that they would contribute to the standard in light of the policy changes. See Ericsson’s white paper, Open standards: together we innovate, 2018 revision, p 6. The policy was subsequently further revised prompting significant further comment: https://​www​.ieee​.org/​ about/​news/​2022/​ieee​-announces​-decision​-on​-its​-standards​-related​-patent​-policy​.html – accessed 27 October 2023. 131 For example, the difficulties with using FRAND obligations as a remedy in merger control proceedings was discussed by a panel of those involved in such proceedings during a conference organized by Concurrences in December 2022. The discussion arose as part of a debate about commitments proposed by Illumina during its attempted acquisition of Grail. Reported by PaRR on 5 December 2022 – the acquisition was subsequently blocked by the Commission. See discussion in Chapter 7.

132 A frequently cited article by well-known FRAND commentator and academic Jorge Contreras can be found at: ‘A Brief History of FRAND: Analyzing Current Debates in Standard Setting and Antitrust Through a Historical Lens’ (15 January 2015) 80 Antitrust Law Journal 39, American University, WCL Research Paper No. 2014-18 (https://​ssrn​.com/​ abstract​=​2374983 – accessed 30 November 2023).

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other words excessive fees) after the industry has been locked-in to the standard or by charging discriminatory royalty fees’.133 Given the controversies which surround FRAND, it is perhaps with some relief that those who 5.115 are setting up or joining a standard setting body will read the Commission’s statement that: ‘Compliance with Article 101 by the standard development organisation does not require the standard development organisation to verify whether licensing terms of participants fulfil the FRAND commitment.’134 As it is for individual participants to decide on and negotiate the terms on which they license 5.116 under a FRAND commitment, ways of assessing FRAND are not a matter with which the standardization collaboration needs to engage. Attempts by some Standards Development organizations to provide guidance to members strongly encouraging them to take a particular approach has proven contentious in the past.135 How FRAND is to be calculated has not been addressed in detail by the EU competition 5.117 authorities, although the national courts of various jurisdictions (including the UK) have grasped the nettle in the context of patent disputes in the TMT sector where most thinking on this issue has developed. For those considering involvement in a standard setting collaboration, a short summary of the key issues considered by the Commission to be relevant to assessing a FRAND rate from a competition law perspective may be helpful. Inevitably, given the focus in the Horizontal Guidelines on the relevance of excessive pricing 5.118 to the FRAND concept (see above, paragraph 5.97), the Commission roots its approach in case law dealing with that issue, starting with the judgment of the CJEU in United Brands in which the Court stated that a price is excessive if it does not bear a reasonable relationship to the economic value of the IPR.136 The guidelines then state that when assessing the economic

133 Horizontal Guidelines (n 19), paras 444 and 458, fn 316 which equates ‘unfair or unreasonable’ royalties with ‘excessive’ royalties is interesting and suggests that in the Commission’s view an acceptable FRAND obligation need only prevent the charging of excessive royalties, within the meaning of EU case law. See the discussion of the Commission’s investigation into Qualcomm’s licensing and royalty policies at para 9.46 ff below. It has been argued that a royalty may be unfair or unreasonable without being excessive, and that this is what is meant by the IPR policies of some well‑known standard setting bodies and what has been contractually accepted – Unwired Planet International Limited v Huawei Technologies Co [2017] EWHC 711 (Pat) (Unwired Planet First Instance FRAND).

134 Horizontal Guidelines, ibid., para 459.

135 See the discussion in Eric J. Iversen, Standardization and Intellectual Property Rights: ETSI’s controversial search for new IPR procedures (1999). For an example of recent controversy, see IEEE, Understanding Patent Issues during IEEE Standards Development (https://​standards​.ieee​.org/​wp​-content/​uploads/​import/​governance/​bog/​resolutions/​ september2022​-updates​-faqs​.pdf – accessed 20 January 2023). This shows amendments by way of mark up and took effect on 1 January 2023. See Jorge Contreras, IEEE Amends its Patent (FRAND) Policy (Patentlyo Patent Blog, 9 February 2015) for a description of the adoption of the controversial 2015 amendments (https://​patentlyo​.com/​patent/​ 2015/​02/​amends​-patent​-policy​.html – accessed 20 January 2023); Gene Quinn, IEEE Approves Pro-Patent Holder Policy Updates (IPWatchdog, 30 September 2022), for some brief commentary which approves of the change (https://​ ipwatchdog​.com/​2022/​09/​30/​ieee​-approves​-pro​-patent​-holder​-policy​-updates/​id​=​151824/​# – accessed 20 January 2023); and IP Finance, Implications of the Updated IEEE IPR Policy for FRAND Royalty Rate Determination (7 October 2022), for a short overview of the implications (http://​www​.ip​.finance/​2022/​10/​implications​-of​-updated​-ieee​-ipr​-policy​ .html – accessed 20 January 2023).

136 United Brands (n 100), para 250.

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value of the IPR the market success of the products which is not related to the patented technology should not be taken into account.137 It is not entirely clear what the Commission means by this. Although the concept has been present in discussions about FRAND for many years, the precise scope of the test and its application in practice is likely to be the subject of intense debate during negotiations for any FRAND licence. 5.119 The Commission then lists a number of approaches that may be employed in the effort to identify a FRAND royalty,138 noting that in practice parties may adopt more than one approach so as to enable a degree of cross-checking. The Commission is clear that the approaches it lists are not exclusive and that other approaches with the same overall spirit of reflecting the economic value of the IPR can be used. It does, however, note that costs-based methods may be difficult to use and also distort incentives to innovate, making them less appropriate. Approaches mentioned with a degree of approval by the Commission (or very similar approaches) are, briefly: ● review royalties charged for the IPR in a competitive environment, either before it has been incorporated into a standard and become essential or in a non-standardized context; ● review the royalties charged in a non-standardized environment for the next closest alternative technology; ● obtain an independent, objective, expert assessment of the importance of the technology at issue to the standard and as to its essentiality; ● consider any disclosure of licensing terms announced before the standard is finalized or adopted for standardised technology. Relevant announcements might be those made by the individual licensor whose technology is being valued or by other licensors under the same standard. Such announcements may be a relevant input when assessing the value placed by potential licensors on their technology before it was incorporated into the standard. They may also be relevant to identify the overall ‘royalty stack’ or royalty burden that licensees wishing to implement the standard might in principle expect to face; ● consider the rates actually charged to other licensees in comparable licences under the same standard;

137 Referring back to the 2017 SEP Communication (n 83), p 7. It has been suggested that this may mean that a royalty should have to be adjusted every time an SEP is added to an SEP portfolio or falls away, whether by reason of expiry, invalidity or otherwise. For reasons of transactional efficiency this seems unlikely to be the case – and in practice is not often adopted, including in, e.g., pool licences. As most licences in, e.g., the TMT sector, are concluded for a fixed term, the better argument might be that the parties agree a commercial royalty for a package/portfolio of IPR relevant to the licensed (standardized) product for that fixed term. In doing so, they recognize that the precise makeup of the portfolio may change but this is a commercial calculation of the overall worth of the technology reflecting the approach endorsed by the AG in Case 320/87 Kai Ottung v Klee & Weilbach A/S and Thomas Schmidt A/S, Opinion of the Advocate General (AG) Tesauro (ECLI:EU:C:1989:34) (discussed above at para 2.263 ff) it involves a determination of the award due to the inventor and then a calculation as to how to meter that payment. The context is different but some of the underlying issues are the same. Alternatively, it has been argued that this means that it is necessary to separate market success which is related to the implementation of the standard and/or the specific patented technology from market success which is attributable to other elements (for example, perhaps, branding or other technological aspects of a product) and then to charge royalties only on a part of the product, for example, the smallest identifiable component which incorporates the patented technology. Happily for those creating IP policies in SSOs, it appears that they do not have to provide their interpretation of this obligation when creating an acceptable policy for the purposes of the Horizontal Guidelines and the safe harbour. Interesting cases to bear in mind when considering this issue are the Philips LED case, discussed at para 6.204 ff below and the decision of the English Court of Appeal in Attheraces, discussed at para 6.215. 138 Horizontal Guidelines (n 19), paras 460 onwards.

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● consider the rates actually charged for the same technology in other standards, if it is essential to more than one standard; ● consider the rates actually charged by other licensors for their technical contributions to the same standard (in addition to considering any ex ante announcements); ● consider whether any appropriate overall value for the technology incorporated in a standard (presumably this would be the overall royalty burden for an implementer who seeks and obtains licences for all necessary technology) can be determined and then determine what proportion of that is attributable to the technology of individual licensors. It will immediately be apparent that in anything other than the simplest standard setting envi- 5.120 ronment, affecting relatively uncomplicated patent positions and involving fairly few potential licensees and licensors, all of the proposed methods are fraught with difficulty and complexity, not least because reliable information suitable for making robust analyses or apportionments is likely to be rather difficult to obtain.139 This is acknowledged by the Commission when it comments that its recommendations of the comparative methods in particular: ‘assume that the comparison can be made in a consistent and reliable manner and are not the result of undue exercise of market power’.140 The Commission itself decided many years ago that its role in the standard setting arena is not 5.121 as a price regulator141 and its final comment in this section of the guidelines notes (perhaps with relief) that parties are free to resolve specific disputes about ‘the level of FRAND royalty rates’ by turning to the national courts or to other dispute resolution mechanisms.142 It is from courts in particular that some greater understanding of how FRAND determination 5.122 might work in practice is beginning to emerge (in at least one sector).143 While other dispute resolution mechanisms are known to be used, in particular arbitration,144 much less is known about the substantive valuation approaches that are adopted, given the inherent confidentiality of arbitrations and arbitral awards. Some material derived from arbitral awards may make its

139 Although some national courts have made valiant efforts to undertake the task while acknowledging the fiendish difficulty of doing so – Unwired Planet First Instance FRAND (n 133), and again in the UK see Optis & Unwired Planet v Apple [2023] EWHC 1095 (Ch) and InterDigital v Lenovo & Motorola [2023] EWHC 539 (Pat). Even within one jurisdiction differing approaches are taken, reflecting the difficulties foreseen by the Commission and the inevitable fact that different evidence will affect the approach that any court is able to take. 140 Horizontal Guidelines (n 19), paras 460, 461, referring to case law including Case 395/87 Ministère public v Jean-Louis Tournier [1989] ECR 2521 (ECLI:EU:C:1989:319), para 38; and Cases 110/88, 241/88 and 242/88 Lucazeau and Others v SACEM and Others (ECLI:EU:C:1989:326), para 33. 141 Commission Memo MEMO/09/516, Antitrust: Commission closes formal proceedings against Qualcomm, 24 November 2009 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​MEMO​_09​_516 – accessed 17 November 2009): ‘The Qualcomm case has raised important issues about the pricing of technology after its adoption as part of an industry standard. In practice, such assessments may be very complex, and any antitrust enforcer has to be careful about overturning commercial agreements.’

142 The Commission specifically notes that recourse to arbitration will be by agreement, referring to its own decision accepting commitments by Samsung as to the way in which it would license certain patents essential to certain mobile telephony standards: Samsung Commitments Decision (n 115), Recital 78, and to the seminal judgment in Huawei v ZTE CJEU (n 116), para 68. 143 See below discussion of FRAND determinations in the TMT sector (Chapter 9).

144 See, e.g., the various options referred to in WIPO: https://​www​.wipo​.int/​amc/​en/​center/​specific​-sectors/​ict/​frand/​ – accessed 11 March 2023.

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way indirectly into the public domain to the extent that it is disclosed in civil litigation and then becomes an input into a court determination.145 5.123 A final FRAND related issue dealt with in the Horizontal Guidelines is the competition law assessment of a standardization arrangement which provides for those participating in the development of a standard to disclose (before the standard is adopted) the most restrictive licensing terms they will seek, either individually or as a maximum accumulated royalty rate. The Commission states that it does not regard such a policy as restricting competition contrary to Article 101 TFEU.146 The Commission reasons that those who are deciding between potential technical solutions to be standardized will be helped to make a better overall choice if they can take into consideration not only all the available technical options, and the potential IPR position which affects each of those options but also the comparative highest cost likely to be associated with each potential choice. 5.124 This consideration also feeds into the Commission’s position, discussed immediately below, that a standards collaboration wishing to benefit from the safe harbour outlined in the Horizontal Guidelines should include obligations requiring those who participate in standard setting to disclose any IPR which may read on to the standard. F. Good Faith Disclosure 5.125 The need for an obligation on those who participate in the standard setting process to disclose in good faith any IPR which might be essential to implement the standard is said to flow from two concerns.147 The first is to allow those involved in setting the standard to make an informed choice about the IPR burden borne by any particular technology under consideration for inclusion in the standard; and the second is to further the goal of enabling effective access by allowing would-be implementers to understand the IPR position. 5.126 As far as the first goal is concerned, a principal consideration appears to be to avoid the potential for so-called ‘patent ambush’.148 The Commission explains that this is a problem which arises where an undertaking participates in standard development while intentionally failing to disclose its IPR interests in a technical solution which is incorporated in the standard and then subsequently asserts patents against those using the standardized technology.149

145 Note, however, that the underlying information about the outcome of an arbitration, even if disclosed, may be disclosed under a confidentiality regime, so knowledge about the specific outcome is likely to be very limited.

146 Horizontal Guidelines (n 19), para 474. See the discussion above of when such a restriction might arise (at para 5.1010) – essentially when the policy is a sham, and any disclosed maximum is intended to operate as a price signal or umbrella to implement a price fixing arrangement. 147 Ibid., para 457.

148 Ibid., para 457 and fn 328.

149 In ibid., fn 328, the Commission refers to its Decision in Case COMP/38.636 – Rambus, Commission Decision of 9 December 2009, OJ [2010] C 30/17. The Rambus saga was rather lengthy and resulted in court cases on both sides of the Atlantic. In the EU this related primarily to a challenge to the terms on which the case was concluded: Joined Cases T-148/10 and T-149/10 SK Hynix v Commission (ECLI:EU:T:2013:358), withdrawn in 2015; in the US a more fundamental challenge to the underlying basis for antitrust liability succeeded: Rambus Incorporated v Federal Trade Commission, 522 F.3d 456 (D.C. Cir. 2008). It is discussed in Chapter 9 below.

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The underlying competition law concern with such conduct (however undesirable it may be) is 5.127 a little unclear. If non-patented technical solutions are available which are substitutable for the non-disclosed patented solution, it appears that the theory of harm rests on the increased barriers to entry and likely increase in costs for implementers and therefore consumers which arises from including patented rather than non-patented technology in the standard.150 However, the rationale is less convincing in a standardization scenario where all potential technical solutions are, or are overwhelmingly likely to be, patented. If such a scenario were to exist then non-disclosure of the potential IPR before standardization seems unlikely to have a significant impact on the technical solution that would be chosen – as long as all of those involved have given a FRAND commitment and unless it is known or foreseeable that some IPR owners routinely seek greater returns or impose less favourable terms for licences than others, but are still compliant with FRAND. Perhaps aware of this potential criticism, the Commission gives another reason for requiring 5.128 transparency by explaining that ‘When a “patent ambush” occurs during the standard development process, this undermines confidence in the standard development process, given that an effective standard development process is a precondition to technical development and the development of the market in general to the benefit of consumers’.151 Given that these are only indicative requirements relevant to taking advantage of the safe 5.129 harbour provided by the Horizontal Guidelines and are intended for all sorts of standard setting and across multiple sectors, perhaps the rationale is not critical. In any event, the Commission gives further guidance on the extent of the good faith disclosure obligation. In summary, the obligation need not be too prescriptive, nor need it be absolute: it may be based on reasonable endeavours to both identify IPR relevant to the potential standard and to update any disclosure. Notably, the Commission is clear that an IPR policy seeking to take advantage of the safe harbour does not need to oblige those involved actively to compare their IPR with the standard and state that there is no overlap.152 In practice, disclosure requirements in standardization bodies may be the source of considerable 5.130 dispute (as has been the case, e.g., in ETSI, where the disclosure obligations and the level of detail required from patentees has been refined considerably in recent years).153 Issues may arise from the evolving nature of a draft standard and the evolving coverage of draft patents as they proceed from application to grant, which may make it difficult to effectively and efficiently match specific patents or patent applications with particular technical solutions under consideration for inclusion in a standard. Equally, there may be little or no difficulty if it is immediately clear that a proposed technical solution is reflected in a patent applied for by the proposer.

150 This rationale is reflected in the Commission’s comment that: ‘Since the risks with regard to effective access are not the same in the case of a standard development organisation with a royalty-free standards policy, IPR disclosure would not be relevant in that context’ (Horizontal Guidelines, ibid., para 457). 151 Ibid., fn 328. 152 Ibid., fn 327.

153 For an overview of what is required, see https://​www​.etsi​.org/​images/​files/​IPR/​FAQ​-IPR​-Question1​.pdf – accessed 17 November 2023.

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5.131 The Commission acknowledges that it may not be feasible at the date of disclosure to identify the IPR precisely (e.g., if an application is unpublished or a patent has not yet been granted) so that a patent number or application number is not yet available. It accepts that in such circumstances the IPR policy will be within the Horizontal Guidelines if a ‘blanket declaration’ is given, that is, if a participant in the process ‘declares that it is likely to have IPR claims over a particular technology without identifying specific IPR claims or applications for IPR’.154 5.132 The Commission’s wish that those involved in standardization should provide greater transparency over the IPR landscape that faces potential implementers is clear from its indications that the ideal IPR policy will discourage blanket disclosure and encourage participants to update their disclosure once the standard is adopted.155 G. Article 101 TFEU, IP and Standardization – Conclusion 5.133 In summary, IPR is always likely to play a key role in encouraging parties to participate in standardization and to contribute technology to standards setting efforts. The availability of IPR reassures those who make such contributions that they should be able to realize some benefits from the underlying R&D whether or not they choose to implement the standard and seek to benefit through sales of standardized products. The ability to access necessary IPR is likely to be very important to those considering adopting the standardized technology. These core principles reflect the potential for the control of IPR which reads onto a standard to create barriers to implementation. 5.134 The way in which competition law applies to individual companies who behave in a way that renders IPR a significant impediment to effective access to a standard is dealt with separately below. Standardization bodies cannot, and are not expected to, adopt detailed pricing policies which affect the behaviour of members outside the standard setting collaboration itself. However, to reduce the risks of anticompetitive outcomes, such bodies are encouraged to adopt rules and policies which make conduct leading to inefficiencies or potentially undermining the benefits of standardization less likely. If they do so, they will benefit from a degree of security under EU competition law and, as long as they do not stray far from the core principles set out in the Horizontal Guidelines in setting up and operating the standardization collaboration, members can significantly reduce the risk under Article 101(1) TFEU of engaging in that collective endeavour.

154 Horizontal Guidelines (n 19), para 457 and fn 329. This form of blanket disclosure is more limited than that which has been the practice in the past, e.g., in ETSI. For many years it was the practice for a significant number of participants in the standard development process at ETSI to give broad general declarations that they might have relevant IPR and (crucially) that they were willing to license it, if essential, on FRAND terms. As focus has shifted to the desire for greater transparency of the IPR landscape, so the desire for greater clarity and precision has grown. This is reflected in the Commission’s comment at fn 281 that when blanket disclosures are made, information should ideally be updated once the relevant identifying information is available.

155 This has increasingly been a theme in the general commentary by the Commission and others on patents and standardization. See, e.g., Group of Experts on Licensing and Valuation of Standard Essential Patents ‘SEPs Expert Group’ – Contribution to the Debate on SEPs, January 2021, pp 23 and 49–52 at https://​ec​.europa​.eu/​docsroom/​documents/​45217/​ attachments/​1/​translations/​en/​renditions/​native – accessed 16 November 2023.

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The core requirement is to adopt a clear and balanced IPR policy which recognizes the various 5.135 interests involved in standardization. That policy should: ● deal with the need to ensure that essential IPR will be available to those who wish to implement the standard (seek a FRAND commitment); and ● ensure that information is available about the IPR landscape (require good faith disclosure of relevant IPR).

VII. SUBCONTRACTING IPRs are often licensed as part of subcontracting arrangements. Under such arrangements, 5.136 a contractor appoints another company (the subcontractor) to manufacture goods, carry out works or provide services for it or on its behalf and under its instructions. The contractor may require the goods, works or services for itself or may be commissioning them to satisfy a head contract for a third party. As discussed above,156 to the extent that subcontracting occurs in a horizontal context (i.e., 5.137 between companies active in the same product market) it may benefit from the SBE.157 IP licensing which is directly related and necessary to implement an arrangement covered by the SBE will also be exempt.158 Outside the block exemption regime, a horizontal subcontracting arrangement will be analysed in line with the guidance in the Horizontal Guidelines. In principle, if the main subcontracting arrangement is procompetitive, IP licensing arrangements which are necessary, proportionate and directly related to achieving that procompetitive outcome are unlikely to give rise to significant competition concerns. As far as licensing in a vertical subcontracting context is concerned, neither the TTBER nor 5.138 the VABE applies. Those drafting licences relating to subcontracting arrangements should familiarize themselves with the Commission’s rather elderly guidance159 and the comments on it in the Vertical Guidelines.160 The Commission’s general position is that bilateral subcontracting arrangements are likely to 5.139 fall outside the scope of the prohibition in Article 101(1) TFEU as long as: the only restrictions limit the subcontractor’s use of technology or equipment provided to it by the contractor; and as long as the technology or equipment in question is necessary to produce the goods which are the subject matter of the subcontracting agreement. The sorts of IPR or related rights or materials that are potentially likely to be necessary include: ● industrial property rights owned by the contractor or at his disposal, including patents, utility models, designs protected by copyright, registered designs or other rights; or

156 See discussion at paras 5.80–5.82. 157 SBE (n 22).

158 Ibid., Art 2(3).

159 Subcontracting Notice (n 10).

160 Vertical Guidelines (n 8), para 47.

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● secret knowledge or manufacturing processes (knowhow) owned by the contractor or at his disposal; or ● studies, plans or documents accompanying the information given which have been prepared by or for the contractor; ● dies, patterns or tools, and accessory equipment that are distinctively the contractor’s; or ● other right or materials which, even though not covered by industrial property rights nor containing any element of secrecy, permit the manufacture of goods which differ in form, function or composition from other goods manufactured or supplied on the market. 5.140 The sort of restrictions which will fall outside Article 101(1) TFEU in a vertical subcontracting arrangement include clauses under which: ● technology or equipment provided by the contractor may not be used except for the purposes of the subcontracting agreement; ● technology or equipment provided by the contractor may not be made available to third parties; ● the goods, services or work resulting from the use of such technology or equipment may be supplied only to the contractor or performed on his behalf; ● if a trademark is licensed, its use may be limited only to goods, works or services to be supplied to the contractor; ● either of the parties undertakes not to reveal manufacturing processes or other knowhow of a secret character, or confidential information given by the other party during the negotiation and performance of the agreement, as long as the knowhow or information in question has not become public knowledge; ● the subcontractor undertakes not to make use, even after expiry of the agreement, of manufacturing processes or other knowhow of a secret character received by him during the currency of the agreement, as long as they have not become public knowledge; ● the subcontractor undertakes to pass on to the contractor on a non-exclusive basis any technical improvements made during the currency of the agreement, or, where a patentable invention has been discovered by the subcontractor, to grant non-exclusive licences to inventions relating to improvements and new applications of the original invention to the contractor for the term of the patent held by the latter.161 5.141 Such restrictions will not fall outside the scope of the prohibition in Article 101(1) TFEU if the subcontractor already has available, or could obtain on reasonable terms, the equipment or technology needed to provide the subcontract goods or services and receives from the contractor only general information such as a description of the work to be done. Subcontracting agreements are generally considered to fall outside Article 101(1) TFEU in part because the subcontractor is, in essence, not viewed as an independent supplier in the market as long as it needs the technology or equipment provided by the head contractor to supply the contract services or manufacture/supply the contract goods. Where that is not the case, the application of Article 101(1) TFEU will need to be considered in the light of all the circumstances.

161 Subcontracting Notice (n 10), paras 2 and 3.

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The provisions as to improvements are interesting. They distinguish between so-called severa- 5.142 ble and non-severable improvements.162 The notice states that it is acceptable, and will not give grounds for objection under Article 101(1) TFEU, to require the subcontractor to license back on a non-exclusive basis any improvements made during the contract term and (in the case of patentable improvements or new applications of the contractor’s technology) for such licences to last for so long as the contractor’s patent remains in force. It then goes on to say that any such licence may be exclusive if the improvements are non-severable (‘are incapable of being used independently of the contractor’s secret know-how or patent’) on the basis that such an exclusive licence back is not an appreciable restriction of competition. As discussed above, this distinction no longer affects the treatment of exclusive grant backs in 5.143 technology transfer agreements, where any obligation on a licensee to license back or assign improvements on an exclusive basis is outside the scope of the block exemption and must be individually analysed.163 This implies that such provisions are inherently capable of affecting competition. Given the Commission’s increased sensitivity to the potential adverse impact of such restrictions on incentives to innovate, it may be wise to approach exclusive grant back provisions with a greater degree of caution in subcontracting agreements than suggested by the 1978 notice. The Subcontracting Notice also provides that any restriction on the subcontractor’s ability to 5.144 dispose of (and presumably to otherwise exploit) the results of its own R&D may restrain competition and fall within the scope of the prohibition in Article 101(1) TFEU. However, again this applies only for so long as the results are capable of being used independently – a substantively different position than that in the TTBER and Technology Transfer Guidelines where the position does not differ as between severable and non-severable improvements or results of R&D.164 It may be that the difference in approach can still be justified by the nature of the subcontract- 5.145 ing relationship, but those reviewing such provisions may wish to be cautious, given that more than 40 years after the adoption of the Subcontracting Notice the competition authorities may take the view that when it comes to restrictions on a party’s freedom to use its own R&D or improvements ‘the subcontracting relationship is not sufficient to displace the ordinary competition rules on the disposal of industrial property rights or secret know-how’165 whether those improvements or results be severable or non-severable. Originally this remark was directed towards severable improvements only, but arguably the Commission’s position as to the application of the ‘ordinary competition rules’ has changed sufficiently to make caution also appropriate in respect of exclusive grant backs of non-severable improvements.

162 See the discussion at para 3.175 above of the treatment of this issue in the current TTBER (n 1). 163 TTBER, ibid., Art 5(1)(a) and Technology Transfer Guidelines (n 2), paras 129–132. 164 TTBER, ibid., Art 5(2) and Technology Transfer Guidelines, ibid., paras 141–143. 165 Subcontracting Notice (n 10), para 3.

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CHAPTER 6 IP, DOMINANCE AND ABUSE I. INTRODUCTORY REMARKS 6.01 A. Dominance 6.10 B. Abuse 6.21 C. Purpose of Article 102 TFEU 6.29 D. Article 102 TFEU: Bright Line/by Object or ‘Effects’?6.43 E. Article 102 TFEU – Constantly Evolving: Start With First Principles 6.56 F. Does Article 102 TFEU Have Exceptions? 6.77 G. How Does IP Fit Into This Regime? 6.82 H. Refusals to Deal – Overview 6.88 I. The Development of the Case Law 6.96 1. IMS Health6.131 a. The Commission interim measures decision and IMS’s appeal to the GC 6.134 b. The CJEU’s preliminary ruling on the national court reference 6.139 2. Microsoft6.142 a. Indispensability 6.151 b. Elimination of competition 6.154

c. New product 6.158 d. Justification 6.164 e. Other interesting points 6.169 f. Refusals beyond Microsoft? 6.171 J. Other Types of Abuse 6.180 1. Tying 6.182 2. Unfair licences 6.194 3. Excessive royalties 6.207 4. Exclusivity 6.222 5. Abuse of the IP system 6.230 a. AstraZeneca – misuse of patent and regulatory systems 6.239 b. Boehringer Ingelheim – unmeritorious patents 6.257 c. Teva – divisional patents 6.259 d. Other IP related abuses – patent ambush6.260 e. Collecting societies 6.266 II. SUMMARY ON ARTICLE 102 6.286 A. Dominance 6.289 B. Abuse 6.292

I. INTRODUCTORY REMARKS 6.01 This chapter considers when conduct relating to IPRs may infringe Article 102 TFEU. Article 102 TFEU prohibits abusive behaviour by dominant undertakings. The core concepts are those of dominance and abuse: ● a company which is not dominant cannot infringe Article 102 TFEU; ● having or acquiring a dominant position does not in itself infringe Article 102 TFEU; ● there must be dominance and an abuse before there can be an infringement. 6.02 Article 102 TFEU is primarily directed towards unilateral conduct;1 it is not necessary to identify an agreement before Article 102 TFEU can apply. Where a party with a dominant position

1

Two or more undertakings may be collectively dominant and may engage in collective abuse. This is rare and a discussion of these concepts can be found in more general EU competition law textbooks.

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enters into an agreement with anticompetitive effects, Articles 101 and 102 TFEU may both apply. Each provision must be applied separately in line with its own requirements: the same conduct may be prohibited by one but not the other or may be prohibited by both.2 The concept of an undertaking is the same under Article 102 TFEU as under Article 101 6.03 TFEU (see paragraphs 2.15 ff) as is the requirement that conduct must have an effect on interstate trade if it is to be caught by Article 102 TFEU.3 Article 102 TFEU lacks specific language distinguishing between conduct which has the object of distorting competition and that which has the effect of distorting competition. However, similar concepts are found under Article 102 TFEU, where some conduct is regarded as inherently likely to affect competition.4 Article 102 TFEU provides:

6.04

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. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

Article 102 TFEU infringement cases receive more general attention than other competition 6.05 law investigations.5 High-profile companies are often involved. While serious Article 101 TFEU infringements, such as cartel behaviour, are legally well 6.06 understood as far as the substantive law is concerned, the way in which Article 102 TFEU applies to particular conduct can be unexpected. The examples of abusive conduct set out at paragraph 6.04 are only an introduction to the types of behaviour that may involve Article 102 TFEU liability. Complexity is increased because different competition/antitrust regimes may

2

3 4 5

See, e.g., the concurrent application of Arts 101 and 102 TFEU Case T-51/89 Tetra Pak Rausing SA v Commission of the European Communities [1990] ECR II-309 (Tetra Pak GC) (ECLI:EU:T:1990:41), upholding 88/501/EEC: European Commission (Commission) Decision of 26 July 1988 relating to a proceeding under Articles 85 and 86 of the EEC Treaty (IV/31.043 – Tetra Pak I (BTG licence) [1988] OJ L 272/27, [1988] 4 CMLR 881 (Tetra Pak Commission Decision) and Case C‑307/18 Generics (UK) Ltd and Others v Competition and Markets Authority (ECLI:EU:C:2020:52) (Paroxetine CJEU) in which the CJEU held: ‘In accordance with settled case-law, the same practice may give rise to an infringement of both Article 101 TFEU and Article 102 TFEU, even if the two provisions pursue distinct objectives’ (internal references omitted), para 146.

Commission Notice, Guidelines on the effect on trade concept contained in Articles [101 and 102 TFEU], OJ [2004] C 101/81 (Guidelines on Inter-State Trade). See particularly paras 73–76; 97–99; and 106–109.

If a practice is restrictive of competition by object under Art 101 TFEU, it is also deemed abusive by its very nature in the context of Art 102 TFEU. See Joined Cases C‑468/06 to C‑478/06 Lélos kai Sia EE and Others v GlaxoSmithKline AEVE Farmakeftikon Proïonton [2008] ECR I‑07139, 65–66 (ECLI:EU:C:2008:504) (Glaxo Greece), paras 65 and 66. Other than perhaps major mergers, which frequently receive attention in the financial pages.

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take different policy approaches to the control of market power and even within a particular jurisdiction policy approaches can change significantly over time.6 6.07 When important corporate assets and crucial strategic issues such as investment and innovation are at stake, the level of policy debate, press commentary and lobbying (both direct and indirect) can be very high indeed. This is likely to be the case when the exercise of IPRs is under scrutiny, as was seen for example during the so-called ‘patent wars’.7 Perhaps owing to the importance of the interests which are often at stake, disputes involving IP assets have the potential to become highly politicized.8 Concerns arise about the potential for perceived short-termism to prevail in competition enforcement owing to the clamour for visible action. The desire to be seen to do something about perceived market problems is a significant temptation for competition enforcers and legislators which has been emphasized in recent years by the advent and market impact of new technologies.9 The pressure to act can manifest itself in outcomes which favour static competition and arguably do not take sufficient account of the effects of intervention on dynamic competition. Of course, it has to be recognized that the optimum balance between 6

7

8

9

See, e.g., the review of Art 102 TFEU policy undertaken by the Commission at the turn of the century which resulted in the publication of a discussion paper prepared by the staff of DG Comp in late 2005 and in the Article 82 Guidance (European Commission, Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings [2009] OJ C 45/02), in early 2009. This signalled a desire within the Commission to shift to a more economics or effects-based approach to abusive conduct. An interesting discussion of this can be found in Faull and Nikpay (eds), The EU Law of Competition (3rd edn, Oxford University Press, 20 March 2014), paras 4.93 et seq. More recently, the approach taken in that Guidance has been reviewed and is being revised: see Commission Press Release IP/23/1911, Antitrust: Commission announces Guidelines on exclusionary abuses and amends Guidance on enforcement priorities, 27 March 2023 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​IP​_23​_1911 – accessed 18 November 2023); and Commission Communication C(2023) 1923 final, Amendments to the Communication from the Commission Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, 27 March 2023 (https://​competition​-policy​.ec​.europa​.eu/​system/​files/​ 2023​-03/​20230327​_amending​_communication​_art​_102​_0​.pdf – accessed 18 November 2023) and its accompanying annex (https://​competition​-policy​.ec​.europa​.eu/​system/​files/​2023​-03/​20230327​_amending​_communication​_art​_102​ _annex​.pdf – accessed 18 November 2023). An example of substantive differences in approach between EU competition law and US antitrust law has arisen in the context of unilateral refusals by dominant companies to license their IPRs. This is discussed at para 6.32 below.

See, e.g., the brief summary in the New York Times of the so-called Patent Wars between Samsung and Apple which involved numerous IP lawsuits as well as significant competition law arguments both before the Commission and national courts around the world: New York Times, Apple and Samsung end Smartphone patent wars, 27 June 2018 (https://​www​.nytimes​.com/​2018/​06/​27/​technology/​apple​-samsung​-smartphone​-patent​.html – accessed 19 May 2023). This summary of the end of the seven-year dispute is the very small tip of a very large iceberg. Other Art 102 TFEU cases such as those against Microsoft, Google, Intel and Servier among others often find fame far beyond the legal or financial pages.

For example, at some points during the establishment of ETSI’s IPR Policy (https://​www​.etsi​.org/​images/​files/​IPR/​etsi​ -ipr​-policy​.pdf – accessed 19 January 2023), it is reported that the diplomatic tension between the EU and the US was very significant. See Eric J Iversen, Standardization and Intellectual Property Rights: ETSI’s controversial search for new IPR-procedure, 1999 (https://​www​.academia​.edu/​30826855/​Standardization​_and​_Intellectual​_Property​_Rights​_ETSIs​ _controversial​_search​_for​_new​_IPR​_procedures – accessed 30 October 2023). As noted in ‘Chillin’ Competition’: https://​chillingcompetition​.com/​2021/​06/​30/​when​-did​-the​-rule​-of​-law​-come​-to​ -be​-seen​-as​-an​-inconvenience/​– accessed 19 May 2023: What seems to matter is swift action. Enforcement errors are, if at all, a second or third order concern. What justifies intervention, according to this view, is intervention itself … According to an emerging school of thought, swift and decisive intervention is what really matters, much more than getting it right. Enacting change, more than carefully pondering whether change is warranted, is seen as the priority. And, the argument follows, the institutional setup should adjust to meet this very vision.

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static and dynamic competition is itself a matter of intense debate. Reflecting the sensitivity of the issues arising, both the legislative context and the level of intervention differ from regime to regime.10 Those who favour restraint in competition enforcement where IPRs are involved point to the 6.08 ‘balance’ between long-term and short-term competition within the IP system itself. They are sceptical about the legitimacy or value of efforts to tweak that system through the use of competition law. Such critics have been criticized in turn for their faith in the efficacy of the IP framework without having first established that it works. In other words, those who are sceptical about the operation of the IPR regime doubt that the desirable outcomes attributed to it (greater investment, more R&D, better, cheaper and more innovative goods and services) necessarily result. There can be no doubt that a broad and long-established set of rules, such as those which 6.09 govern the international patent regime, may suffer from lacunae, or even defects, when applied in a modern economy and across all industry sectors. How these affect the policy underpinnings of specific IP regimes is the subject of continuing debate11 – and the patent system itself has come under attack in some quarters.12 For present purposes it is sufficient to note that a number of quirks exist in IP legislation which can have unexpected and arguably undesirable effects in particular circumstances: the question is whether it is appropriate for competition law to intervene in such situations. In addressing that question, the interrelationship between IPRs, dominance and abuse has been a theme of particular resonance in Europe over the last 30 years or so. While the decided cases are relatively few, they have been high profile with significant commercial implications. A. Dominance A dominant position was defined by the CJEU in United Brands as ‘a position of economic 6.10 strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers’.13 This definition or a close variant has been repeated in numerous subsequent cases. General competition law textbooks discuss the concept of dominance in some detail. A brief discussion of some issues with market definition and dominance in two key sectors where IP is prevalent (pharma and TMT) can be found at Chapters 8 and 9 respectively. 10 11 12

13

A recent overview of relevant issues can be found in Pınar Akman, Or Brook and Konstantinos Stylianou (eds), Research Handbook on Abuse of Dominance and Monopolization (Research Handbooks in Competition Law series) (Edward Elgar Publishing, 21 April 2023). For a summary of some of the issues see Organisation for Economic Co-operation and Development (OECD), Patents and Innovations: Trends and Policy Challenges (https://​www​.oecd​.org/​science/​inno/​24508541​.pdf – accessed 19 May 2023) which has a useful bibliography.

As an example of how this issue has become controversial and reached mainstream reporting and commentary, see the perspective piece: Robin Feldman, Our patent system is broken. And it could be stifling innovation (The Washington Post, 8 August 2021) (https://​www​.washingtonpost​.com/​outlook/​2021/​08/​08/​our​-patent​-system​-is​-broken​-it​-could​-be​ -stifling​-innovation/​– accessed 30 October 2023).

Case 27/76 United Brands Company and United Brands Continentaal BV v Commission of the European Communities (ECLI:EU:C:1978:22) (United Brands), para 65.

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6.11 Substantial market shares, even within a market which has been carefully defined for competition law purposes, are not themselves sufficient to establish dominance (although some presumptions of dominance do exist for persistent market shares of 50 per cent or more in properly defined relevant markets).14 As in markets not significantly affected by IPRs, ultimately the crucial question is the relative competitive strength of market participants.15 6.12 As discussed above in the context of Article 101 TFEU, owning a patent or other IPR does not automatically confer a monopoly, or even market power, on a relevant product and geographic market. In the same way, it may or may not confer market power in a technology market if such a market is relevant. As confirmed by the CJEU in the Magill case (discussed at para 6.110 ff): ‘So far as dominant position is concerned, it is to be remembered at the outset that mere ownership of an intellectual property right cannot confer such a position.’ 6.13 Taking patents as an example, a patent is a legal title protecting an invention. An invention does not necessarily equate to a product. It may relate only to a small aspect of a more complex product or service and only the invention itself is covered by the patent right relating to it. 6.14 The right to place a patented invention on the market for the first time and to prevent others from doing so (or to license them under the right) is the specific subject matter of a patent right.16 The right to oppose infringement forms part of the specific subject matter. A patent right can be enforced through the courts to prevent third parties from making, using, selling, importing, distributing or stocking a product or process implementing the invention covered by a valid patent without the patent owner’s consent. None of these rights mean that a patentee has a strong, much less dominant, position in a relevant product and geographic market for competition law purposes. 6.15 A patented invention may be almost or entirely coexistent with a final product or it can relate to an element of a product or process. Market power may not flow from the ownership of a patent, or even a portfolio of patents, as the product or process in which the patented invention is implemented may compete with other products or processes, accomplishing the same or a sufficiently similar result from the consumer’s point of view. Even for the same type of product it may be feasible to achieve a similar result using a different technical solution and avoiding the patented invention (colloquially known as ‘designing around’ a patent). If a court upholds a patent as valid and infringed by a third-party product or process it does not follow that this results in significant market power in a relevant market. Even those producers who had implemented the patented invention may be able to avoid using it in future products or may already have started to do so; there may already be one or more alternative technical options enabling producers to bring substitutable products or processes to market.

14 See Case 85/76 Hoffmann-La Roche & Co. AG v Commission of the European Communities [1979] ECR 461 (ECLI:EU:C:1979:36) (Hoffman-La Roche), paras 41 and 42; Case 62/86 AKZO Chemie v Commission of the European Communities (ECLI:EU:C:1991:286) (AKZO Chemie), para 41. 15 Commission Notice on the definition of the relevant market for the purposes of Union competition law OJ C, C/2024/1645, 22.2.2024, para 6: ‘The main purpose of market definition is to identify in a systematic way the immediate competitive constraints that the undertaking(s) involved face when offering certain products in a certain area.’ 16

See the discussion in Chapter 1, para 1.97 and Case 15/74 Centrafarm BV and Adriaan de Peijper v Sterling Drug Inc [1974] ECR 1147 (ECLI:EU:C:1974:114) (Centrafarm v Sterling Drug).

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It can be useful to think of IPRs as creating actual or potential barriers to entry or expansion. 6.16 The existence of any IPR related barrier to entry will be relevant to assessing the market power of incumbents who are present on the relevant market. While such barriers may mean that new entrants have to design around or avoid existing technologies to enter the market or compete effectively within it, this does not necessarily mean that market power exists. That will depend upon how ‘high’ the barrier is (is it actually a significant impediment to manufacturing or dealing in competing products); whether it can be removed (e.g., invalidated); or worked around (non-infringed). Not all IPRs will have a similar effect on entry, and the extent to which patents or other IPRs 6.17 create barriers to entry will depend on the facts and sometimes also on the commercial and regulatory context. The specific difficulties that arise from the fact that all IPRs are probabilistic17 have been discussed in the context of Article 101 TFEU above and are further discussed in the context of pay for delay cases below.18 In addition, certain species of IPR, such as trademarks, are inherently less likely to constitute significant entry barriers, as there is no requirement for a new entrant to have access to an existing trademark to compete, although strong brand loyalty may contribute to raising entry barriers.19 Guidance from the UK’s competition authority (formerly the Office of Fair Trading (OFT), 6.18 now the Competition and Markets Authority (CMA)) discusses when an IPR should be regarded as constituting a barrier to entry: [IPRs] can be entry barriers, although this is not always the case. In particular, when an IPR does not prevent others from competing with the IPR holder in the relevant market, it would not normally be a barrier to entry. In those cases where IPRs do constitute a barrier to entry, it does not always imply that competition is reduced. Although an IPR may constitute an entry barrier in the short term, in the long term a rival undertaking may be able to overcome it by its own innovation. The short term profit which an IPR can provide acts as an incentive to innovate and can thus stimulate competition in innovation.20

The case law establishes that, notwithstanding the observations above, the ownership of IPRs, 6.19 like other forms of property ownership, may mean that third parties are unable to act as an effective competitive constraint on the IPR holder’s market power.

17

This refers to the fact that a patent may in fact not ultimately consist in a barrier to entry (because it is invalid; or unlikely to be infringed by competitive commercial product or service; or the invention is technically irrelevant). Given that fact, competitors to the patentee may essentially ignore the IPR, choosing to enter at risk, or may consider themselves equally protected by their own patents relying on a form of ‘Mutually Assured Destruction’ to enable them to compete without significant fear of litigation in the expectation that a cross licence would be granted if necessary.

18 In Paroxetine CJEU (n 2), the Court of Justice held at para 46 that the existence of a patent cannot, as such, be regarded as an insurmountable barrier to entry. 19

Discussed in, e.g., William Van Caenegem, Rethinking Trademarks and Competition: When is a Brand a Barrier to Market Entry? (doi:10.1017/9781108157827.019); and Part II – Sharpening the Focus: Sectoral Perspectives (doi:10.10 17/9781108157827.010), both in Robert D Anderson, Nuno Pires de Carvalho and Antony Taubman (eds), Competition Policy and Intellectual Property in Today's Global Economy (Cambridge University Press, 4 June 2021). See also Nicholas S Economides, The Economics of Trademarks (Vol 78 TMR) (http://​neconomides​.stern​.nyu​.edu/​networks/​Economides​ _Economics​_of​_Trademarks​.pdf – accessed 19 May 2023).

20 Office of Fair Trading, Assessment of Market Power, December 2004 (https://​assets​.publishing​.service​.gov​.uk/​ government/​uploads/​system/​uploads/​attachment​_data/​file/​284400/​oft415​.pdf – accessed 19 May 2023).

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6.20 The Commission considered patents to be a barrier to entry in Hilti,21 finding that Hilti held a dominant position to which the existence of its IPRs contributed, acting as barriers to entry. Similarly, in Tetra Pak (Commission Decision),22 the acquisition of rights under an exclusive patent licence was considered to have strengthened Tetra Pak’s existing position of dominance, as it made entry for other companies more difficult. This will always be an issue to be determined on the facts. Factors that may be relevant, depending on the legal and economic context, will include the time to expiry of the right; the density of IPRs; knowledge (or ignorance) of the IPR landscape; uncertainty as to scope or validity of the right; and the practical difficulty of enforcing IPRs (time; cost; evidence required; judicial attitude; remedies) among others. Appetite for risk may also differ considerably from sector to sector23 which may affect questions of market definition, of potential competition and of dominance. B. Abuse 6.21 Once a position of dominance has been established, the next step is to consider whether there may be an abuse. Whether or not particular market conduct is abusive can be a matter of controversy. It is in this field that the greatest variation in approach can be found between competition authorities around the world. The authorities often rely on concepts which are difficult to apply in practice and the concepts may be differently interpreted, and consequently differently policed. National courts within the EU have regularly sought guidance from the CJEU on fundamental questions around the concept of abuse, including recently in the important case Servizio Elettrico Nazionale.24 6.22 An overview of the Commission’s general approach to enforcing Article 102 TFEU against exclusionary conduct25 can be found in the Commission’s Guidance on Article 102 TFEU Enforcement Priorities.26 The Commission indicated when adopting the guidance that it

21 22 23

24

25

26

88/138/EEC: Commission Decision of 22 December 1987 (IV/30.787 and 31.488 – Eurofix-Bauco v Hilti) OJ [1988] L 65/19 (Eurofix-Bauco v Hilti), para 66. Tetra Pak (Commission Decision) (n 2), para 44, upheld on Tetra Pak GC (n 2) – see discussion below at para 6.222.

See, e.g., the discussion of the commercial realities of ‘entry at risk’ in the pharmaceutical sector in cases such as Paroxetine CJEU (n 2), and Case C-591/16 P H. Lundbeck A/S and Lundbeck Ltd v European Commission (ECLI:EU:C:2021:243) below at para 8.168.

Case C-377/20 Servizio Elettrico Nazionale SpA and Others v Autorità Garante della Concorrenza e del Mercato and Others (ECLI:EU:C:2022:379) (Servizio Elettrico Nazionale), para 27 sets out the questions referred of which four related to fundamental aspects of the concept of abuse and abusive conduct. The operative part of the judgment, following para 124, sets out the CJEU’s response to the national court, but the relevant paragraphs setting out the CJEU’s reasoning are also very important to understand the CJEU’s rationale.

Abusive conduct under Art 102 TFEU is often categorized as ‘exclusionary’, which tends to exclude competition or render it less effective (e.g., by making it more difficult for actual or potential competitors to compete by offering customers unfairly low, or predatory prices, which competitors cannot meet) or ‘exploitative’ which tends to use the dominant company’s market power to exploit those who deal with it (for example by extracting unfair terms from those with whom it deals). Some conduct falls into both categories.

Commission Communication, Guidance on the Commission’s Enforcement Priorities in Applying Article [102 TFEU] to abusive exclusionary conduct by dominant undertakings, OJ [2009] C 45/7 (Article 102 TFEU Guidance). As discussed below, this is currently under review and likely to be replaced by guidelines. See Commission Press Release IP/23/1911 (n 6).

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would apply its principles.27 However, the Article 102 TFEU Guidance is not law and binds neither the EU Courts nor national courts nor National Competition Authorities28 although it has had persuasive effect. The guidance is now almost 15 years old, meaning that subsequent case law could cast doubt on the weight to be given to some aspects. The extent to which the law continues to evolve is reflected in the fact that on 27 March 2023, 6.23 the Commission issued an ‘Amending Communication’ and announced a consultation process intended to lead to the adoption of guidelines on exclusionary abuses.29 The Commission’s rationale and approach are discussed in a DG Comp Staff Policy Brief which explains that the Commission: (i) has chosen to amend its enforcement priorities guidance to reflect the evolution in the Court’s case law; and (ii) considers that a set of guidelines based on the Court’s case law will lead to greater legal certainty and more consistent enforcement. The policy brief is a useful resource, which discusses and references the important cases on exclusionary conduct under Article 102 TFEU over the last 15 years.30 Before turning to a more specific exploration of aspects of Article 102 TFEU relevant to IPRs, 6.24 it is worth considering features of the law on unilateral conduct cases which make advising on potential abuses under Article 102 TFEU particularly tricky.31 The effects of conduct capable of infringing Article 102 TFEU are often keenly felt by those 6.25 affected. Many of the complaints which are made most passionately to the authorities or litigated in the national courts relate to Article 102 TFEU and are made by those who feel not only that they are being illegitimately harmed or excluded, but that the conduct which is harming them is also harming competition more broadly. Those against whom such complaints are made often feel strongly that by reacting to complaints by aggrieved competitors the 27

28

Commission Press Release IP/08/1877, Antitrust: Consumer welfare at heart of Commission fight against abuses by dominant undertakings, 3 December 2008 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​IP​_08​_1877 – accessed 18 November 2023). There has been considerable debate as to whether the Commission is in fact required to follow its own guidance/guidelines (unless it provides a reasoned statement explaining why a different approach is being pursued) so as to avoid breaching the principle of legitimate expectations. This is discussed in numerous cases. One clear recent example is T‑180/15 ICAP and Others v Commission (ECLI:EU:T:2017:795), para 289.

https://​c hillingcompetition​. com/​2 018/​0 3/​1 5/​i s​- the​- guidance​- paper​- on​- article​- 102​- binding​- on​- the​- european​ -commission/​– accessed 22 May 2023.

29 Commission, The Article 102 TFEU Package (https://​competition​-policy​.ec​.europa​.eu/​antitrust/​legislation/​application​ -article​-102​-tfeu​_en – accessed 18 November 2023). According to Commission Press Release IP/23/1911 (n 6), ‘The Commission plans to publish a draft of the guidelines for public consultation by mid-2024, with the aim of adopting them in 2025. Upon the adoption of the guidelines, the Commission will withdraw the 2008 Guidance on enforcement priorities, as amended on 27 March 2023.’ 30 31

The 2023 Article 102 Staff Policy Brief, A dynamic and workable effects based approach to abuse of dominance, March 2023 (https://​competition​-policy​.ec​.europa​.eu/​system/​files/​2023​-03/​kdak23001enn​_competition​_policy​_brief​_1​_2023​ _Article102​_0​.pdf – accessed 22 May 2023) (2023 Article 102 Staff Policy Brief). Commentary on some of the difficulties inherent in dealing with unilateral behaviour, where one company may view conduct as aggressive but legitimate competition while another may view it as obvious and egregious abuse, can be found on the websites of bodies such as the OECD and the International Competition Network. It may be of some (albeit cold) comfort to EU lawyers and those carrying on business in the EU that similar difficulties in drawing a line between aggressive competition and abuse are encountered in all systems of competition law. Unilateral conduct has been the subject of greater intervention over recent years in Europe than in (e.g.,) the US although recent indications (particularly following the change of administration in the US in 2020) are that US enforcement may increase, particularly in some sectors.

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authorities are seeking to protect individual competitors rather than the process of competition. They also argue that strategic decisions about how to compete and use resources should not easily be open to challenge by competition enforcers, particularly when those enforcers are perceived to be enforcing a regime that is neither stable nor predictable. 6.26 Article 102 TFEU applies only to dominant companies and should therefore give rise to litigation and enforcement much less frequently than Article 101 TFEU. However, as mentioned already, its ambit and application are less clear than Article 101 TFEU (particularly by comparison with the most frequently enforced aspects of Article 101 TFEU: cartel-type behaviour such as price fixing and market sharing). This means that there is a great deal to argue about. The difficulty and novelty of the law and policy issues raised by Article 102 TFEU mean that ultimately many Article 102 disputes that get beyond initial skirmishing find their way to the EU Courts whether by way of appeal or on a reference from a national court seeking guidance. 6.27 The following features of Article 102 TFEU are notable: ● Its underlying rationale has not been consistently articulated but has evolved and adjusted over time. ● There is tension between a ‘bright line’ approach and a more ‘economic’ approach. ● It does not contain a clear definition of abuse and the categories of abuse have evolved considerably. ● It provides no ‘defence’ akin to Article 101(3) TFEU. ● While objectively justified conduct does not infringe, that concept continues to evolve in unpredictable ways and applies only rarely. 6.28 Given that context, perhaps it is not surprising that much of the more recent jurisprudence of the EU Courts relating to the relationship between IPRs and competition law falls at least in part within the ambit of Article 102 TFEU. To help understand how jurisprudence relating to IPR issues fits in to the overall scheme of Article 102 TFEU case law, the main controversies are summarized below. C. Purpose of Article 102 TFEU 6.29 The purpose of Article 102 TFEU is to prohibit, sanction and prevent conduct which is abusive. It is permissible for dominant companies to compete and to protect their own commercial interests, as has been confirmed by the EU Courts on numerous occasions. However, there are significant difficulties in differentiating between vigorous competition which is permitted (and indeed encouraged) and behaviour which strays into abuse. One approach which might help draw the line could be to identify who or what Article 102 TFEU is intended to protect: is it the structure of competition, is it competitors or is it consumers? Might it be a little of all three? 6.30 The EU competition authorities towards the end of the last century and the first couple of decades of this century have focused on consumer welfare as the goal of competition law enforcement (see paragraph 1.25 above) and have repeatedly stated that the purpose of Article 102 TFEU is to protect competition in the interests of consumers, and not to protect competitors. Nevertheless, enforcement under Article 102 TFEU has been criticized on the basis that it has tended to protect competitors (including inefficient competitors). 232

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It is a truism there can be significant disagreement between genuinely held opinions as to how 6.31 much intervention is required and whether it is better to err on the side of overenforcement (false positives) or underenforcement (false negatives). And somewhat different paths have been taken, over slightly different timeframes between, for example, the EU and the US. To some extent, such differences reflect underlying social and political attitudes. Under the US antitrust regime, the US courts have over the last quarter century or so been par- 6.32 ticularly concerned about the potential chilling effects (particularly on incentives to invest and to innovate) of over-intervention.32 The US Supreme Court has stated: ‘Mistaken inferences and the resulting false condemnations “are especially costly, because they chill the very conduct the antitrust laws are designed to protect”.’33 Both the Commission and the EU Courts have been alive to the perception that Article 102 6.33 TFEU could be instrumentalized merely to protect competitors and have been at pains to acknowledge concerns similar to those expressed by the US Supreme Court, with numerous statements at both Court and Commission level that the purpose of Article 102 TFEU is not to protect competitors as such. However, alongside these statements, the EU Courts have also repeatedly mentioned the importance of effective competition and an effective competitive structure in delivering consumer welfare. While ‘effective competition’ may be open to a number of potential definitions, the implication is that competitors who deliver meaningful benefits to the competitive process will be protected and that practices which exploit or exclude them will be prohibited so as to maintain competitive pressure on the dominant firm. The importance of maintaining a competitive market structure (and thus an effective competi- 6.34 tive process) has always been central to Article 102 TFEU as interpreted by the CJEU. As early as 1973, the Court made clear that conduct which undermined or prevented the maintenance of an effective competitive structure was contrary to Article 102 TFEU: As may further be seen from letters (c) and (d) of Article [102(2) TFEU], the provision is not only aimed at practices which may cause damage to consumers directly, but also at those which are detrimental to them through their impact on an effective competition structure, such as is mentioned in [Protocol 27 to the Treaties]. Abuse may therefore occur if an undertaking in a dominant position strengthens such position in such a way that the degree of dominance reached substantially fetters competition, i.e. that only undertakings remain in the market whose behaviour depends on the dominant one.34

32 The evolution of US antitrust law is very helpfully summarized in Phillips Sawyer, US Antitrust Law and Policy in Historical Perspective (Harvard Business School, Working Paper 19-110) (https://​www​.hbs​.edu/​ris/​Publication​ %20Files/​19​-110​_e21447ad​-d98a​-451f​-8ef0​-ba42209018e6​.pdf – accessed 1 November 2023) which also explores briefly the pressures for a shift to a more interventionist approach (p 25). Similar ground is covered in slightly more detail in William H. Rooney and Timothy G. Fleming, ‘Time for a New Sherman Act? The Debate on Antitrust Reform in Historical Perspective’ (2022) 1 Columbia Business Law Review 1, 2 (https://​journals​.library​.columbia​.edu/​index​.php/​ CBLR/​article/​view/​9977/​5036 – accessed 1 November 2023) as well as by many others including Lina Khan, Ariel Ezrachi and Maurice Stuck. 33

34

Verizon Communications Inc v Law offices of Curtis v Trinko LLP, 540 US 398 (2004) (Verizon v Trinko).

Case 6/72 Europemballage Corporation and Continental Can Company Inc v Commission of the European Communities [1973] ECR 215 (ECLI:EU:C:1973:22), para 26.

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6.35 This insight was given rather less prominence in practice around the turn of the last century. The Commission’s 2009 guidance paper (particularly in the context of pricing abuses) dealt with concerns that possible overenforcement would chill price competition, by focusing on conduct which would harm an ‘as efficient competitor’. For example, at paragraph 23, the Commission stated: ‘[T]he Commission will normally only intervene where the conduct concerned has already been or is capable of hampering competition from competitors which are considered to be as efficient as the dominant undertaking’. The 2009 guidance paper also noted that the focus on efficiency operated in the context of a concern to protect an effective competitive process, stating: ‘[T]he Commission is mindful that what really matters is protecting an effective competitive process and not simply protecting competitors. This may well mean that competitors who deliver less to consumers in terms of price, choice, quality and innovation will leave the market’.35 6.36 The desirability of the Commission’s primary focus on economic efficiency was widely debated, but gained significant support in some quarters.36 6.37 Subsequent events have made clear that cost efficiency and price competition in itself are not to be regarded as the only touchstones when it comes to Article 102 enforcement. The Commission explained in its 2023 Article 102 Staff Policy Brief 37 that: ‘… the Guidance on enforcement priorities made use of the notion of foreclosure of as-efficient competitors from a cost perspective as a proxy to identify anticompetitive effects warranting intervention’ noting that ‘… while using the notion of foreclosure of as-efficient competitors may be conceptually justified as a general proxy for intervention in pricing abuses, it is important to avoid an unduly strict and dogmatic application of such a standard’. 6.38 This reflects the approach of the EU Courts in cases such as Post Danmark I38 and Intel v Commission.39 In the latter, the CJEU explained that ‘competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation’,40 focussing on that efficiency as a concept that goes beyond price/cost. The Commission’s revised (2023) Article 102 TFEU draft Guidance now states that: ‘… in certain circumstances a less efficient competitor may also exert a constraint which should be taken into account when considering whether particular price-based conduct leads to anti-competitive foreclosure’.41 35

36

37 38 39 40

41

Article 102 TFEU Guidance (n 26), para 6.

This topic has been widely written about, but for a supportive description of the Commission’s shift in approach and its consequences see, e.g.: Witt, The More Economic Approach to EU Antitrust Law, Hart Studies in Competition Law (Bloomsbury Publishing, 18 April 2009), and for a critical editorial comment on how things have continued to change subsequently, see Pablo Ibáñez Colomo, ‘Whatever Happened to the “More Economics-Based Approach”?’ (2020) 11(9) Journal of European Competition Law & Practice 473–474 (https://​doi​.org/​10​.1093/​jeclap/​lpaa088 – accessed 18 November 2023). See above (n 30), at p 5.

Case C-209/10 Post Danmark A/S v Konkurrencerådet (ECLI:EU:C:2012:172) (Post Danmark I).

Case C-413/14 P Intel Corporation Incorporated v European Commission (ECLI:EU:C:2017:632) (Intel v Commission). Intel v Commission, ibid., para 134.

Commission Communication 2023/C 116/01, Amendments to the Communication from the Commission – Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant

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Over the last five to ten years, the weight given to concerns about overenforcement at a political 6.39 level and within the bodies entrusted with enforcement has shifted, not least in the light of concerns about the activities of large players in digital or platform markets and the implications for competition policy of economic dislocation caused by the Covid-19 pandemic.42 Research indicating that markets are more concentrated and less competitive in many advanced economies than at any time over the last quarter century43 (and drawing an explicit causal link between increased concentration and reduced competition) has been cited in support of an argument that a core concern of competition authorities should be the adverse effects of underenforcement rather than overenforcement of competition law.44 There have been loud calls for greater enforcement action to prevent exclusionary conduct under Article 102 TFEU. Corporate transactions that affect the structure of the market are also the focus of more critical attention.45 Against that background, even before the Commission issued its Article 102 package in March 6.40 202346 the signs had become very clear that the competition authorities within the EU were revisiting the consensus around intervention (at least as it had been applied since the turn of the century onwards) with a greater focus on maintaining competitive pressure through a less concentrated market structure, leading to ‘fairer’ market outcomes.47 This tendency was most apparent in markets where competition is difficult, perhaps because of substantial and difficult to replicate advantages enjoyed by the incumbent, for example markets in which the dominant entity is the successor of a former State monopoly.48 More controversially, similar arguments might be applied in the context of markets occupied by ‘super-dominant’ undertakings enjoy-

undertakings, 31 March 2023, OJ [2023] C 116/1. The Annex contains the specific amendments, including this revised text in para 24 of the 2008 Guidance.

42 OECD, The Role of Competition Policy in Promoting Economic Recovery – Background Note (DAF/COMP(2020)6). 43 44

See for a summary, by way of example, Professor Valletti (Imperial College London (and, at the time, Chief Economist DG Comp)), Concentration Trends, 2018 ECB Forum, June 2018, Sintra (https://​www​.ecb​.europa​.eu/​pub/​conferences/​ shared/​pdf/​20180618​_ecb​_forum​_on​_central​_banking/​Valletti​_Tommaso​_Presentation​.pdf – accessed 22 May 2023). This point is made explicitly in the introductory section of the 2023 Article 102 Staff Policy Brief (n 30), citing a variety of sources on the interrelationship between increased concentration and reduced competition at p 1 and fn 5.

45 Gàbor Koltay and Szabolcs Lorincz, Industry concentration and competition policy (Competition Policy Brief, Issue 2021/02, November 2021). 46

47

48

The Article 102 TFEU Package (n 29).

See the discussion of this change in tone in: Damien Gerard, ‘Fairness in EU Competition Policy: Significance and Implications’ (2018) 9(4) Journal of European Competition Law & Practice 211–212. The issue was thoroughly explored in Niamh Dunne, ‘Fairness and the Challenge of Making Markets Work Better’ (2021) Modern Law Review (https://​ eprints​.lse​.ac​.uk/​106252/​1/​Dunne​_fairness​_and​_the​_challenge​_of​_making​_markets​_published​.pdf – accessed 22 May 2023). See also, e.g., Speech by EVP Margrethe Vestager, What is competition for? (and SPEECH/22/6067EVP Vestager keynote speech, Fairness and Competition Policy, at the European Competition day on 10 October 2022 in Prague (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​SPEECH​_22​_6067 – accessed 22 May 2023). See, e.g., Case C-23/14 Post Danmark A/S v Konkurrencerådet (ECLI:EU:C:2015:651) (Post Danmark II) and, in the UK, Case 1299/1/3/18 Royal Mail plc v Office of Communications [2019] CAT 27, upheld on appeal to the Court of Appeal [2021] EWCA (Civ) 669.

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ing the benefits of significant tipping and network effects,49 such as might be identified in the context of some platforms.50 6.41 The CJEU summarized its views on the topic as follows: …, the purpose of Article 102 TFEU more specifically is, according to settled case-law, to prevent conduct of a undertaking in a dominant position that has the effect, to the detriment of consumers, of hindering, through recourse to means or resources different from those governing normal competition, maintenance of the degree of competition existing in the market or the growth of that competition. … To that effect, as the Court has held, that provision seeks to sanction not only practices likely to cause direct harm to consumers but also those which cause them harm indirectly by undermining an effective structure of competition.51 (internal references omitted)

6.42 In summary, the way in which Article 102 TFEU is to be understood in the light of its purpose is the subject of continued debate. The intricacies of that debate go beyond the scope of this book and are perhaps more relevant to non-IP related abuses. However, some of the recent focus on maintaining or encouraging ‘follow on’ innovation in sectors such as pharma and TMT by discouraging practices whereby IPRs are instrumentalized to inhibit downstream market competition (including the exploitation of loopholes or gaming particular features of the system52) might be seen as one aspect of the way in which the balance has shifted towards a more interventionist stance in pursuit of ‘fairer’ outcomes.53 D. Article 102 TFEU: Bright Line/by Object or ‘Effects’? 6.43 Article 102 TFEU does not refer to the ‘object or effect’ distinction which forms part of the text of Article 101(1) TFEU.

49

50

51 52 53

2023 Article 102 Staff Policy Brief (n 30), p 2, and related footnotes: The global and European economies have also undergone significant changes, with increasing evidence of market concentration at macro-economic level and a growing importance of digital markets and services, in both economic and societal terms. In such fast-moving markets, often featuring strong network effects and ‘winner-takes-all’ dynamics, it is paramount to ensure an effective and swift enforcement of Article 102 TFEU to intervene before tipping occurs and entrenched market positions are created.

The debate that surrounds competition in the platform economy, and legislative attempts to regulate that sector, are outside the scope of this book. For an introduction to the issues, see OECD, Ex ante regulation of digital markets, OECD Competition Committee Discussion Paper (2021) (https://​www​.oecd​.org/​daf/​competition/​ex​-ante​-regulation​-and​ -competition​-in​-digital​-markets​-2021​.pdf – accessed 18 November 2023), but some of the Art 102 TFEU enforcement against such companies may be understood against the concern to preserve some effective competition and to avoid incumbency in one field extending elsewhere. The broader issues surrounding the dynamic effects in the longer term of preserving inefficient competitors and the impact on potential future entry form an important part of the debate. Servizio Elettrico Nazionale (n 24), paras 44 and 45. See below at para 8.253 ff.

See Damien Gerard’s comment (n 47), that: … this basic fairness rationale emerges as an interesting epistemological tool to recognize the particular sensitivity of cases involving the ownership and use of specific rights and resources granted by society, including the actions of (former) de jure monopolies, the monetisation of IP rights or the operation of regulatory processes, including the reliance on possible loopholes therein, but also public compensation … (emphasis added).

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The classic definition of abuse states that it is an objective concept, that alleged abusive conduct 6.44 must be assessed in all the circumstances and that conduct can be abusive only if an effect on competition is foreseeable: The concept of abuse is an objective concept relating to the behaviour of an undertaking in a dominant position which is such as to influence the structure of a market where, as a result of the very presence of the undertaking in question, the degree of competition is weakened and which, through recourse to methods different from those which condition normal competition in products or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition.54

The final sub-clause of the sentence implicitly recognizes that ‘the effect’ of the conduct is rel- 6.45 evant to its abusive nature. However, both the Commission, during its enforcement activities, and the EU Courts in the subsequent appeals and when dealing with national court references, have been criticized for applying a fairly cursory effects test, or none at all, to at least some categories of abuse. In a number of cases (including Hoffmann-La Roche itself and its progeny) the way in which the Commission and the European Courts approached Article 102 TFEU have made clear that de facto certain categories of conduct are so inimical to competition as to be identified as ‘by object’ abusive.55 Conduct that has been held to fall into that category include conduct which has the purpose of 6.46 partitioning the single market;56 product swaps involving the removal of competitor products and their substitution by those of the dominant company;57 conduct intended to prevent competitors from entering the market;58 or preventing them from using competing services59 – or providing direct incentives to leave the market;60 and predatory pricing.61 Conduct involving only the unilateral exercise of IP is unlikely to be categorized as a ‘by object’ 6.47 infringement. However IPR ownership and exercise may play a part in conduct which is considered to be such a ‘naked restriction’ of competition or as so inherently likely to result in harm to consumers, as to allow the authorities to infer an effect on competition without needing to assess the precise effects. It is necessary to be clear that while there may be categories of conduct that can be presumed to 6.48 affect competition, and on their face to infringe Article 102 TFEU, these are not ‘per se’ abuses. There are two reasons for this. First, procedurally, if a dominant firm puts forward evidence that its conduct could not have a foreclosing effect, the Commission cannot ignore that evi-

54

Hoffmann-La Roche (n 14), para 91.

56

Glaxo Greece (n 4), para 66.

55

57

58 59 60 61

See, e.g., the approach to fidelity rebates in cases such as Hoffmann-La Roche, ibid., subsequently followed in a number of other cases. Case T-228/97 Irish Sugar plc v Commission of the European Communities [1999] ECR II-02696 (ECLI:EU:T:1999:246), paras 226–235. Case T-321/05 AstraZeneca AB and AstraZeneca plc v European Commission (ECLI:EU:T:2010:266) (AstraZeneca GC), paras 352–613, upheld on appeal Case C-457/10 P (ECLI:EU:C:2012:770) (AstraZeneca CJEU), paras 76–283. Case T-814/17 Lietuvos geležinkeliai AB v European Commission (ECLI:EU:T:2020:545). Discussed in the context of the ‘pay for delay’ cases below. AKZO Chemie (n 14).

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dence, but must address it.62 Secondly, even if conduct is so likely to be harmful to competition that any evidence to the contrary is likely to be quickly refuted, there remains the possibility for the dominant undertaking to demonstrate that the conduct in question is objectively justified, as discussed below. 6.49 When it is necessary to review the likely effects on competition to establish whether conduct is or is not abusive, the case law is not prescriptive as to how this is to be done. Various formulations have been adopted, mostly requiring simply that all the circumstances be considered. All sorts of evidence may be relevant to that assessment including contemporaneous documents, economic analysis and witness evidence. 6.50 A particular difficulty in abuse cases is identifying the standard of proof required to establish a sufficient effect on competition. Again, the Courts have resorted to various formulations. In some cases the CJEU has required only that it should be established that the conduct is ‘capable’ of restricting competition, while in others the term used is ‘likely’ – in Post Danmark II,63 and in one or two other cases, the CJEU has simply used both terms.64 6.51 Proof (to whatever standard) of an actual concrete effect on competition is not required before Article 102 TFEU can be infringed.65 If that were the case, Article 102 TFEU would be a significantly less effective tool, which could not be deployed until the damage (or at least some of it) was done. One useful summary of the Court’s position is: … it follows from the Court’s case-law that, although the practice of an undertaking in a dominant position cannot be characterised as abusive in the absence of any anti-competitive effect on the market, such an effect does not necessarily have to be concrete, and it is sufficient to demonstrate that there is a potential anti-competitive effect.66

62 63 64

65 66

Intel v Commission (n 39), para 138: ‘However, that case-law must be further clarified in the case where the undertaking concerned submits, during the administrative procedure, on the basis of supporting evidence, that its conduct was not capable of restricting competition and, in particular, of producing the alleged foreclosure effects’. Post Danmark II (n 48), paras 31 and 49 (among others).

This issue is discussed in the 2023 Article 102 Staff Policy Brief (n 30), at p 2 and related footnotes, concluding: Despite this varied terminology, the applicable legal standard endorsed by the Union Courts and applied by the Commission must be understood as being one and the same. The wording that appears to be the most suitable to capture such standard is that of ‘potential effects’, given that this term allows for sufficient differentiation between this type of effects on the one hand and merely hypothetical or actual effects on the other.

However, note that the effect cannot be merely hypothetical and must be capable of arising. Case T‑136/19 Bulgarian Energy Holding and Others v Commission (ECLI:EU:T:2023:669) (Bulgarian Energy Holdings), paras 937–954. AstraZeneca CJEU (n 58), para 112 and also the comments of the EU General Court (GC) in Case T‑612/17 Google LLC and Alphabet, Inc v European Commission (ECLI:EU:T:2021:763) (Google Shopping), para 442: … the Commission was not required to identify actual exclusionary effects on the grounds that Google was allegedly not dominant on the national markets for comparison shopping services, that its conduct was part of improvements in its services for the benefit of consumers and online sellers and that that conduct had lasted for many years. Such a requirement of the Commission would be contrary to the principle, confirmed by the Courts of the European Union, that the categorisation of a practice as abuse within the meaning of Article 102 TFEU cannot be altered because the practice at issue has ultimately not achieved the desired result …

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Nevertheless, if conduct is historic or has been continuing for some time, and no effect can be 6.52 identified as having occurred, this may be evidence weighing against a finding that the conduct is capable having, of or likely to have, the requisite effect.67 The role of intent in establishing abuse can be confusing. As mentioned above, the concept of 6.53 abuse is objective. It follows that it is not necessary to show that the dominant company had an intent to abuse, or to act anticompetitively, or to exclude or exploit another undertaking before an infringement of Article 102 TFEU can be established. Equally, the fact that an undertaking’s intention was to compete on the merits does not prevent its conduct from amounting to an abuse when objectively analysed.68 If there is evidence of anticompetitive or exclusionary intent, this may form part of the factual 6.54 matrix which establishes that a dominant position has been abused. Conduct which has the actual purpose of strengthening and abusing a dominant position is likely to infringe69 even if it does not succeed.70 In addition, conduct which has no procompetitive rationale is likely to be held not to be competition on the merits and to be presumptively abusive (similar in essence to a ‘by object’ infringement under Article 101(1) TFEU). The judgment in Servizio Elettrico Nazionale described presumptively abusive conduct (which cannot be regarded as competition on the merits) as follows: Any practice the implementation of which holds no economic interest for a dominant undertaking, except that of eliminating competitors so as to enable it subsequently to raise its prices by taking advantage of its monopolistic position, must be regarded as a means other than those which come within the scope of competition on the merits.71

Conduct relating to IP is clearly capable of falling within that description. The case law has 6.55 evolved in ways that are further discussed below. E. Article 102 TFEU – Constantly Evolving: Start With First Principles It is common for competition lawyers in Europe to remark that the categories of abuse under 6.56 Article 102 TFEU are never closed. For those without previous exposure to Article 102 TFEU case law, this may be one of its most surprising aspects.

67

68 69 70

71

This issue has been considered in the UK in, e.g., Case No HC-2013-000090 Streetmap.EU Ltd v Google Incorporated and Others [2016] EWHC 253 (Ch), paras 88–90. It also arose in Case T‑219/99 British Airways plc v Commission of the European Communities (ECLI:EU:T:2003:343), para 287. See also the comments of the EU GC in Google Shopping, ibid., para 438: ‘[I]n the absence of any effect on the competitive situation of competitors, an exclusionary practice cannot be classified as abusive vis-à-vis those competitors.’ Case C-549/10P Tomra Systems ASA and Others v European Commission (ECLI:EU:C:2012:221) (Tomra), para 22. United Brands (n 13), para 189; Tomra, ibid., para 21.

See also Servizio Elettrico Nazionale (n 24), where the Court held at para 70: Admittedly, such effects must not be purely hypothetical … As a result, first, a practice cannot be characterised as abusive if it remained at the project stage without having been implemented. Second, competition authorities cannot rely on the effects that that practice might produce or might have produced if certain specific circumstances – which were not prevailing on the market at the time when that practice was implemented and which did not, at the time, appear likely to arise – had arisen or did arise. Ibid., para 77.

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6.57 Examples of the expansive tendencies of Article 102 TFEU are numerous. This can be explained in part by the fact that Article 102 TFEU jurisprudence is still relatively young and that cases of dominance often turn very much on their facts, sometimes making them difficult to categorize. It also reflects the imprecise wording and varied objectives of Article 102 TFEU.72 Against this background the application of Article 102 TFEU to specific behaviours can be difficult to assess: it is a task with which companies, advisers and even the authorities can all struggle. 6.58 When considering whether conduct is at significant risk of infringing Article 102 TFEU (dominance being assumed), the examples given in the Article itself are in practice a reasonable starting point, while being far from the end of the analysis. 6.59 Starting from first principles, it is important to think carefully about the likely impact of the behaviour on the market, the structure of competition on that market and also whether the behaviour is of the sort which the authorities are likely to think ‘should’ be prohibited. Even though intent is not formally determinative, evidence as to the underlying rationale for the conduct; whether there was a plausible procompetitive or efficiency context; and whether any such rationale was proportionately pursued will in practice be very relevant – the company’s internal thinking and contemporaneous documents will be important. If there is no procompetitive rationale, the conduct may be regarded as clearly outside the scope of competition on the merits.73 6.60 While the classic definition of abuse from Hoffmann-La Roche74 is regularly quoted by the Commission and the Courts in decisions and judgments – and is cited by both complainants and defendants in almost every case, it is debatable how much assistance it really provides. It has been described as ‘quintessentially vague’.75 Those struggling to understand its implications in a specific context may regard even that observation as an understatement of heroic proportions. In seeking to add greater clarity and to assist in applying the Hoffmann-La Roche test, the EU Courts have adopted concepts such as the ‘special responsibility’ of dominant firms which are themselves spectacularly vague, have required significant further explanation in the jurisprudence and continue to be clarified on a case-by-case basis. 6.61 Given the difficulty of classifying abusive conduct with any certainty (other than in a few accepted categories such as predatory pricing76), it might be thought that it could be easier to 72

73 74 75 76

See the discussion above of the shifting approaches to the enforcement of Article 102 TFEU and the views expressed in the 2023 Article 102 Staff Policy Brief (n 30) that: The enforcement of competition rules also contributes to achieving objectives that go beyond consumer welfare, at least when the latter is defined strictly in economic terms. As stated by Executive Vice President Vestager: ‘By basing our policy intent and action on principles that stem directly from the Treaties, EU competition policy is able to pursue multiple goals, such as fairness and level-playing field, market integration, preserving competitive processes, consumer welfare, efficiency and innovation, and ultimately plurality and democracy’. The case law has also confirmed that competition law can achieve broader objectives, as ensuring consumer choice is a means to ultimately guarantee plurality in a democratic society. Servizio Elettrico Nazionale (n 24), para 77. Hoffmann-La Roche (n 14).

Faull & Nikpay (n 6), para 4.255. See para 6.46 above.

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identify the types of conduct which are clearly acceptable – perhaps competing on price or on quality enhancements, for example? The EU Courts have sought to give guidance about the types of behaviour which are unob- 6.62 jectionable under Article 102 TFEU. Unfortunately, the concepts adopted to explain what behaviour is acceptable are themselves tricky to apply in practice. For example, the EU Courts have talked about ‘normal’ competition as a category of behaviour which is acceptable under Article 102 TFEU. The classic description of abuse cited above describes abuse as involving ‘methods different from those which condition normal competition’ (emphasis added). This begs the question of what constitutes ‘normal’ competitive behaviour: does it mean that dominant companies can compete in all the ways in which non-dominant companies can compete? If not, it is certainly foreseeable that reasonable people could reasonably take different views of what ‘normal’ competitive conduct might be. The EU Courts have explained that ‘competition on the merits’ is normal competitive conduct 6.63 and not abusive. While the concept of ‘competition on the merits’ adds colour to the idea of ‘normal’ competition, its scope is far from clear (and is discussed below). The difficulty is increased because dominant companies are subject to a ‘special responsibility’ under Article 102 TFEU. A dominant company is subject to an obligation (a ‘special ’responsibility’) not to allow its conduct to impair undistorted competition. This may involve avoiding conduct which, at first glance seems clearly to involve routine business transactions or ‘normal’ competitive conduct such as the acquisition of a right;77 a decision not to license an IPR;78 awarding some forms of bonus or rebate particularly to reward loyalty;79 refusing to allow competitors to access property or facilities;80 or dealing with regulatory or other government bodies in a particular way.81 All of these may be abusive for a dominant company in particular circumstances. In short, understanding the outer parameters of Article 102 TFEU is not really made easier 6.64 by trying to identify what categories of conduct are acceptable82 – ultimately the message from the cases is that any conduct may be abusive if it impairs undistorted competition. The core challenge turns out to be the need to identify conduct which moves the market away from that ideal of undistorted competition by identifying actual or potential effects on competition flowing from that conduct.83 It would seem to follow that conduct which is a manifestation of competition, competing on 6.65 price, service, innovation, etc, should not be held to be abusive: when strategy and conduct are

77 78

79 80

81

82 83

Tetra Pak (Commission Decision) (n 2).

Joined Cases C-241/91P and C-242/91P Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v Commission of the European Communities [1995] ECR I-743 (ECLI:EU:C:1995:98) (Magill CJEU). Hoffmann-La Roche (n 14); Intel v Commission (n 39).

94/119/EC: Commission Decision of 21 December 1993 concerning a refusal to grant access to the facilities of the Port of Rødby (Denmark) OJ [1994] L55/52 (Port of Rødby). AstraZeneca CJEU (n 58).

Although this may help with differentiating between conduct types at the extremes – those which are presumptively abusive (such as predatory pricing) and those in respect of which effects on competition must be identified for an abuse to occur. Bulgarian Energy Holdings (n 65), paras 937–954.

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focused on making the most of a company’s own competitive attributes – its own good value pricing, superior products and innovative approach – rather than undermining the position of competitors, Article 102 TFEU is in practice less likely to be engaged.84 6.66 While successful companies cannot afford to ignore the competitive context in which they operate, Article 102 TFEU enforcement over the years suggests that, having assessed the market dynamics they face, dominant companies should then focus on their own abilities and seek to improve their performance (‘compete on the merits’ may be shorthand for this), rather than focusing on hampering their rivals’ ability to offer consumers competitive goods or services (‘impair competition’). Strategic decisions which make sense only when understood as a way to undermine the ability of others to compete (e.g., price competition which is so intense as to result in losses for more than a short time) are significantly more likely to give rise to Article 102 TFEU problems than decisions and strategies with direct efficiency benefits for the dominant company which will be capable of being passed on to consumers, and which should, therefore, enable more effective competition by the dominant company on its own merits rather than by impeding competitors. Conduct which is not ‘competition on the merits’ can amount to an abuse if it affects competitors or the competitive structure of the market.85 6.67 Of course, this distinction becomes more difficult to draw when dealing with conduct that has some procompetitive merit, but also has potential or actual exclusionary or exploitative effects. Take for example rebates which lower prices for customers but are capable of being exclusionary when offered by dominant companies. One key insight when analysing conduct of this sort is to ask whether the dominant company is doing something which is justified by the direct benefits it brings (e.g., rebates which are enabled by cost savings arising from repeat orders or large orders) or something which only a dominant company would consider strategically rational because of its indirect effects on competitors (raising their costs). 6.68 The approach is also more difficult to employ neatly when assessing conduct affecting IPRs, part of the point if which is to hamper rivals (at least to some extent) by allowing barriers to entry to be raised. Taking that starting point, what is ‘competition on the merits’ when talking about the acquisition and exercise of IPRs? Surely any steps (permitted by IP law) to obtain as much IP as possible, enforce it as vigorously as possible, and extend it for as long as possible should be fair game?

84

85

Although some of the issues arising in the digital platform arena and discussed in, e.g., Google Shopping (n 66), make an interesting contribution to this debate. This issue and other aspects of digital markets specifically are discussed in a paper prepared for the UK government in 2021. See David Deller, Thanh Doan and Franco Mariuzzo with Sean Ennis, Amelia Fletcher and Peter Ormosi, Competition and Innovation in Digital Markets (BEIS Research Paper Number: 2021/040, Centre for Competition Policy/University of East Anglia, April 2021) (https://​assets​.publishing​ .service​.gov​.uk/​government/​uploads/​system/​uploads/​attachment​_data/​file/​1003985/​uae​-ccp​-report​_​_1​_​.pdf – accessed 18 November 2023). See also the decision of the French Competition Authority to accept commitments from Nespresso in respect of competition and innovation issues in aftermarkets in its press release on 4 September 2014: https://​www​ .aut​oritedelac​oncurrence​.fr/​en/​communiques​-de​-presse/​4​-september​-2014​-single​-portion​-espresso​-coffee​-machines – accessed 18 November 2023, discussed in a note to the OECD from France (dealing broadly with secondary markets) in 2017: https://​one​.oecd​.org/​document/​DAF/​COMP/​WD(2017)42/​en/​pdf – accessed 18 November 2023. AstraZeneca CJEU (n 58), paras 75 and 98–99. Although, as reiterated in Bulgarian Energy Holdings (n 65), such effects must be capable of actually arising, and not purely hypothetical. See also C‑680/20 Unilever Italia v Autorità Garante della Concorrenza e del Mercato (ECLI:EU:C:2023:33), paras 40–44.

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The answer appears to be ‘not quite’. Conduct that is permitted by the relevant legislation (be 6.69 that IP law or similar legal/regulatory regimes that affect market conditions) can be anticompetitive if engaged in by a dominant company.86 Again the focus is on the competition-distorting effect of the conduct and whether that is, in essence, a market distortion that is inherent in the IP regime or something else, something that is not ‘normal’, not focused on improving the competitive ability of the IPR owner or rewarding its willingness to invest in innovation, but more on extraneous considerations relating to third parties. This way of thinking about conduct to assess the risks involved is useful in practice but it is only 6.70 one of a number of considerations. While normal competition (even for a dominant company) entails the freedom to compete vigorously on price, quality and other competitive attributes, and includes the right to defend a commercial position, even conduct of that nature can in some circumstances give rise to risks. Proportionality is relevant. A strategy will be higher risk if it foreseeably would affect competi- 6.71 tion more than objectively necessary to achieve its legitimate goal or if the dominant company had some regard to making life difficult for competitors when designing its strategy, rather than looking only at the best strategy to maximize its offering for consumers. Effects are important. If in all the circumstances competing undertakings which also provide 6.72 good service, keen prices and equivalent quality or other attributes valued by consumers are liable to be excluded or rendered significantly less competitive by the conduct of the dominant company, the risks will increase. The context matters. Finally, if the dominant company in fact controls assets which are difficult 6.73 or impossible for rivals to replicate (e.g., in the case of ex-utilities or potentially where tipping has occurred) and uses those assets in a way which further impairs the ability of others to compete, it is particularly important to check the subjective purpose and objective proportionality of the use in question. In summary, despite significant developments in the application of Article 102 TFEU which 6.74 have established principles helping to identify when a practice may be abusive, there is no ‘unified theory of abuse’87 – the facts and context matter too much for any such theory to be wholly reliable.88 The objective nature of the test articulated in Hoffmann-La Roche and reit-

86

87

88

AstraZeneca GC (n 58), paras 812 and 824, discussed below at para 8.254 ff.

This issue, including the relevance of some of the concepts discussed above, is discussed in Chapter 5, ‘The General Framework of the Abuse Tests in EU Law’, in Renato Nazzini, The Foundations of European Union Competition Law: The Objective and Principles of Article 102 (Oxford Studies in European Law, Oxford, 2011; online edn, Oxford Academic, 19 January 2012) (https://​doi​.org/​10​.1093/​acprof:​oso/​9780199226153​.003​.0005 – accessed 18 November 2023). A more recent assessment of the current issues and uncertainties under Article 102 can be found in Pablo Ibáñez Colomo, ‘The (Second) Modernisation of Article 102 TFEU: Reconciling Effective Enforcement, Legal Certainty and Meaningful Judicial Review’ (10 October 2023) (https://​papers​.ssrn​.com/​sol3/​papers​.cfm​?abstract​_id​=​4598161 – accessed 18 November 2023). Servizio Elettrico Nazionale (n 24), para 72: Given that the abusive nature of a practice does not depend on the form it takes or took, but presupposes that that practice is or was capable of restricting competition and, more specifically, of producing, on implementation, the alleged exclusionary effects, that condition must be assessed having regard to all the relevant facts (see, to that effect,

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erated multiple times since then means that ultimately the capability of the conduct to distort competition will be key. While intent can be relevant, it is not exculpatory. A familiarity with the core concepts of ‘normal competition’/‘competition on the merits’ and an awareness of the special responsibility of dominant firms is crucial. 6.75 The recent judgment in Servizio Elettrico Nazionale grappled with the conundrum at the heart of Article 102 TFEU. The Court’s reasoning demonstrates the balancing act that dominant companies and those concerned with their conduct must undertake. It represents the Court’s continuing efforts to synthesize the principles derived from the cases into a body of law which is capable of application systematically and consistently across the EU while enabling the EU Courts to retain the capability of effective judicial oversight. The most pertinent passage (which is reproduced with internal paragraph numbering, and including internal references) is: 73 That said, as recalled in paragraph 45 of the present judgment, it is in no way the purpose of Article 102 TFEU to prevent an undertaking from acquiring, on its own merits – on account of its skills and abilities in particular – a dominant position on a market, or to ensure that competitors less efficient than an undertaking in such a position should remain on the market. Indeed, not every exclusionary effect is necessarily detrimental to competition since competition on the merits may, by definition, lead to the departure from the market or the marginalisation of competitors that are less efficient and so less attractive to consumers from the point of view of, among other things, price, choice, quality or innovation (judgment of 6 September 2017, Intel v Commission, C-413/14 P, EU:C:2017:632, paragraphs 133 and 134). 74 However, dominant undertakings have a special responsibility, irrespective of the reasons for which they have such position, not to allow their conduct to impair genuine, undistorted competition on the internal market (see, inter alia, judgments of 9 November 1983, Nederlandsche Banden-Industrie-Michelin v Commission, 322/81, EU:C:1983:313, paragraph 57, and of 6 September 2017, Intel v Commission, C-413/14 P, EU:C:2017:632, paragraph 135). 75 Consequently, although undertakings in a dominant position can defend themselves against their competitors, they must do so by using means which come within the scope of ‘normal’ competition, that is to say, competition on the merits. 76 By contrast, those undertakings cannot make it more difficult for competitors which are as efficient to enter or remain on the market in question by using means other than those which come within the scope of competition on the merits. In particular, they must refrain from using their dominant position in order to extend that position over another market by means other than those which come within the scope of competition on the merits (see, to that effect, judgments of 3 October 1985, CBEM, 311/84, EU:C:1985:394, paragraph 25; of 14 November 1996, Tetra Pak v Commission, C-333/94 P, EU:C:1996:436, paragraph 25, and of 17 February 2011, TeliaSonera, C-52/09, EU:C:2011:83, paragraph 87). 77 Any practice the implementation of which holds no economic interest for a dominant undertaking, except that of eliminating competitors so as to enable it subsequently to raise its prices by taking advantage of its monopolistic position, must be regarded as a means other than those which come within the scope of competition on the merits (see, to that effect, judgment of 3 July 1991, AKZO v Commission, C-62/86, EU:C:1991:286, paragraph 71). … 85 … it must be stressed that the concept of competition on the merits covers, in principle, a competitive situation in which consumers benefit from lower prices, better quality and a wider choice of new or improved goods and services. Thus, as noted by the Advocate judgments of 30 January 2020, Generics (UK) and Others, C-307/18, EU:C:2020:52, para 154, and of 25 March 2021, Slovak Telekom v Commission, C-165/19 P, EU:C:2021:239, para 42).

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IP, DOMINANCE AND ABUSE General in point 62 of his Opinion, conduct which has the effect of broadening consumer choice by putting new goods on the market or by increasing the quantity or quality of the goods already on offer must, inter alia, be considered to come within the scope of competition on the merits.

Given all of the above, in practice when considering whether a particular course of conduct 6.76 may infringe Article 102 TFEU, a sensible approach (but not one which captures every possible parameter) is: 1. to consider the specific examples set out in Article 102 TFEU itself; 2. to consider to what extent the conduct is of the sort engaged in by all companies, irrespective of market power; 3. to assess the purpose of the conduct – is it fundamentally directed towards improving the performance of the dominant company and the experience of those who deal with it across parameters such as value, choice, service and innovation or is it directed towards hampering rivals?; 4. to check whether the conduct might plausibly foreclose or exploit other market participants (particularly those which are effective or close competitors of the dominant company); 5. if the conduct does seem capable in principle of foreclosing or exploiting others consider how likely that foreclosure is, its likely extent and whether that is merely hypothetical or is actually capable of arising in the overall market context; and finally, 6. if unease remains, to consider any relevant cases touching on similar issues (if any) as well as the Article 102 TFEU Guidance (as ultimately reformulated) to understand the potential scale of any risk and how it may be reduced. F. Does Article 102 TFEU Have Exceptions? Article 102 TFEU does not have an equivalent to Article 101(3) TFEU; no automatically 6.77 applicable exception exists. However, the case law recognizes that conduct which appears at first glance to hinder competition or to exploit others may not breach Article 102 TFEU. One such possibility is that the conduct is, in fact, ‘competition on the merits’ or ‘normal competition’, as discussed above, and is therefore not abusive. Two other broad options to justify conduct which is on its face abusive can be identified. The first is that the conduct is objectively justified by some outside consideration, such as, for example, health and safety concerns and the second relates to conduct which has an exclusionary or exploitative effect but is, on balance, justified by the legitimate concerns of the dominant firm, efficient and will benefit consumers. There is considerable case law from which various broad principles can be distilled: ● Behaviour can be objectively justified only if it is proportionate and necessary to protect the legitimate interests of the dominant firm.89

89

Case 311/84 Centre belge d’études de marché – Télémarketing (CBEM) v SA Compagnie luxembourgeoise de télédiffusion (CLT) and Information publicité Benelux (IPB) [1985] ECR I-3261 (ECLI:EU:C:1985:394), para 26; Case C-95/04 P British Airways plc v Commission of the European Communities [2007] ECR I-02331 (ECLI:EU:C:2007:166), para 69.

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● It is not proportionate or necessary for a dominant company to take action to prevent outcomes which are normally the responsibility of public bodies to achieve.90 ● An ‘efficiency’ defence is likely to gain traction only if the behaviour, although potentially harmful to competitors, results in increased efficiency that will benefit consumers.91 ● It is for the company seeking to rely on a justification for its conduct to provide evidence that any efficiencies are likely or that its behaviour is otherwise justified.92 6.79 While it is outside the scope of this book to explore the objective justification/efficiency defences in any detail, a word of caution is necessary. The objective justification defence has rarely succeeded. It is difficult to demonstrate that abusive conduct on the part of a dominant undertaking is the necessary and proportionate response even to a legitimate concern. 6.80 The Commission’s current Article 102 TFEU Guidance (paragraph 30) indicates that conduct can be justified on efficiency grounds and sets out the necessary conditions (which are very similar to the Article 101(3) TFEU criteria).93 The defence must be raised by the dominant undertaking, which bears the burden of providing evidence of the efficiencies. That evidence must be ‘convincing’ and ‘vague, general and theoretical arguments’ are unlikely to succeed,94 as are cases in which the justification was not considered at the time when the conduct or strategy considered was designed. Ex-post justifications are likely to be met with considerable scepticism.95 Cases in which such pleadings have not succeeded are numerous. 6.81 Finally, parties have pleaded that their conduct was justified as it fell within the ambit of their property rights, and that conduct using such property was not abusive. The Commission and the EU Courts recognize the need to balance respect for property rights against the need to protect competition. Nevertheless, arguments based on the rights of property ownership or the right to conduct business have been dismissed on a number of occasions including, for example, in relation to freezer cabinets,96 ports,97 airports,98 and comparison shopping services.99 The question of the correct balance between the protection of property rights (and the related incentives to invest in property for use in a business) and the imperatives of protecting and 90 91 92

93

94 95

Case T-30/89 Hilti AG v Commission of the European Communities [1991] ECR II-01439 (ECLI:EU:T:1991:70) (Hilti GC), paras 102–119. Post Danmark I (n 38), para 42.

Case T-201/04 Microsoft Corp v Commission of the European Communities [2007] ECR II-3601 (ECLI:EU:T:2007:289) (Microsoft GC), para 688.

This aspect of the Article 102 TFEU Guidance (n 26) is unaffected by the recent amendments announced on 27 March 2023 and comparative redline mark-up published by the Commission as part of its 2023 Article 102 TFEU package (n 29 (https://​competition​-policy​.ec​.europa​.eu/​system/​files/​2023​-03/​guidance​_paper​_article​_102​_redline​_post​_amending​ _communication​.pdf – accessed 23 May 2023). See the discussion of objective justification in Google Shopping (n 66), paras 551 and following. Microsoft GC (n 92), para 698.

A good (if old) example of this can be found in the UK judgment in Napp Pharmaceutical Holdings Ltd v Director General of Fair Trading [2002] CAT 1, paras 251–254.

96 Case T-65/98 Van den Bergh Foods Ltd v Commission of the European Communities (ECLI:EU:T:2003:281), paras 170–171. 97

Port of Rødby (n 80).

99

Google Shopping (n 66), para 199 onwards, particularly from para 219.

98

98/190/EC: Commission Decision of 14 January 1998 relating to a proceeding under Article 86 of the EC Treaty (IV/34.801 FAG – Flughafen Frankfurt/Main AG), OJ [1998] L 72/30, para 90.

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maintaining competition is particularly pertinent when discussing the application of Article 102 TFEU to conduct affecting IPR. G. How Does IP Fit Into This Regime? The Commission and EU Courts have traditionally categorized abuses of dominance into 6.82 ‘exclusionary abuses’ and ‘exploitative abuses’. As an IPR is to some extent a ‘right to exclude’, this terminology is not always helpful when thinking about IP related conduct. IPRs might, of course, be exercised exploitatively in some circumstances (e.g., by seeking excessive royalties or extracting unfair licence terms). It is also often competitively benign for IPRs to confer exclusionary power on the owner which it is perfectly legitimate for the IPR owner to exercise. Such considerations are not unique to IPR, but they come into stark focus in situations where 6.83 IP is in play. In consequence, it was unclear for a number of years after the entry into effect of the EU competition rules whether there were circumstances in which unilateral conduct relating to IPRs, and particularly a refusal to license IPRs, might be prohibited by Article 102 TFEU. While it became clear fairly quickly that dominant companies could sometimes be required to continue to supply customers with products,100 the idea that an IPR holder might be required to grant a licence against its will remained controversial. Particularly difficult for many was the idea that a person with whom a licensor had not previously dealt and with whom it did not wish to deal (and might in fact have sued for infringement) could be entitled to receive a licence. There is, ordinarily, no obligation on an owner of an IPR to share the subject matter of its 6.84 right with other undertakings. The right to prevent third parties from exploiting inventions or other subject matter covered by an IPR forms the core of the exclusive right. In the context of competition law, this has been recognized within the EU at the highest level by the CJEU.101 In the particular case of patents, the CJEU has held that the specific subject matter of a patent is: [T]he guarantee that the patentee, to reward the creative effort of the inventor, has the exclusive right to use an invention with a view to manufacturing industrial products and putting them into circulation for the first time, either directly or by the grant of licences to third parties, as well as the right to oppose infringements.102

This focus on the specific subject matter of each IPR suggests that some types of conduct 6.85 relating to IP involving conduct not covered by the specific subject matter of the statutory right will be more vulnerable to competition law intervention than others. It is therefore important to have that concept in mind when thinking about particular conduct. There are three broad ways in which an IPR might arguably be used so as to distort competition: 6.86 1. acquisition of a right (might give rise to an exploitative or exclusionary abuse or both);

100 Joined Cases 6 and 7-73 Istituto Chemioterapico Italiano S.p.A. and Commercial Solvents Corporation v Commission of the European Communities [1974] ECR 223 (ECLI:EU:C:1974:18) (Commercial Solvents), (discussed at para 6.96 ff below). 101 Case C-238/87 AB Volvo v Erik Veng (UK) Ltd [1988] ECR 6211 (ECLI:EU:C:1988:477) (Volvo v Veng), para 8. 102 Centrafarm v Sterling Drug (n 16), para 9.

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2. leveraging of a right by, for example, obtaining a benefit outside the subject matter of the right such as extending the right post-expiry (most likely to be exclusionary, but could be exploitative); and 3. use of the right by doing something within the subject matter of the right such as seeking excessive royalties under a licence (could be potential exploitative abuse) or enforcing the right against another undertaking and refusing to grant a licence if one is requested (most likely to be exclusionary). 6.87 Of those three types of conduct, the most controversial intervention under competition law relates to the third – interfering with conduct that is within the specific subject matter of the IPR itself. Such conduct is dealt with first below, before considering the other types of potentially abusive conduct. H. Refusals to Deal – Overview 6.88 While the core of any IPR is the ability to prevent third parties from exploiting the subject matter of the IPR (as discussed above), it is recognized internationally that this freedom may be subject to some constraints where necessary to protect important public interest objectives. The compulsory licensing provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) 1994 reflect this position and have, for example, been used to enable access to essential medicines. Various conditions must be met before a compulsory licence may be ordered lawfully under TRIPS and these provisions have been used only rarely.103 6.89 After considerable initial hesitation, the EU Courts104 have recognized that some exceptions to an IPR owner’s exclusive ability to decide whether and/or by whom its IPR is to be exploited may be provided by Article 102 TFEU. The EU Courts have focused on situations in which an IPR owner has a position of dominance and refuses to share a technology that prevents follow on innovation such as the development of new products and/or technologies or the development of new markets not served by the IPR owner. Generally (and there have been only a handful of cases), it has been necessary to identify two markets: upstream, where the technology is covered by an IPR and is an input which may be dealt in (akin to the technology markets now identified as a matter of course under Article 101 TFEU when applying the Technology Transfer Block Exemption105); and downstream, for dealing in products produced using technology (or 103 Normally, the person or company applying for a licence must have first attempted, unsuccessfully, to obtain a voluntary licence from the right holder on reasonable commercial terms (Art 31b, TRIPS Agreement).

104 The Commission was less hesitant. Its investigation into IBM’s conduct in the 1980s had some striking similarities with its later investigation into Microsoft (see at para 6.142 below). The investigations ended in 1994 with IBM giving an undertaking to (among other things) disclose: … in a timely manner sufficient interface information to enable competing companies in the EEC to attach both hardware and software products of their design to System/370. IBM will also disclose adequate and timely information to competitors to enable them to interconnect their systems or networks with IBM’s System/370 using Systems Network Architecture. IBM did not admit either dominance nor an abuse, and had raised the existence of IPRs during the administrative procedure. The settlement did not deal with the intellectual property related issues raised by IBM, but indicated some of the potential avenues that would ultimately be explored in the later jurisprudence. European Commission, Directorate-General for Competition, Secretariat-General, XIVth report on Competition Policy 1984, point 94 and following. 105 See para 3.27 above.

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possibly information) covered by IPR. Sometimes it can be difficult to identify these distinct markets106 but the analytical approach adopted by the Courts is predicated on their existence.107 The EU Courts have recognized that some obligation to license may be imposed as a remedy 6.90 where the conduct of an IPR owner is preventing innovation in a downstream market. They have incrementally expanded the potential circumstances in which an obligation to deal/license may be regarded as appropriate, although courts in both the EU and the US have taken a cautious approach.108 Judicial caution is based on legal and economic foundations which are discussed in the case 6.91 law. The courts have held that to oblige even a dominant undertaking to grant a licence of legitimately acquired IPR against its will would encroach on the core freedom to decide when and with whom to deal. In the EU, Advocate General (AG) Jacobs explained the position: ‘It is apparent that the right to choose one’s trading partners and freely to dispose of one’s property are generally recognised principles in the laws of the Member States, in some cases with constitutional status. Incursions on those rights require careful justification.’109 In the context of IPR in particular, it has been recognized that interfering freely with the inherent purpose of such rights would undermine the legal certainty that would legitimately be expected to flow from statutory proprietary entitlements and which is assumed to underpin the willingness of companies to invest in the R&D and innovation which is ultimately protected by IPR. The courts have recognized that routine or frequent orders imposing compulsory licensing 6.92 will trespass upon the specific subject matter of the IPR to be licensed.110 In both the US and the EU judges have noted that compulsory licensing may deter investment into research and stifle or reduce the innovation which has been acknowledged to be the engine of economic

106 See the discussion of IMS Health at para 3.27. The issue was discussed explicitly by the Court in IMS Health CJEU (citations for case at (n 148) below), para 45.

107 The development of the new product/innovation criterion is discussed below, but an interesting indication of the Commission’s thinking in the 1990s can be found in its decision to dismiss a complaint by a vaccine manufacturer that competitors were abusing a position of dominance by refusing to supply and license their vaccine registration documents for use by it in its competing vaccine. The Commission noted (European Commission, Directorate-General for Competition, Secretariat-General, XXIVth report on Competition Policy 1994, 353): … at the current stage of EC competition law, it is highly doubtful whether one could impose an obligation upon a dominant firm (in an eventual EC bulk intermediate Hep B market), as a remedy to ensure the maintenance of effective competition in the national Hep B markets, to share its intellectual property rights with third parties to allow them to develop, produce and market the same products (i.e. multivalents containing the Hep B antigen) which the alleged dominant firm was also seeking to develop, produce and market. This was judged to be all the more precarious in sectors such as the vaccine sector where R&D required high levels of investment. 108 Over recent years the courts in the EU have been more willing to consider the imposition of obligations to license under competition law than their US counterparts applying US antitrust law.

109 Case C-7/97 Oscar Bronner GmbH & Co. KG v Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co. KG. and Others (ECLI:EU:C:1998:569) (Oscar Bronner CJEU); Opinion of AG Jacobs on 28 May 1998 (ECLI:EU:C:1998:264) (Oscar Bronner AG Opinion), para 56. While Oscar Bronner did not itself relate to IPR the underlying rationale for caution in mandating access or requiring dealing applies equally to IPR and Bronner is frequently cited in IPR cases. 110 Volvo v Veng (n 101), para 9.

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growth and competitiveness.111 In the EU context, the courts have also acknowledged the need to protect IPRs, which is guaranteed under Article 17(2) of the EU Charter of Fundamental Rights.112 6.93 These legal and economic considerations have led the Courts to approach the question of compulsory licensing cautiously. The EU Courts have limited the availability of this remedy to factual contexts; ‘exceptional circumstances’ which they continue to develop and refine in case law. Notwithstanding this, it may not come as a surprise to learn that once it was established in principle that compulsory licensing was a potential remedy where lack of access to IPR could be argued to create distortions downstream, significant attempts followed to expand the circumstances in which a compulsory licence might be ordered – and not all of those attempts have been resisted. 6.94 The development of the jurisprudence is summarized below. Note that EU Courts have historically approached refusals to license differently depending on whether the IPR owner: 1. refused to license others to compete with it in a market in which it was already present in respect of products or services in which the IPR was implemented or which it covered (implicitly exercising the IPR in that market); or 2. refused to license IPR over something (technology, an interface, the use of information) which was an indispensable input for competition in a market which it did not serve or did not provide with the products and services that the would-be licensee sought to offer (implicitly ‘leveraging’ the IPR into another market). 6.95 It is unclear whether that distinction remains as valid as previously in the light of the Microsoft case. I.

The Development of the Case Law

6.96 Although outside the specific context of IPR, the CJEU first considered a unilateral refusal to deal in Commercial Solvents.113 Commercial Solvents held a dominant position (it was the sole supplier in Europe) in the production and sale of raw materials for the manufacture of ethambutol. It refused to continue to supply those raw materials to a manufacturer of ethambutol it

111 From a US perspective see: Verizon v Trinko (n 33), Opinion of the Court: Compelling such firms to share the source of their advantage is in some tension with the underlying purpose of antitrust law, since it may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities. Enforced sharing also requires antitrust courts to act as central planners, identifying the proper price, quantity, and other terms of dealing – a role for which they are ill-suited. (p 8) From an EU perspective see Oscar Bronner AG Opinion (n 109), paras 61–62.

112 See, e.g., Case C-170/13 Huawei Technologies Co Ltd v ZTE Corp and ZTE Deutschland GmbH (ECLI:EU:C:2015:477) (Huawei v ZTE CJEU), para 42. 113 Commercial Solvents (n 100).

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had previously supplied.114 This followed Commercial Solvents’ decision to begin production of ethambutol and enter the market for the medication itself.115 The Court held that in certain circumstances a dominant undertaking had a duty to deal 6.97 with an undertaking operating in a downstream market. The fact that there were alternative methods of manufacturing ethambutol was not enough in itself to justify Commercial Solvents’ refusal to supply a downstream manufacturer whom it had previously supplied. In the factual circumstances of the industry, the Court found that these alternative methods were of minor importance, at an experimental stage and would not allow for the manufacture of ethambutol on a commercial scale without incurring excessive costs. Commercial Solvents’ decision to cease supplying the raw material needed by its existing customer would significantly distort competition in a market downstream of that in which Commercial Solvents held its dominant position and was held to be abusive. … an undertaking being in a dominant position as regards the production of raw material and therefore able to control the supply to manufacturers of derivatives, cannot, just because it decides to start manufacturing these derivatives (in competition with its former customers) act in such a way as to eliminate their competition which in the case in question, would amount to eliminating one of the principal manufacturers of ethambutol in the Common Market.116

The judgment in Commercial Solvents has some similarities to the US doctrine of ‘essential 6.98 facilities’117 under which four requirements must be satisfied for antitrust intervention to be justified:118 ● ● ● ●

a competitor’s inability practically or reasonably to duplicate an essential facility; control of the essential facility by a monopolist; the denial of the use of the facility to a competitor; the feasibility of providing the facility.

Intervention is not justified under this approach where the complainant suffers mere incon- 6.99 venience or economic loss: it requires that an alternative to the facility is not feasible.119 Later judgments have also added an additional element: that the monopolist uses the facility to control a vertically-integrated market, where the plaintiff is a potential competitor in either

114 Zoja had previously contracted with Commercial Solvents for supplies of ethambutol, and the refusal was in response to Zoja requesting to resume its orders.

115 Commercial Solvents (n 100), para 24: ‘When Zoja sought to obtain further supplies of aminobutanol, it received a negative reply. CSC had decided to limit, if not completely to cease, the supply of nitropropane and aminobutanol to certain parties in order to facilitate its own access to the market for the derivatives’. 116 Ibid., para 25.

117 Although the essential facilities doctrine is a US-born concept US judges, scholars and policy makers have criticized its application, particularly in the context of IPR. At the highest level, the US Supreme Court has not recognized an ‘essential facility’ doctrine in the IPR (or any other) context. See note by the OECD, Licensing of IP Rights and Competition Law (6 June 2019), para 19 (https://​www​.ftc​.gov/​system/​files/​attachments/​us​-submissions​-oecd​-2010​-present​-other​ -international​-competition​-fora/​ip​_licensing​_us​-oecd​.pdf – accessed 24 November 2023). See also Opinion by Justice Breyer in AT&T Corp v Iowa Utilities Board (1999) 525 US 366, 388, 428, p 18. 118 The formulation of the test can vary. The summary used here is based on the judgment in MCI Communications Corp v AT&T (7th Cir. 1983) 708 F.2d 1081, paras 1132–1133. 119 Twin Labs v Weider Health & Fitness (2d Cir. 1990) 900 F.2d 566, 570.

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the upstream or downstream market.120 A number of these elements can be found not only in Commercial Solvents but in later developments in EU law. 6.100 In Commercial Solvents, the CJEU recognized that control by a dominant company over a raw material for which there was no commercially plausible substitute required judicial scrutiny. Commercial Solvents also involved the termination of a previous trading relationship (unlike the classic essential facilities scenario). 6.101 The Commission followed Commercial Solvents by moving (still in the physical world) to extend the scope of potential intervention to cover refusals to permit access to physical property and explicitly using the language of essential facilities: An undertaking which occupies a dominant position in the provision of an essential facility and itself uses that facility (i.e. a facility or infrastructure, without access to which competitors cannot provide services to their customers), and which refuses other companies access to that facility without objective justification or grants access to competitors only on terms less favourable than those which it gives its own services, infringes Article [102] if the other conditions of that Article are met.121

6.102 During the 1980s, the Commission was also thinking about how (or whether) refusals to supply (license) intangibles might be addressed under Article 102 TFEU. Its thinking began to become apparent in 1984 when it closed a case against IBM relating to competition concerns about the lack of availability of interface information which would allow third-party computer equipment to interoperate with IBM mainframe computers (IBM’s System 370 was then the most popular model of such computers). The background to the Commission’s intervention was a change in IBM’s commercial policy relating to the availability of interface information. Having previously made available significant quantities of interface information allowing third parties to design equipment compatible with System 370 mainframes, which could interoperate in the same way as IBM manufactured equipment, IBM began either to delay or withheld some interface information needed by those third parties. 6.103 The Commission issued a statement of objections indicating its view that IBM was in breach of the competition rules but subsequently agreed to close the case when IBM agreed to give interface information to competitors, and to do so on a timely basis, subject to various requirements as to format.122 During its discussions with the Commission, IBM reserved its position as to its IPR in the information to be disclosed and also reserved the right to charge for information supplied. It is unclear whether any of the information supplied benefitted from IPR protection, but the information in question seems at the very least likely to have been confidential and to have been protected as knowhow. It may also in some instances have been covered by copyright. The Commission’s investigation into IBM’s policies and conduct and the theories it was clearly developing around refusals to supply indicated that, as in the physical world, decisions

120 Alaska Airlines, Inc v United Airlines, Inc (9th Cir. 1991) 948 F.2d, para 544; Intergraphic Corp v Intel Corp (Fed. Cir. 1999) 195 F.3d 1346, para 1357.

121 94/19/EC: Commission Decision of 21 December 1993 relating to a proceeding pursuant to Article 86 of the EC Treaty (IV/34.689 – Sea Containers v Stena Sealink – Interim measures), OJ [1994] L 15/8, para 66.

122 Bulletin of the European Communities (No 10/1984, Volume 17, pp 96–103, 3.4.1) (IBM undertaking) (https://​ op​.europa​.eu/​en/​publication​-detail/​-/​publication/​477d964a​-2851​-46e1​-bd61​-fa77bf9972f4 – accessed 2 November 2023).

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to deal or refuse to deal in intangible property could be the subject of potential competition law intervention. A few years after the IBM undertaking, the CJEU had cause to consider the question of 6.104 compulsory access/licensing in the context of IP in Volvo UK v Veng.123 This case concerned body panels for Volvo cars, over which Volvo had registered design rights. Veng, a UK dealer, imported and marketed body panels which had been manufactured without Volvo’s consent. Volvo sued Veng for design right infringement in England. The English court referred three preliminary questions about the interrelationship between EU competition law and IP to the CJEU asking, in essence: ● whether the ownership of an IPR over non-substitutable replacement body panels (no other design could be used) conferred a dominant position on the proprietor of the IP; ● whether a refusal to license others to supply such panels (even in return for a reasonable royalty) was on its face an abuse of that dominant position; and ● whether the refusal to license affected trade between Member States as it prevented importation from another Member State within the EU. The CJEU gave judgment in late 1988, answering only the second of the English Court’s 6.105 questions, which related to abuse. It stated: … the right of the proprietor of a protected design to prevent third parties from manufacturing and selling or importing, without its consent, products incorporating the design constitutes the very subject matter of his exclusive right. It follows that an obligation imposed upon the proprietor of a protected design to grant to third parties, even in return for a reasonable royalty, a licence for the supply of products incorporating the design would lead to the proprietor thereof being deprived of the substance of his exclusive right, and that a refusal to grant such a licence cannot in itself constitute an abuse of a dominant position.124

The Court’s starting point was that, as the right to stop others from dealing in products 6.106 infringing an IPR is the specific subject matter of IPR, a refusal to permit someone to deal (in other words, a refusal to license) could not on its own infringe Article 102 TFEU. However, the Court opened the abuse door by saying that, while a mere refusal to license by a dominant company would not infringe Article 102 TFEU, there might be situations in which the exercise of the exclusive right would be abusive. It gave some examples, saying that the exercise of an IPR could be prohibited under the competition rules if it involves ‘abusive conduct’ by the dominant company such as ‘the arbitrary refusal to supply spare parts to independent repairers, the fixing of prices for spare parts at an unfair level or a decision no longer to produce spare parts for a particular model even though many cars of that model are still in circulation’.125 This formulation seemed to imply that a compulsory licence could be imposed only if the exercise of the IPR was a means of furthering or supporting some other ‘abusive conduct’. It is unclear whether the Court regarded a decision to withdraw spare parts as abusive in itself and contrary to Article 102 TFEU – perhaps it took the view that such conduct was likely to be exploitative abuse and liable to harm consumers by preventing them from repairing their cars with consequential damage on downstream repairers and purchasers of spare parts. 123 Volvo v Veng (n 101), also the parallel judgment in Case C-53/87 CICRA and Others v Renault (ECLI:EU:C:1988:472). 124 Volvo v Veng, ibid., para 8. 125 Ibid., para 9.

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6.107 Such a reading reflects the opinion of the AG who reviewed the then-limited case law on Article 102 TFEU and IP and concluded that for there to be the possibility of an abuse through the exercise of, or refusal to license, an IPR, there must be some additional factor. The AG’s opinion is more explicit than the Court’s judgment in that he expressly linked the exercise of the IP to another element that was in itself abusive: ‘discriminatory conditions of sale’ or ‘applying “unfair prices” within the meaning of subparagraph (a) of the second paragraph of Article [102]’. He was clear that in his view ‘the exercise of the intellectual property right … cannot in any circumstances of itself constitute abuse of a dominant position. In addition to the dominant position and the intellectual property right there must be further circumstance or element’. Like the Court, he identified three examples which he thought might be sufficient and which he implicitly appears to have regarded as abusive. He concluded that: On the other hand it seems to me to be possible that where a dominant position is abused in connection with an industrial property right, the competent national authority … or the Commission of the European Communities [under the legislation implementing the competition rules] may impose one or more compulsory licences on the proprietor of the patent or registered design if it considers that that is the best way of bringing the abuse to an end.126 (emphasis added)

6.108 By the end of the Volvo v Veng saga, there were many views as to the correct interpretation of the Court’s judgment. It seemed reasonably clear that the Court had adopted the reasoning of the AG, discussed above: 1. a refusal to license an IPR, or a decision to exercise it through the Courts, could not itself amount to an abuse under Article 102 TFEU; however, 2. a remedy involving compulsory licensing might be appropriate: if (i) a dominant company is engaged in abusive conduct; and (ii) the IPR plays a role in connection with that abuse; and (iii) the compulsory licensing remedy is the best way of terminating the abuse. 6.109 The Court’s primary conclusion in Volvo provided some comfort to those who feared that competition law would cut a swathe through IPRs and result in significant obligations to license on a compulsory basis. However, the recognition that there could be circumstances in which Article 102 TFEU might oblige an IPR holder to license its rights against its will led to a number of further cases. Subsequent complaints and case law pushed at the door which had been tentatively opened by the CJEU, seeking to establish what sort of conduct might justify a remedy requiring the grant of a compulsory licence. 6.110 The CJEU next considered the issue in Magill127 which was finally decided nearly seven years after the Volvo judgment128 and is key to the subsequent development of the law.

126 Ibid., Opinion of AG Mischo on 21 June 1988 (ECLI:EU:C:1988:332) (Volvo v Veng AG Opinion). 127 Magill CJEU (n 78).

128 The initial reference in Volvo v Veng was made by the English High Court in July 1987; the AG Opinion (n 126), was given in June 1988; and the Court’s judgment is dated 5 October 1988. The initial complaint in Magill was made in April 1986; the Commission decision was adopted in December 1988 (just after the CJEU judgment in Volvo v Veng (n 101)); the EU GC gave judgment in July 1991; and the CJEU dealt with the final appeal in April 1995, ibid. This demonstrates both the much greater speed of cases which are dealt with by way of preliminary reference and also the way in which developments in the law are often intertwined – any significant judgment inevitably has an impact on what follows.

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Magill concerned a publisher’s attempt to publish a comprehensive weekly television guide 6.111 including copyright-protected information (weekly programme listings) owned by broadcasting organizations. At the time, there were only three broadcasters in the UK and Ireland and each of the three organizations published its own weekly guide, providing information only about the programmes it broadcast. There was no comprehensive weekly guide, such as that which Mr Magill had begun to publish (although newspapers were permitted to publish daily listings). Each of the broadcasters sued Mr Magill for copyright infringement, obtained injunctions against him in the national courts and refused to grant him a licence to any copyrighted materials. Mr Magill complained to the Commission, arguing that each broadcaster was dominant in the supply of information about its own programmes and that the refusal to grant necessary licences was stifling a new competitive product. With various twists and turns along the way, both the Commission and the GC found in favour of Mr Magill. Eventually, the case made its way to the EU’s highest court. The broadcasters relied, in essence, on two main arguments about abuse: first that the 6.112 Commission and GC were wrong in holding that a refusal to license could constitute an abuse; and secondly (a subsidiary point taken by ITV only) that the Commission did not have the power to order an IPR owner to grant licences. The case also raised some questions about dominance. The issues relating to dominance were quickly disposed of by the Court which held that, by 6.113 virtue of their control over programming, the broadcasters had a monopoly over the basic information about what would be broadcast when. As that information related to the television programmes received by most households, the broadcasters were ‘in a position to prevent effective competition on the market in weekly television magazines’ and therefore dominant. On the question of abuse, the CJEU reiterated that refusal to grant a licence cannot in itself 6.114 be an abuse. However, in the most important paragraph of the judgment, the CJEU referred to paragraph 9 of the Volvo v Veng judgment and held that: ‘the exercise of an exclusive right by the proprietor may, in exceptional circumstances, involve abusive conduct’.129 Almost all subsequent case law has focused on seeking to establish what ‘exceptional circumstances’ might suffice to justify a finding of abuse arising from the exercise of/refusal to license an IPR. In Magill, the CJEU identified four elements meaning that the refusal to license in that case 6.115 would be an infringement of Article 102 TFEU: ● first, the indispensability of the information about the weekly listings for the publication of a comprehensive guide; ● second, the fact that the refusal to license prevented the appearance of a new product for which there was potential consumer demand (a comprehensive weekly guide) and forced consumers to buy several weekly guides; ● third, there was no objective justification for the refusal to license; and

129 Magill CJEU (n 78), para 49. The crucial difference from the position in the Volvo v Veng AG Opinion (n 126) was the statement that ‘the exercise of an exclusive right’ could itself amount to abuse (reflecting the view of the GC). Ironically, it is not clear that this was in fact what amounted to the abusive conduct in Magill, where the CJEU referred to the refusal to supply the programme listing information as abusive, albeit this refusal was effected through reliance on copyright.

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● fourth, the right holders reserved for themselves a secondary market by denying access to an indispensable input required to create a product which would compete on that secondary market. 6.116 As in the AG Opinion in Volvo v Veng (and implicitly in the Court’s Volvo v Veng judgment), the CJEU referred to the wording of Article 102 TFEU itself in holding that the imposition of compulsory licences was justified: The appellants’ refusal to provide basic information by relying on national copyright provisions thus prevented the appearance of a new product, a comprehensive weekly guide to television programmes, which the appellants did not offer and for which there was a potential consumer demand. Such refusal constitutes an abuse under heading (b) of the second paragraph of Article [102] of the Treaty.130

6.117 The CJEU did not in its final judgment engage with the questions relating to specific subject matter and essential function of copyright, which had been raised by some of those involved.131 The GC had considered this question, holding: However, while it is plain that the exercise of the exclusive right to reproduce a protected work is not in itself an abuse, that does not apply when, in the light of the details of each individual case, it is apparent that that right is exercised in such ways and circumstances as in fact to pursue an aim manifestly contrary to the objectives of Article 86. In that event, the copyright is no longer exercised in a manner which corresponds to its essential function, within the meaning of Article 36 of the Treaty, which is to protect the moral rights in the work and ensure a reward for the creative effort, while respecting the aims of, in particular, Article 86. … In that case, the primacy of Community law, particularly as regards principles as fundamental as those of the free movement of goods and freedom of competition, prevails over any use of a rule of national intellectual property law in a manner contrary to those principles.132

6.118 This issue was also considered in some detail by the AG133 (forming a significant part of his lengthy opinion). A review of that opinion in detail goes beyond the scope of this book (not least because ultimately the AG considered that there had been no abuse in Magill, because ‘the refusals to grant licences did not take place under such special circumstances that they may be classified as an abuse of a dominant position’134), but it is a very thorough review of the issues and the arguments, providing a fascinating insight into the early development of the law. 6.119 What could constitute ‘exceptional circumstances’ was next considered by the EU Courts in two further cases, Tiercé Ladbroke135 and Oscar Bronner.136 The second is the more important of the two for the future development of the law and was a decision of the CJEU.

130 Magill CJEU, ibid., para 54. Art 102(b) TFEU prohibits conduct by a dominant company which limits production, markets or technical development to the detriment of consumers. Arguably the AG in Volvo v Veng, ibid, could have referred to this element of Art 102 TFEU as well as 102(a) in his Opinion discussed above at para 6.107. 131 Magill CJEU, ibid., para 35, summarizing the arguments of the Intervener.

132 Case T-69/89 Radio Telefis Eireann (RTE) v Commission of the European Communities (ECLI:EU:T:1991:39) (Magill GC), para 71.

133 Magill CJEU (n 78), Opinion of AG Gulmann (Magill AG Opinion), paras 27 onwards. 134 Magill AG Opinion, ibid, para 129.

135 Case T-504/93 Tiercé Ladbroke SA v Commission of the European Communities (ECLI:EU:T:1997:84) (Tiercé Ladbroke). 136 Commercial Solvents (n 100); and Oscar Bronner CJEU (n 109).

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Tiercé Ladbroke was a judgment of the GC and was interesting in that it sought to ensure con- 6.120 tinuing caution and coherence in assessing when a compulsory licence might be the appropriate remedy and a refusal to license an abuse. In Tiercé Ladbroke, a Belgian bookmaker alleged that the French racecourse authority, the 6.121 Société des Courses, had abused a dominant position by refusing to license rights to the televised pictures and sound commentaries of French horse races for use in Belgian betting outlets. The GC rejected Ladbroke’s argument, holding that the decisive factors in Magill were that the alleged abuse must concern: … a product or service which was either essential for the exercise of the activity in question, in that there was no real or potential substitute, or was a new product whose introduction might be prevented, despite specific, constant and regular potential demand on the part of consumers.137 (emphasis added)

Ladbrokes was already present on the Belgian market and the provision of televised pictures 6.122 was not needed in order for it to offer its services; the indispensability criterion was not met. The GC also appears to have considered that the fact that transmission was ‘… not indispensable, since it takes place after bets are placed, with the result that its absence does not in itself affect the choices made by bettors and, accordingly, cannot prevent bookmakers from pursuing their business’138 meant that no new product was likely to emerge. This part of the GC’s reasoning is rather unclear owing to its use of the disjunctive ‘either/or’ which suggests that either an essential facility or a new product rationale could justify the imposition of a compulsory licence, rather than both being required. The GC also rejected Ladbroke’s further allegations of abuse because the IP owners were not 6.123 themselves present on the Belgian market (therefore not reserving that market or any part of it to themselves) nor had they granted any licences to anyone for the televised races (therefore not engaging in discrimination). Overall, the GC’s judgment perhaps reflected some uncertainty about the desirable or appropriate level of intervention into IPRs. The court in Oscar Bronner harboured no such doubts. The AG in particular was very clear.139 6.124 The CJEU was less expansive in its comments but referred to both Commercial Solvents and Magill in its judgment.140 Although the case does not directly involve IPRs, much of the analysis is relevant to compulsory licensing cases as was recognized by the CJEU at paragraph 41. The issues arose from a preliminary reference by the Austrian Court in an action by Oscar 6.125 Bronner (an Austrian newspaper publisher) alleging that Mediaprint had abused its dominant position by refusing Bronner access to Mediaprint’s newspaper home delivery service. Bronner claimed that this was an ‘essential facility’ since it was the only economically viable national scale home-delivery scheme in Austria.

137 Tiercé Ladbroke (n 135), para 131. 138 Tiercé Ladbroke, ibid., para 132.

139 Oscar Bronner CJEU and AG Opinion (n 109). 140 Magill CJEU (n 78), paras 38–40.

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6.126 AG Jacobs reviewed the balance between the protection of property rights, including the right owner’s freedom to exercise those rights as it pleases, and the need to protect free competition, concluding his review as follows: It is clear from the … rulings that a dominant undertaking commits an abuse where, without justification, it cuts off supplies of goods or services to an existing customer or eliminates competition on a related market by tying separate goods and services. However, it also seems that an abuse may consist in mere refusal to license where that prevents a new product from coming on a neighbouring market in competition with the dominant undertaking’s own product on the market.141

6.127 Turning his attention to the specific factors which apply to IPRs, the AG expressed the view that the ruling in Magill was due to the ‘special circumstances of that case’, and that intervention in the form of compulsory licensing can be justified in competition policy only in cases where the dominant undertaking has a ‘genuine stranglehold’ on the related market.142 He identified the primary purpose of Article 102 TFEU as being ‘to prevent distortion of competition – and in particular to safeguard the interests of consumers – rather than to protect individual competitors’.143 AG Jacobs also pointed out that exclusive IPRs, such as patents and designs, are granted only for a limited period, and the legislation governing that grant itself involves a balancing of the interest in free competition with that of providing an incentive for research and development and for creativity.144 6.128 The CJEU broadly agreed with this reasoning, referring with approval to Magill, and discussed how the ‘exceptional circumstances’ referred to in that case might be identified in future. In summary, the CJEU’s view was that compulsory access may be an appropriate remedy for a refusal to allow access to a facility in cases of genuine market dominance where:145 1. the refusal is likely to exclude all competition in a secondary/ancillary market on the part of the person requesting access; 2. the refusal of access is not justified by objective considerations; 3. the product, service or right to which access is sought is indispensable for carrying on the business in question; and 4. there is no objective justification for the conduct. 6.129 In relation to the ‘indispensability’ requirement, the CJEU stated that it is necessary to find at the very least ‘technical, legal or even economic obstacles capable of making it impossible, or … unreasonably difficult’ for competitors to produce a competing structure or product.146 The Court made it clear that it would not be sufficient simply to argue that any competing product would not be viable because of subjective factors such as the size of the potential competitor. 141 Oscar Bronner AG Opinion (n 109), para 43. 142 Ibid., paras 63–65. 143 Ibid., para 58. 144 Ibid., para 62.

145 Oscar Bronner CJEU (n 109), para 40.

146 Ibid., paras 44–46. In Case C‑152/19 P and C‑165/19 P Deutsche Telekom AG and Slovak Telekom a.s. v European Commission (ECLI:EU:C:2021:238 and ECLI:EU:C:2021:239) (Slovak Telekom), the CJEU clarified that situations where a dominant company offers access, but imposes unfair conditions over that access are not equivalent to an outright refusal to supply and indispensability is therefore not a pre-condition for intervention. See also the discussion of the essential facilities doctrine in the GC judgment in Google Shopping (n 66).

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However, the CJEU did not say that it would be necessary for a refusal of access to a physical facility or network to prevent the appearance of a new product in order to be abusive, as long as the refusal to provide access was likely to be genuinely exclusionary and was unjustified.147 The CJEU appeared to consider that the new product criterion should be reserved for IPR 6.130 related conduct. As we shall see below, in IMS Health (which did involve a species of IPR) the Court reiterated that the exceptional circumstances test would be satisfied only if the refusal to license prevented the emergence of a new product (although quite what ‘novelty’ meant was left unclear). Microsoft took this further by explaining that the ‘new product’ criterion could be fulfilled as long as the refusal to license at issue would have the effect of hindering or preventing innovation or technical development (again without definitive guidance on the extent of the potential added innovation required). Both of these cases are discussed in more detail below. 1. IMS Health

The scope of obligations to license IPRs was further explored in the Commission decision and 6.131 related GC and CJEU judgments in the IMS Health cases.148 Like Magill, IMS Health concerns a rather unusual form of copyright. Both IMS Health cases 6.132 (which arose from the same facts, but which followed different procedural routes) concerned IMS’s sales data structure for the German pharmaceuticals market. The data structure consisted of groupings of German pharmacies by region into 1,860 ‘bricks’. IMS was able to provide market reports based on its ‘brick structure’ for analysis by interested parties (mostly pharmaceutical companies). In 2000, NDC sought a licence of the brick structure, which IMS contended was protected by copyright belonging to IMS. IMS refused to grant a licence. NDC continued to provide market reports based on the 1,860-brick structure. IMS sued NDC in Germany. The result was a preliminary reference to the CJEU from the German court which was dealing with the copyright dispute. In parallel NDC complained to the Commission, seeking interim measures ordering the immediate grant of a licence.149 IMS Health is important in understanding the issues that continue to arise in refusal to deal/ 6.133 license cases. Despite the procedural complexity, it is worth dealing with it in some detail. A summary of the outcome is provided below for those who do not need or wish to understand all the twists and turns.

147 Oscar Bronner CJEU, ibid., para 41.

148 Case T-184/01 IMS Health Inc v Commission of the European Communities (Interim Measures) [2001] ECR II-3193; [2002] 4 CMLR 111 (ECLI:EU:T:2001:259) (IMS Health GC), overruling 2002/165/EC: Case COMP D3/38.044 – NDC Health/IMS Health: Interim measures, Commission Decision of 3 July 2001, OJ [2002] L59/18 (IMS Health Commission Decision); and Case C-418/01 IMS Health GmbH & Co. OHG v NDC Health GmbH & Co. KG. [2004] ECR I-5039 (ECLI:EU:C:2004:257) (IMS Health CJEU). 149 The facts and procedure are complex: for a helpful examination of the background to the two cases, see Christopher Stothers, ‘IMS Health and its Implications for Compulsory Licensing in Europe’ (2004) EIPR 467.

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a. The Commission interim measures decision150 and IMS’s appeal to the GC151

6.134 Following NDC’s complaint, the Commission agreed that IMS had a dominant position in the market for German regional sales data services (the relevant market) and that it had abused that position by refusing to license its 1,860-brick structure to its competitors. The Commission considered that the situation was sufficiently urgent to require interim measures and, basing its decision on Magill, Ladbroke and Oscar Bronner, held that ‘exceptional circumstances’ existed, ordering IMS to grant a licence of its brick structure. The Commission relied on the facts that: ● IMS held IPRs in the brick structure which had become a de facto industry standard; and ● IMS was excluding all competition from the market for regional data services without objective justification. 6.135 Crucially, the decision omitted the requirement discussed in all three of the earlier cases (clearly held to be a key criterion in IPR-related disputes in both Magill and Oscar Bronner, and possibly in Tiercé Ladbroke) that the party requesting the grant of a licence should be offering a new product for which there is consumer demand. Moreover, the compulsory licence was to be granted in circumstances where the grantee was a direct competitor of the dominant company who was active on the same product market.152

150 IMS Health Commission Decision (n 148). 151 IMS Health GC (n 148).

152 This was a position rather different to that taken by the Commission in 1994 when it expressed the view (dismissing a complaint) that: … at the current stage of EC competition law, it is highly doubtful whether one could impose an obligation upon a dominant firm (in an eventual EC bulk intermediate Hep B market), as a remedy to ensure the maintenance of effective competition in the national Hep B markets, to share its intellectual property rights with third parties to allow them to develop, produce and market the same products (i.e. multivalents containing the Hep B antigen) which the alleged dominant firm was also seeking to develop, produce and market. Directorate-General for Competition, Secretariat-General, XXIVth report on Competition Policy 1994, Publications Office, 1995, Annex II Page 353 Complaint by Lederle-Praxis Biologicals (https://​op​.europa​.eu/​en/​publication​-detail/​ -/​publication/​cd5535d7​-fce4​-4021​-a6d6​-6d76da864cce/​language​-en – accessed 2 November 2023). In making this comment, the Commission may well have had in mind AG Gulman’s lengthy opinion in Magill (n 133), given on 1 June 1994, ‘… No-one would doubt the fact that RTE and ITP were entitled to exercise their copyright in order to prevent the publication of television guides corresponding to their own respective guides’ (para 90, emphasis added). AG Gulman also considered the criteria that should be met if a ‘new product’ was to be identified and he concluded at paras 96 and 97 that a new product would be one which did not compete with a product produced by the copyright holder. On this basis he considered that no compulsory licence should be ordered in Magill. As we have seen, the CJEU disagreed and decided that a compulsory licence should be granted on the basis that the refusal to license ‘prevented the appearance of a new product … which the [IPR owner] did not offer and for which there was potential consumer demand’ (para 54). It did not comment on what the position would have been if the IPR owners had produced weekly guides, but that to be provided by Mr Magill was ‘better’ nor did it address the AG’s remarks at para 97: Even if that product is new and better, the interests of consumers should not in such circumstances justify interference in the specific subject-matter of the copyright. Where the product is one that largely meets the same needs of consumers as the protected product, the interests of the copyright owner carry great weight. Even if the market is limited to the prejudice of consumers, the right to refuse licences in that situation must be regarded as necessary in order to guarantee the copyright owner the reward for his creative effort. The precise boundaries between cloning or mere copying (which should be prevented even if it protects a dominant IP owner) and the creation of something which is different in a way that benefits consumers so as to be regarded as ‘new’ remained to be resolved at the date of the IMS Health judgment.

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On appeal, the GC suspended the interim measures decision. The Court noted that there were 6.136 a number of potentially important differences between the circumstances of Magill and those in IMS Health. In particular, in IMS Health the Commission had conducted a ‘non-cumulative interpretation’ of the conditions which had been held to constitute ‘exceptional circumstances’ in Magill.153 The GC criticized the Commission’s failure to show that NDC was seeking to offer a new product and stated: In essence, the Commission’s analysis would appear to be that the prevention, by means of a refusal to license an IPR, of the emergence of new competitors willing to offer, at most, new variations of the same services and on the same market as the dominant undertaking may amount to an abuse where those competitors cannot otherwise access the market in question because the protected work constitutes a de facto industry standard.154

One of the GC’s main concerns was that IPRs should not be reduced, by the obligation to 6.137 license, to a mere right to receive royalties: The fundamental rationale of copyright is that it affords the creator of inventive and original works the exclusive right to exploit such works …, thereby ensuring that there is a ‘reward for the creative effort’ … To reduce it to a purely economic right to receive royalties dilutes the essence of the right and is, in principle, likely to cause potentially serious and irreparable harm to the right holder.155

The GC concluded that there was a risk that the Commission’s interim measures decision could 6.138 cause serious and irreparable harm to IMS which could not be rectified if the Commission’s preliminary conclusions turned out to be incorrect. Accordingly, it did not satisfy the requirements for the grant of interim measures and the Commission’s decision was suspended.156 b. The CJEU’s preliminary ruling on the national court reference157

As mentioned above, the German court had held in the parallel national proceedings that 6.139 IMS’s copyright was infringed, but that IMS could not refuse to grant a licence to NDC if such a refusal would infringe Article 102 TFEU. The national court asked the CJEU when a refusal to grant a licence could be abuse of a dominant position. The CJEU held that refusal by a dominant undertaking to grant a licence to a would-be competitor could amount to an Article 102 TFEU infringement if three conditions were satisfied: 1. the party wishing to receive the licence must intend to offer new products/services not offered by the right holder, and for which there is potential consumer demand; 2. the right holder must be unable to justify its refusal to license on objective grounds; and 3. the refusal to grant a licence must reserve a secondary market to the right holder, eliminating all competition in that market.158

153 IMS Health GC (n 148), para 100. 154 Ibid., para 101.

155 Ibid., para 125 reflecting to some extent the remarks in Magill AG Opinion (n 133). 156 This order was subsequently upheld by the CJEU: IMS Health CJEU (n 148). 157 Ibid.

158 Ibid., paras 38 and 52. For the discussion of the secondary market criterion, see paras 40–47; for the discussion of the new product criterion see paras 48–49; there was no discussion of when a refusal might be justified as the parties had made no observations to the Court on that issue (para 51).

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6.140 The CJEU confirmed that these conditions (which are little changed from the Magill ruling) are to be applied as a cumulative test, the Court described the conditions as ‘sufficient’ but did not hold that they were the ‘exclusive’ or only circumstances in which a refusal to license might fall within the prohibition in Article 102 TFEU. This leaves open the possibility that other conditions might also qualify as ‘exceptional circumstances’ in which the grant of a compulsory licence would be appropriate. 6.141 Inevitably, the CJEU’s ruling was not itself ‘sufficient’ to deal with all the questions that would inevitably arise in practice. Maintaining its practice of answering only the questions that needed to be answered and not dealing in hypotheticals, the CJEU did not give detailed guidance on the form that any ‘new’ products or services required to be offered by the party wishing to receive the licence must take. It observed only that the potential licensee must avoid ‘essentially duplicating’ the goods or services already offered and should intend to offer goods or services not offered already and for which potential demand exists.159 2. Microsoft

6.142 The next step in the development of the jurisprudence followed not long after and arose from a complaint by Sun Microsystems about Microsoft. The complaint had two aspects. One related to tying and the other to a refusal to provide interoperability information. Sun Microsystems alleged that Microsoft was providing insufficient information to enable Sun Microsystems (and other third parties) to equip servers to interoperate smoothly with Microsoft’s desktop products.160 Microsoft argued that its refusal to provide interoperability information was not an abuse under Article 102 TFEU, and that an obligation to do so was not justified, in part because of the effect on Microsoft’s IPRs.161 6.143 After a lengthy investigation, the Commission concluded (upholding Sun’s complaint) that Microsoft had infringed in two ways: 1. by bundling its Windows Media Player with the Windows operating system; and 2. by withholding the interface information required by developers of server operating system products. 6.144 The first of these is dealt with in the context of tying below. The latter is important in the context of obligations to license IPRs. 159 Again the AG’s Opinion (ECLI:EU:C:2003:537) in IMS Health CJEU, ibid., in contains a more detailed discussion of the issues, and places the discussion in the context of the essential facilities debate (see para 58). The AG’s view on the ‘new product’ criterion was that the complainant must intend ‘to produce goods or services of a different nature which, although in competition with those of the owner of the right, answer specific consumer requirements not satisfied by existing goods or services’ (para 66). The CJEU approved the AG’s Opinion that there must be a balancing between: ‘the interest in protection of the intellectual property right and the economic freedom of its owner against the interest in protection of free competition’ (para 48) and concluded that a compulsory licence was an available remedy only where: the undertaking which requested the licence does not intend to limit itself essentially to duplicating the goods or services already offered on the secondary market by the owner of the intellectual property right, but intends to produce new goods or services not offered by the owner of the right and for which there is a potential consumer demand. (para 49) 160 This complaint had significant echoes of the conduct originally investigated by the Commission in its 1980s investigation into IBM, see para 6.102 ff above. 161 Microsoft GC (n 92), paras 111 and 112.

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In its decision, the Commission noted that there was no exhaustive checklist of ‘exceptional cir- 6.145 cumstances’ to determine whether a refusal to license was abusive. It therefore considered that it was permitted to take into account ‘other circumstances of an exceptional character’ which were relevant. This reflected the CJEU’s IMS Health judgment a few weeks later (see above). In addition, while the decision refers repeatedly to the Magill criteria, the Commission’s analysis also reflected the traditional test for refusals to supply tangible products established by the CJEU in Commercial Solvents.162 For example, it was crucial to the Commission’s decision that Microsoft had refused access to interoperability information in circumstances where it had previously provided access. While the remedy imposed on Microsoft required the software company to offer licences of its interface information on reasonable and non-discriminatory terms, the substantive reasoning seems to have been based on Microsoft’s withdrawal of information of ‘significant competitive importance’ from existing customers, with the result that those customers found it difficult to offer their products.163 Microsoft and the Commission disagreed on whether the interface information to be provided 6.146 was in fact covered by IP for which a licence was required.164 To avoid having to enter into a detailed analysis of Microsoft’s alleged IPRs, their coverage and validity, the Commission adopted its decision on the assumption that Microsoft’s conduct involved a refusal to license IPRs, stating that this ensured that Microsoft benefitted from the legal test most favourable to it. On 17 September 2007, the GC handed down its judgment on Microsoft’s appeal, upholding 6.147 the substance of the Commission’s 2004 decision.165 The Court confirmed the €497 million fine, Europe’s largest antitrust penalty for an individual company at that time. Microsoft did not appeal this judgment. The GC noted that there was no need to decide whether the interoperability information that 6.148 Microsoft had refused to license involved IPRs in order to deal with the appeal166 given that the Commission had proceeded: … on the premises that, so far as it relates to the interoperability information, the conduct at issue in the present case might not be a mere refusal to supply a product or a service indispensable to the exercise of a specific activity but a refusal to license intellectual property rights, and thus chose the strictest legal test and therefore the one most favourable to Microsoft (see paragraphs 312 to 336 below). The Commission did not therefore decide whether or not Microsoft’s conduct constituted a refusal to grant a licence or whether or not the remedy prescribed by Article 5 of the contested decision entailed compulsory licensing.167

162 Commercial Solvents (n 100).

163 Microsoft GC (n 92), para 586. This approach harks back to the position in Volvo, discussed at para 6.104 ff above, where an obligation to license could be imposed as a remedy for a standalone abuse arising from something other than a refusal to license in and of itself, in this instance the withdrawal of a facility/resource from an existing customer. 164 See the discussion of these arguments paras 269 et seq of the judgment in Microsoft GC, ibid. The Commission’s position can be found at paras 277 et seq.

165 However, it held that the Commission had gone too far in compelling Microsoft to accept a monitoring trustee exercising wide powers, and to pay the trustee’s costs. 166 Microsoft GC (n 92), para 283. 167 Ibid., para 284.

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6.149 The judgment then examined the case law on refusals to supply and on when an obligation to license may be imposed.168 It confirmed that exceptional circumstances are required before the exercise of an IPR may be abusive under Article 102 TFEU and that this will ‘in particular’ include where the refusal of a licence: ● relates to a product or service indispensable to the exercise of a particular activity on a neighbouring market; ● is such as to exclude any effective competition on a secondary market; and ● prevents the emergence of a new product for which there is a potential consumer demand; and ● is unjustified.169 6.150 The Court commented on each requirement and the operative part of the judgment repays careful reading. The key points are summarized below. a. Indispensability

6.151 The GC was reluctant to engage with the details of the basis on which the Commission had found Microsoft’s interoperability information to be indispensable. It noted that it was not the role of the Court to review in detail complex economic assessments undertaken by the Commission during the administrative procedure. It agreed with the Commission that Microsoft had established the Windows domain architecture as a de facto standard and overall accepted the Commission’s evidence on the importance of interoperability with Windows to enable competing products to be marketed viably, meaning that the lack of interoperability reinforced Microsoft’s competitive position.170 The Court accepted that in the circumstances a high degree of interoperability (as required by the Commission) was necessary to enable competitors to remain viable, meaning that the interoperability information necessary to achieve that outcome was indispensable. 6.152 This was not contradicted, in the Court’s view, by the continued presence of competitors on the market after Microsoft’s conduct began: While it is true that on the date of adoption of the contested decision those competitors were still present on the market, the fact remains that their market share fell significantly as Microsoft’s share increased rapidly, notwithstanding the fact that some of them, particularly Novell, had a considerable technological advantage over Microsoft. The fact that competition is eliminated gradually and not immediately does not contradict the Commission’s argument that the information at issue is indispensable.171

6.153 The effect on competition of the relevant conduct is at the heart of Article 102 TFEU, and it was to this that the Court turned next.

168 Ibid., paras 319 et seq. 169 Ibid., para 322.

170 Ibid., paras 421–422. 171 Ibid., para 428.

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b. Elimination of competition

Microsoft had argued that the correct test to be satisfied before a refusal to license IPR could be 6.154 abusive was that the conduct must be likely to eliminate all competition and that this required ‘something close to certainty’ or a high probability of eliminating effective competition. The Commission had argued that the correct test was that the refusal ‘creates a risk that all effective competition on the secondary market …’ will be eliminated.172 The Court dealt with Microsoft’s argument on the substantive test robustly, criticizing it as 6.155 being one of terminology only, without substance and ‘wholly irrelevant’. As far as the required degree of certainty is concerned, the Court stated:

6.156

The expressions ‘risk of elimination of competition’ and ‘likely to eliminate competition’ are used without distinction by the Community judicature to reflect the same idea, namely that Article [102 TFEU] does not apply only from the time when there is no more, or practically no more, competition on the market. If the Commission were required to wait until competitors were eliminated from the market, or until their elimination was sufficiently imminent, before being able to take action under Article [102 TFEU], that would clearly run counter to the objective of that provision, which is to maintain undistorted competition in the common market and, in particular, to safeguard the competition that still exists on the relevant market.173

Turning to the requirement that competition should ‘be eliminated’ the Court was equally 6.157 robust: Nor is it necessary to demonstrate that all competition on the market would be eliminated. What matters, for the purpose of establishing an infringement of Article 82 EC, is that the refusal at issue is liable to, or is likely to, eliminate all effective competition on the market. It must be made clear that the fact that the competitors of the dominant undertaking retain a marginal presence in certain niches on the market cannot suffice to substantiate the existence of such competition.

c. New product

Microsoft had argued that for the new product criterion to be satisfied it would not be sufficient 6.158 for the Commission to claim that the information sought could be used by competitors ‘to [develop] the advanced features of their own products’ (recital 695 to the contested decision)174 nor that ‘it is sufficient for a product to contain substantial elements contributed by the licensee’s own efforts’.175 The Commission disputed Microsoft’s interpretation of the requirements in IMS Health 6.159 and grounded its defence in the appeal on a reading of Article 102(b) TFEU itself. The Commission argued that it had interpreted the IMS Health criterion in the light of the TFEU prohibition of conduct that ‘limit[s] technical development to the prejudice of consumers’ and that it had taken ‘… particular care to ascertain that Microsoft’s refusal was a “refusal to allow

172 Ibid., para 454. 173 Ibid., para 561. 174 Ibid., para 624. 175 Ibid., para 626.

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follow-on innovation”, that is to say, the development of new products, and not a mere refusal to allow copying’.176 6.160 The GC noted that the ‘new product’ criterion is found only in the case law which relates to refusals to license IPR and does not form part of the general refusal to supply jurisprudence.177 It explained first that two markets (one upstream and one downstream) must be identified (confirming IMS Health on this point178). It then emphasized the central role of Article 102(b) TFEU179 stating that if the refusal to license has the effect of limiting technical development this may suffice to engage Article 102 TFEU if that limitation is to the detriment of consumers. The GC referred back to the judgment of the CJEU and the Opinion of AG Tizzano in IMS Health, summarizing them as meaning that: … in the balancing of the interest in protection of the intellectual property right and the economic freedom of its owner against the interest in protection of free competition, the latter can prevail only where refusal to grant a licence prevents the development of the secondary market, to the detriment of consumers.180

6.161 Building on that starting point, the GC concluded: The circumstance relating to the appearance of a new product, as envisaged in Magill and IMS Health, …, cannot be the only parameter which determines whether a refusal to license an intellectual property right is capable of causing prejudice to consumers within the meaning of Article [102(b) TFEU]. As that provision states, such prejudice may arise where there is a limitation not only of production or markets, but also of technical development.181

6.162 Applying that test to the facts, the GC stressed that the ‘new products’ (competing servers) which had been eliminated by the refusal of Microsoft to license interoperability information had caused prejudice to consumers as non‑Microsoft servers were considered by consumers to be superior to Microsoft servers in important respects. The GC noted that the Commission’s decision was based: … on the concept that, once the obstacle represented for Microsoft’s competitors by the insufficient degree of interoperability with the Windows domain architecture has been removed, those competitors will be able to offer work group server operating systems which, far from merely reproducing the Windows systems already on the market, will be distinguished from those systems with respect to parameters which consumers consider important …182

6.163 The GC addressed the concern that had arisen in earlier cases, including the Advocates-Generals’ opinions in Magill and IMS Health about the risk to incentives that might follow if compulsory licences were imposed which would enable ‘cloning’ or reproduction of products already offered by the dominant undertaking. It put its position on this issue in the context of the

176 Ibid., para 632. 177 Ibid., para 334.

178 IMS Health CJEU (n 148), para 43.

179 Microsoft GC (n 92), paras 643 et seq, referring back to the evolution of this criterion from Magill onwards. 180 Ibid., para 646. 181 Ibid., para 647. 182 Ibid., para 656.

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specific products and markets in question183 including the fact that the time and effort required to produce interoperable products would mean that those taking a licence would ‘wish to take advantage of a competitive advantage over Microsoft and maintain a profitable presence on the market’ by differentiating their products meaningfully from those of Microsoft. The GC also drew comfort from evidence relied on by the Commission to show that consumers considered non-Microsoft server operating systems to be better, with important differentiating features.184 d. Justification

Microsoft was also interesting for the GC’s guidance on the sort of objective reason that could 6.164 be relied on to justify a refusal to license which would otherwise be abusive. The GC noted that:

6.165

Microsoft relied as justification for its conduct solely on the fact that the technology concerned was covered by intellectual property rights. It made clear that if it were required to grant third parties access to that technology, that ‘would … eliminate future incentives to invest in the creation of more intellectual property’ (recital 709 to the contested decision) … [and] also relied on that fact that the technology was secret and valuable and that it contained important innovations.185

The GC held that such ‘vague, general and theoretical arguments’ were insufficient to justify 6.166 a specific refusal to license. If Microsoft had been successful with this argument, the concern was that it would relieve IPR holders from formulating objective, evidenced reasoning for a specific refusal to license, as the argument essentially relied on the presumption that IPR holders would necessarily be deterred from innovating by the latent disincentive of potential compulsory licensing orders. The Court clearly felt that these general concerns were already taken into account in the EU 6.167 Courts’ approach of requiring ‘exceptional circumstances’ before a refusal to license could be an infringement in the first place. The Court’s view was that the framework established in Magill and IMS Health means that the mere fact that technology or other rights are covered by IPR cannot constitute a justification for refusing to permit them to be used once the exceptional circumstances required by the jurisprudence have been established: Microsoft’s argument is inconsistent with the raison d’être of the exception which that case-law thus recognises in favour of free competition, since if the mere fact of holding intellectual property rights could in itself constitute objective justification for the refusal to grant a licence, the exception established by the case-law could never apply. In other words, a refusal to license an intellectual property right could never be considered to constitute an infringement of Article [102 TFEU] even though in Magill and IMS Health, paragraph 107 above, the Court of Justice specifically stated the contrary.186

Unsurprisingly, the GC did not say that a refusal to license could not be objectively justified, 6.168 only that in any particular case the justification must be specific and related to the particular rights and circumstances at hand, rather than a general reliance on the existence of IPR and a theoretical concern about general incentives. 183 Ibid., paras 652–658. 184 Ibid., para 661. 185 Ibid., para 689. 186 Ibid., para 690.

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e. Other interesting points

6.169 Before judgment was given, the GC had already refused to impose a stay on the remedies ordered by the Commission, holding that Microsoft had failed to show that suspension of the remedies was a matter of urgency.187 Once that was clarified, putting the Commission’s remedies into effect still involved a significant dispute about the terms of the ‘reasonable and non-discriminatory’ licences which Microsoft was required to offer. In particular, Microsoft resisted the Commission’s requirement that the majority of licences be granted on a royalty free basis, and further, that the licensees should have the right to incorporate the interface information in other onward licences, including as part of an open source product.188 The Commission expressed concerns that the conditions imposed by Microsoft for access to, and use of, the interoperability information were not reasonable and non-discriminatory.189 Following two Commission decisions under Article 24(2) of Regulation 1/2003 and the imposition of very significant fines,190 the terms of the licences to third parties were finally agreed between the Commission and Microsoft. 6.170 Microsoft was also the subject of two further investigations by the Commission concerning refusals to supply interoperability information and scrutiny in Europe relating to its cloud computing services.191, 192 Neither case appears to have proceeded to an infringement decision and the later of the two was formally rejected by the Commission.193 f.

Refusals beyond Microsoft?

6.171 EU case law has applied something akin to the essential facilities doctrine to some situations in which the exercise of IPR prevents entry and innovation. Licences of IPR can be ordered as a remedy under Article 102 TFEU. The Courts have sought to reflect policy concerns about 187 Ibid., Order of The President of the Court of First Instance (Interim Measures), 22 December 2004.

188 See Commission Press Release IP/05/673, Competition: Commission to market test new proposals from Microsoft on interoperability, 6 June 2005 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​IP​_05​_673 – accessed 24 November 2023). 189 See n 188 above.

190 On 12 July 2006, the Commission adopted a decision (the first Article 24(2) Decision) imposing a penalty payment of €280.5 million on Microsoft for non-compliance with its obligations (€1.5 million per day for the period from 16 December 2005 to 20 June 2006). The Commission subsequently held that up until 21 October 2007, Microsoft had still not complied with its obligation under the Decision to give access to the interoperability information on reasonable and non-discriminatory terms and on 27 February 2008 adopted the second Article 24(2) Decision imposing a penalty payment of €899 million on Microsoft for non-compliance with its obligations (running from 21 June 2006 to 21 October 2007). Microsoft appealed against the €899 million fine under the second Article 24(2) decision, but this appeal was largely dismissed by the GC, with the amount reduced to €860 million. 191 Case COMP/C-3/39294 Microsoft (ECIS) and Case COMP/39.784 – Omnis/Microsoft.

192 See the Microsoft EU Policy Blog post, Microsoft responds to European Cloud Provider feedback with new programs and principles, 18 May 2022 (https://​blogs​.microsoft​.com/​eupolicy/​2022/​05/​18/​microsoft​-responds​-to​-european​-cloud​ -provider​-feedback​-with​-new​-programs​-and​-principles/​ – accessed 24 November 2023). Microsoft’s cloud computing services were also the subject of a further investigation in the UK following a reference of the UK cloud market to the CMA from sectoral regulator OFCOM in October 2023 (https://​www​.ofcom​.org​.uk/​news​-centre/​2023/​ofcom​-refers​ -uk​-cloud​-market​-to​-cma​-for​-investigation – accessed 2 November 2023). 193 Case COMP/C-3/AT.39784 – Omnis/Microsoft, Commission of 29 January 2016 rejecting the complaint (https://​ ec​.europa​.eu/​competition/​antitrust/​cases/​dec​_docs/​39784/​39784​_463​_3​.pdf – accessed 2 November 2023). Omnis’ appeal against the rejection decision was rejected by the GC in Case T‑74/11 Omnis Group Srl v European Commission (ECLI:EU:T:2013:283).

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chilling research and investment and the need to protect freedom of contract. The limiting principle is the stipulation that a refusal to supply which involves the implicit exercise of IPRs can be an infringement only within the parameters of ‘exceptional circumstances’. Following IMS Health and Microsoft, certain criteria have been identified as clearly sufficient 6.172 to permit intervention. It remains unclear where the outer boundaries lie. Establishing this is likely to require significant further testing of the issue in case law. However, while this is still evolving (and noting that Microsoft involved an obligation to recommence supply to a pre-existing trading partner), the case law in principle requires an intervention to be anchored in evidence both that access is ‘indispensable’ and that the refusal will affect competition on a downstream market, whether through hindering the supply of new products or hindering technical development to the detriment of consumers. The test of indispensability was discussed in Slovak Telekom194 where the Court acknowledged 6.173 the high threshold that the ‘indispensability’ criterion creates, asking whether an undertaking has a ‘genuinely tight grip on the market by virtue of that infrastructure’.195 However, the CJEU went on to hold that the Oscar Bronner criteria apply only to outright refusals to supply and not to acts of discrimination relating to the conditions of supply.196 The Court explained that in such circumstances access had already been granted and therefore: the competent competition authority or national court will not have to force the dominant undertaking to give access to its infrastructure, as that access has already been granted. The measures that would be taken in such a context will thus be less detrimental to the freedom of contract of the dominant undertaking and to its right to property than forcing it to give access to its infrastructure where it has reserved that infrastructure for the needs of its own business.197

The Oscar Bronner criteria also played a part in Google’s unsuccessful appeal to the GC in the 6.174 Google Shopping case. There again, the GC held that the Oscar Bronner test did not apply in the particular circumstances of the case.198 The distinguishing factor identified by the GC in Google Shopping was the existence of independent breaches of Article 102 TFEU, in particular under Article 102(c) TFEU, holding that in such circumstances the Oscar Bronner criteria did not apply. It expressly limited the application of the Oscar Bronner criteria to circumstances involving a unilateral refusal to supply which ‘would therefore justify the application of the “essential facilities” doctrine’.199

194 Slovak Telekom (n 146). 195 Ibid., para 48.

196 Ibid., para 50. ‘Nevertheless, as regards practices other than a refusal of access, the absence of such an indispensability is not in itself decisive for the purposes of the examination of potentially abusive practices on the part of a dominant undertaking.’ This reflects the judgment in Case C-52/09 Konkurrensverket v TeliaSonera Sverige AB (ECLI:EU:C:2011:83) (TeliaSonera). See also the comments in the Commission’s recent 2023 Article 102 Staff Policy Brief (n 30), discussing these developments from a more general Art 102 TFEU perspective. 197 Slovak Telekom, ibid., para 51.

198 Google Shopping (n 66), paras 215–239.

199 Ibid., para 238. On 11 January 2024 AG Kokott gave an Opinion recommending to the CJEU that the GC judgment should be upheld and Google’s appeal dismissed. Case C‑48/22 P Google LLC and Alphabet Inc v European Commission ECLI:EU:C:2024:14. AG Kokott discusses the Bronner criteria at paragraphs 60–128.

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6.175 While neither Slovak Telekom nor Google Shopping involved the licensing of IPR, the approach taken is of general interest, given the way in which Oscar Bronner has influenced case law on refusals to license as well as refusals to grant access to other forms of property. Both cases suggest a degree of ambivalence on the part of the Courts about the desirability of imposing supply obligations on those alleged to have behaved anticompetitively by refusing to deal.200 6.176 The Magill/Oscar Bronner/IMS Health criteria go directly to those considerations. In addition, where IPR is involved, an additional safeguard is in place: the new product criterion. Compulsory licensing is envisaged only if the IPR is both indispensable to the licensee’s activities in a downstream market and also indispensable to producing something novel/technically improved. This criterion in particular is intended to help balance the need to maintain IPR owners’ incentives to invest with the desire of potential licensees for access to IPR by allowing compulsory access only when further innovation which will benefit consumers would otherwise be prevented. This is also intended to further the policy requirement to incentivize investment not only in original/initial innovation but also in follow on innovation leading to more advanced and more efficient goods and services. Refusals to deal which risk throttling future innovation will be at real risk of intervention. 6.177 In the context of IPR, the extent of the risk to likely future innovation which is required to trigger the prospect of compulsory licensing is where complaints and case law are likely to focus. Undertakings will seek to understand more clearly the extent to which technical developments must be hindered before compulsory licensing is available as a remedy. In this context, the GC’s focus in Microsoft on the actual circumstances in the work group server market, the reasons why technical developments would be beneficial and the reasons why competitors to Microsoft would be compelled by market forces to make significant technical improvements are worth bearing in mind when considering how the ‘technical improvement’ criterion might be applied in future. That analytical approach suggests that, as ever, the facts and the actual market and technical context will matter a great deal. 6.178 It has been contended that the EU approach is insufficiently rigorous in protecting the incentives to undertake the initial investment in innovation and that the limits on competition law intervention originally identified in cases such as Volvo have been eroded over the following quarter of a century. Certainly some of the developments indicated above, including the unwillingness to provide a bright line, and a limitation of the circumstances in which the Bronner/ Magill thresholds actually apply are fodder for those who take that line. By contrast, US jurisprudence has become less willing to intervene in cases affecting the prerogatives of IPR owners. In both jurisdictions the jurisprudence is likely to continue to evolve.

200 Slovak Telekom (n 146), para 47: … while, in the short term, an undertaking being held liable for having abused its dominant position due to a refusal to conclude a contract with a competitor has the consequence of encouraging competition, by contrast, in the long term, it is generally favourable to the development of competition and in the interest of consumers to allow a company to reserve for its own use the facilities that it has developed for the needs of its business. If access to a production, purchasing or distribution facility were allowed too easily, there would be no incentive for competitors to develop competing facilities. In addition, a dominant undertaking would be less inclined to invest in efficient facilities if it could be bound, at the mere request of its competitors, to share with them the benefits deriving from its own investments.

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Whilst the treatment of refusals to license under competition or antitrust law has been devel- 6.179 oped over a considerable period in the US and EU, the application of the doctrine in other jurisdictions has been more limited. As a leading industrial economy and growing creator and user of IPR, it is particularly interesting to understand judicial treatment of the doctrine in China, following its recognition in the underpinning legal instruments. In the first compulsory licensing case in China,201 the Ningbo Intermediate People’s Court required Hitachi Metals to grant a compulsory licence over patents related to the manufacturing of neodymium-iron-boron (NdFeB) magnets. The Court invoked the essential facilities doctrine to find an abuse of dominance by Hitachi Metals in refusing to license its patents which were nevertheless considered essential. The first instance judgment was subsequently overturned on appeal.202 J. Other Types of Abuse Article 102 TFEU may be engaged by other conduct related to IPR. The cases which do not 6.180 involve compulsory licensing have tended to be somewhat less controversial than the refusal to license cases, particularly when the conduct at issue related to the terms on which licences are granted, and whether extraneous obligations were imposed. Some of the cases and decisions referred to below are quite old, and in some instances unique. 6.181 Nevertheless, as the Commission’s AstraZeneca decision of 2005 (among others) makes clear,203 it would be unwise to disregard the flexibility of Article 102 TFEU. Since Consten and Grundig,204 it has been clear that companies must always have regard not only to the form of their conduct, but also to its real effect. 1. Tying

Article 102(d) TFEU states that it may be abusive to make the conclusion of contracts 6.182 ‘subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts’. Although none of the leading cases on tying relates directly to the exercise of IPRs, in each of them the existence of IP was a relevant factor.

201 Ningbo Ketian Magnet Co Ltd v Hitachi Metals, Ltd, Ningbo Intermediate People’s Court, judgment of April 2021.

202 A fuller discussion of the case can be found at Pat Treacy and Iva Gobac, ‘Ketian v Hitachi: China’s First Compulsory Licence?’ (2022) 17(10) Journal of Intellectual Property Law & Practice 811–822 (https://​doi​.org/​10​.1093/​jiplp/​jpac077 – accessed 30 November 2023). The first instance judgment was overturned by the People’s Supreme Court of China on 14 December 2023. (2021) Supreme Court IP Case Final Instance No 1413 et seq brief summary of the Court’s reasoning and a link to a convenience translation of the judgment can be found at: https://​www​.linkedin​.com/​posts/​ ying​-song​-66742526​_anjiebroad​-antitrust​-antitrustlaw​-activity​-7167755016093491200​-QEBZ​?utm​_source​=​share​&​ utm​_medium​=​member​_ios. 203 Subsequently upheld by the GC and CJEU. See Chapter 8 for further discussion.

204 Joined Cases 56/64 and 58/64 Consten SaRL and Grundig GmbH v Commission of the EEC Case [1966] ECR 299.

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6.183 In Hilti, the dominant supplier of nail guns and of the cartridge strips and nails used in its own brand of guns was criticized for tying the supply of nails to the supply of its patented cartridge strips.205 Conduct found by the Commission to be abusive included: ● the refusal to supply cartridge strips without also supplying accompanying nails; ● the grant of special discounts for the combined purchase of nails and cartridge strips; ● the refusal to supply competing nail producers with cartridge strips and the attempt to prevent customers and exclusive distributors from supplying cartridge strips to other nail suppliers; and ● the refusal to honour the guarantee on its nail guns where such guns had been used with non-Hilti nails or cartridge strips. 6.184 The Commission decision was appealed to the EU Courts, but not on the substance of the abuses identified by the Commission. The GC stated that independent producers should be free to manufacture competing consumables unless that would infringe a patent or some other IPR.206 6.185 In the tying portion of the 2004 Microsoft decision207 (later confirmed on appeal by the GC208), in which Microsoft’s IPR position was part of the overall context, the Commission applied a four-stage test to determine whether a tie was an abuse of a dominant position: ● the tying and the tied goods must be separate products; ● the undertaking concerned must be dominant in the tying product market; ● the undertaking concerned does not give customers a choice of obtaining the tying product without the tied product; and ● the tie forecloses competition.209 6.186 The test applied by the Commission (and approved by the GC) in Microsoft was rather different to previous case law. For example, rather than assuming that tying had by its nature a foreclosing effect (as had been the case in previous tying cases) the Commission conducted an assessment of the actual effects on the market of Microsoft’s practices as well as examining the likely future evolution of the market.210 It is not clear that such an examination would always be necessary as the Commission had been careful to place its approach in the context of ‘the specific circumstances of the case’.211

205 Eurofix-Bauco v Hilti (n 21); upheld on appeal in Hilti GC (n 90), and Case C‑53/92 Hilti AG v Commission of the European Communities [1994] ECR I-667 (ECLI:EU:C:1994:77) (Hilti CJEU). 206 Hilti GC, ibid., para 68.

207 Case COMP/C-3/37.792 – Microsoft, Commission Decision of 24 May 2004 (http://​ec​.europa​.eu/​competition/​ antitrust/​cases/​dec​_docs/​37792/​37792​_4177​_1​.pdf – accessed 23 May 2023) (Microsoft Commission decision). 208 Microsoft GC (n 92). See also Thomas Kramler, Carl-Christian Buhr and Devi Wyns, The Judgment of the Court of First Instance in the Microsoft Case (Competition Policy Newsletter, Number 3 – 2007, p 39).

209 Microsoft Commission decision (n 207), para 794.

210 Microsoft GC (n 92), para 1035. This most likely in part reflects the Commission’s efforts at that time to move away from a form-based approach to Art 102 TFEU during its enforcement practice to a more economic analysis (which ultimately led to the adoption of the Article 102 TFEU Guidance). 211 This issue was discussed further in Google Android (see discussion at para 6.189 ff below).

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Probably the most interesting aspect of the Microsoft tying case is the discussion of when two 6.187 separate products can be identified in an industry such as IT where product evolution and integration may lead to formerly separate products coming to be regarded as a single product.212 The CJEU held that the critical factor was consumer demand, although other features of the Microsoft/media player ecosystems were relevant including the fact of separate supply of the Windows Media Player; its promotion as a separate product; and the existence of a separate licence agreement offered by Microsoft. A subsequent investigation into tying practices by Microsoft involved an alleged tie between 6.188 Internet Explorer and Windows.213 This case did not turn on any IPR issues and was settled by way of commitments (followed by subsequent procedural/enforcement proceedings214). More recently the Commission opened a formal investigation into a complaint that Microsoft has engaged in anticompetitive bundling of Teams with its Office 365 and Microsoft 365 products.215 In Google Android,216 the Commission held that by requiring manufacturers to pre-install the 6.189 Google Search app and the Chrome app as a condition for licensing the Google PlayStore (or making payments to encourage manufacturers to do so), Google infringed Article 102 TFEU. It was also held to be an infringement to prevent manufacturers from using any alternative version of Android not approved by Google.217 The Commission set out the following test for the application of Article 102 TFEU, relying 6.190 on the Microsoft judgment: In order for conduct that makes the conclusion of a contract concerning a product or service subject to the acceptance of a supplementary obligation to be liable to be caught by the prohibition under Article 102 TFEU, it is sufficient that the following conditions are met: (1) (2) (3) (4)

the supplementary obligation is unrelated to the subject of the contract; the undertaking concerned is dominant in the market on which it offers the product or service; the supplementary obligation leaves the other party with no choice to obtain the product or service other than by accepting the supplementary obligation; and the supplementary obligation is capable of restricting competition.

212 Microsoft GC (n 92), para 913.

213 Commission decision of 16 December 2010. 214 Commission decision of 6 March 2013.

215 Commission Press Release IP/23/3991, Antitrust: Commission opens investigation into possible anticompetitive practices by Microsoft regarding Teams, 27 July 2023 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​ip​_23​_3991 – accessed 24 November 2023).

216 Case AT.40099 – Google Android, Commission Decision of 18 July 2018 (Google Android Commission Decision) (https://​ ec​.europa​.eu/​competition/​antitrust/​cases/​dec​_docs/​40099/​40099​_9993​_3​.pdf – accessed 24 November 2023), upheld in substance on appeal – Case T-604/18 Google LLC and Alphabet, Inc v European Commission (ECLI:EU:T:2022:541) (Google Android GC).

217 Google Android Commission Decision, ibid., Section 12.

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS If these conditions are met, it is for the dominant undertaking, which bears the burden of proof, to demonstrate the existence of any objective justification for its conduct. (internal references and paragraph numbers omitted)218

6.191 The GC agreed that the Commission’s reliance on the Microsoft test for tying was appropriate219 and that in the circumstances of the case (unlike in some of the classical tying cases before Microsoft220) it was appropriate for the Commission to examine the actual effects of Google’s conduct to identify harm to competition.221 6.192 The Google Android decision is wide ranging. Google’s IPR forms part of the overall context for the circumstances in which its practices were held to have been anticompetitive. The particular obligations analysed as part of Google’s licensing programme for apps were assessed on the basis that the infringements related to obligations not affecting devices on which Google’s Play Store and Search apps were installed.222 The Commission held (and was upheld by the GC) that a licence relating to specific products/services (Google apps) which contains restrictions affecting devices on which those apps are not installed is capable of infringing Article 102 TFEU. The particular restrictions related to the ability of those entering into the licence to market or develop devices running a non-compliant Android fork even where those ‘non-compliant’ devices did not have the Google apps installed. This was held to both limit market access for competing products and thus both strengthen a dominant position and limit innovation contrary to Article 102 TFEU.223 6.193 To the extent that the decision tells us anything about IPR licensing under Article 102 TFEU, it is that conduct which would otherwise be anticompetitive cannot be justified by incorporating it in a licence save for certain circumstances where the conduct in question is covered by the specific subject matter of licensed IPR.

218 Google Android Commission Decision, ibid., paras 741 and 742. Section 11 of the decision contains a lengthy discussion of the tying issues. 219 Google Android GC (n 216), para 284 and the discussion of the principles at paras 276–299. 220 Ibid., para 290

221 Ibid., para 295: In the present case, the Commission therefore correctly found, as it did in the decision which gave rise to the judgment of 17 September 2007, Microsoft v Commission (T‑201/04, EU:T:2007:289) (see para 286 above), that close examination of the actual effects or further analysis, according to the terminology used in the past in that regard, was required before it could be concluded that the tying in question was harmful to competition. Such an examination, first, serves to reduce the risk that penalties may be imposed for conduct which is not actually detrimental to competition on the merits and, second, further to clarify the gravity of the conduct in question, which will facilitate determination of the appropriate level of any penalty. 222 For example, the inclusion of anti-fragmentation obligations in Google’s licences was alleged to be contrary to Art 102 TFEU only in respect of devices on which Google’s apps were not installed: ‘The Commission does not dispute Google’s right to impose compatibility requirements in respect of devices on which its apps are installed.’ (Google Android GC, ibid., para 828). 223 Google’s arguments that the obligations were objectively justified and procompetitive because they were ‘necessary to protect the integrity and quality of the Android platform against the risks inherent in any incompatibilities’ were dismissed by both the Commission and the GC (Google Android GC, ibid., paras 866–894).

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2. Unfair licences

Leaving aside refusals to license and licences which support or implement tying behaviour, 6.194 other licensing activity is within the scope of Article 102 TFEU as well as Article 101 TFEU. Article 102(a) TFEU states that abuse may consist in imposing unfair trading conditions. Accordingly, the Commission has reviewed particular provisions in IP licences and found them to be ‘unfair’, and thus to breach Article 102 TFEU. Some of these cases are old, and some did not reach the status of a formal infringement decision but are mentioned because of the insights they provide into the breadth of Article 102 TFEU. In Eurofima,224 the buyer of railway passenger carriages on behalf of six national railway admin- 6.195 istrations was found to have abused its dominant position when, in its calls for tenders from railway carriage manufacturers and equipment engineers, it insisted on ‘unfair’ terms in licence agreements it proposed to conclude with the successful tenderer(s). The Commission investigated the terms of the proposed licences and found a provision requiring unrestricted rights for the purchaser to use the designs, documents, patents and other proprietary rights arising from the planning and execution of the contract to be particularly objectionable. The Commission said: ‘The claim to give licences for the future patent rights and for third parties without consulting or giving additional compensation to the contractor is materially improper. This condition of tender represents abuse within the meaning of Article [102].’225 The investigation did not proceed to a formal decision, but the outcome is not particularly surprising, given the comments above about the way in which obligations relating to improvements are dealt with under Article 101 TFEU. Before the Commission’s 2004 Microsoft decision, it had carried out an investigation into 6.196 the terms of the software company’s IP licences.226 Following a complaint from Novell, the Commission reviewed the structure of Microsoft’s standard agreements for licensing software to those who manufactured PCs. The Commission found that certain of Microsoft’s licensing practices foreclosed the European market for operating software227 and was prepared to issue a statement of objections setting out the reasons why it believed that Microsoft’s licences infringed Article 102 TFEU. In particular, the Commission objected to the following: ● an obligation on licensees to pay a minimum royalty to Microsoft, irrespective of use (i.e., a minimum commitment obligation); ● an obligation to pay royalties to Microsoft on every PC produced (a ‘per processor’ or ‘per system’ royalty) regardless of whether the PC was shipped with any pre-installed Microsoft software (this was possible because MS‑DOS and Windows had become a de facto industry standard, with which all third-party software was required to be compatible); and ● the long duration of Microsoft’s licences. As with the Eurofima investigation, there was no formal decision. Microsoft agreed with both 6.197 the Commission and the US authorities that it would not, for a period of six and a half years, impose minimum commitment obligations on licensees or conclude licences lasting more than 224 Eurofima [1973] CMLR D217. 225 Ibid.

226 24th Report on Competition Policy (1994), pp 364–365.

227 According to the Commission’s report on the investigation, similar concerns were under investigation in the US.

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one year. Microsoft also agreed not to impose ‘per processor’ royalty obligations. ‘Per system’ licences were not precluded entirely, but were permitted only if the licensee was clearly permitted also to purchase non-Microsoft products and to avoid royalty payments in respect of products which did not include Microsoft software. The lack of a formal decision means that the Commission’s precise reasoning and how it fitted the factual and legal context is somewhat opaque. The key concern was stated to be the foreclosure of competitors, similar to the concern identified under Article 101 TFEU for royalties charged on non-patented products.228 6.198 The assessment of abusive terms in licences granted by dominant companies has been further clarified in the cases relating to the licensing of the German Green Dot, or ‘grune punkt’ trademark (Grüne Punkt).229 The Commission found (and both the GC and CJEU agreed) that it was an abuse under Article 102(a) TFEU for a licensor to impose conditions requiring licensees to pay fees bearing no reasonable relation to the economic value of the service provided. 6.199 The only undertaking that operated a recycling service in Germany (DSD) licensed manufacturers to include the green dot mark on their packaging. This would help consumers to identify packaging which could be deposited in a green dot recycling bin, rather than in the general rubbish bins. The fee was charged for all packaging which carried the green dot mark, whether or not that packaging was actually ever returned to the system operator and recycled. It was held that the system operator should not charge licensees for recycling services not actually provided. However, the GC made clear that it would not be an abuse for an appropriate royalty to be sought for the mere use of the mark, as that mark may have an economic value in itself, quite apart from the value of the recycling service.230 6.200 In Racal-Decca,231 which involved marine radio receivers, the Commission considered that obligations on licensees232 to supply only ‘trailing edge’ products (which would have the effect of reserving the market for innovative products to the licensor) and to produce only within a very narrow field was an abuse of the licensor’s dominant position. In this instance, the Commission referred not only to Article 102(a) TFEU (the imposition of unfair terms), but also to Article 102(b) TFEU (limiting production, markets or technical development to the prejudice of consumers). Decca’s licensing practices formed part of a wider course of conduct including the use of technical measures (changing transmission signals) to hinder the use of competing receivers. The changes to the signals, which were held by the Commission to ‘have been made for the purpose of impeding the functioning of competing receivers’233 together with the restrictive 228 See the discussion above in the context of Art 101 TFEU at para 2.252. There are also some similarities with the recent decision in Google Android GC (n 216), discussed above at para 6.191. It is clear that the EU authorities continue to be concerned about provisions in licences which reach beyond the products covered by the licensed IPR and affect other products. 229 Case T-151/01 Der Grüne Punkt – Duales System Deutschland GmbH v Commission of the European Communities (ECLI:EU:T:2007:154) (Grüne Punkt GC), upheld on appeal in Case C-385/07 P Der Grüne Punkt – Duales System Deutschland GmbH v Commission of the European Communities (ECLI:EU:C:2009:456) (Grüne Punkt CJEU).

230 Grüne Punkt GC, ibid., para 196; and CJEU, ibid., para 131.

231 Commission Decision of 21 December 1998 (Cases IV/30.979 and 31.394) Decca Navigator System OJ [1989] L43/27; [1990] 4 CMLR 627 (Racal-Decca).

232 Interestingly, the Commission Decision records that Racal-Decca appears to have had considerable doubts about the strength of its IPR – see among others paras 22, 23 and 25, and 104 ff. 233 Racal-Decca (n 231), para 97.

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licences and Racal-Decca’s conduct in the period leading to the conclusion of those agreements were all held to be abusive. Racal-Decca had argued that its conduct was justified by its need to cover the costs of running 6.201 the system. The Commission rejected that argument both as a matter of principle and on the facts, holding first ‘[n]o undertaking has the right to ensure the continuation of its business by means which infringe existing laws, inter alia competition law …’234 and, secondly, that there were in fact alternative means of funding available which would have enabled it to continue to run the system. In Re YKK’s Complaint,235 the Commission held that some provisions in a patent licence 6.202 infringed Article 101(1) TFEU. In addition, it held that it was abusive for YKK, a dominant company, to start several actions for patent infringement and then subsequently to agree to suspend those actions only on condition that the defendant enter into a restrictive agreement. Vexatious or abusive litigation involving IPRs is discussed further below. More recently the Commission has been informally involved in reviewing various licensing 6.203 programmes alleged in various ways to be anticompetitive and imposing unfair terms. These have included informal action following a complaint by Xperi about the terms on which Dolby licensed its audio codecs. Following the complaint, Dolby removed various restriction from its licences which affected the ability of licensed manufacturers of products such as TVs from using rival codecs on audio decoded from Dolby formats.236 At about the same time, in 2019, the Commission formally rejected a complaint against 6.204 Philips’ licensing programme for patents relating to LED light fixtures and components.237 The Article 102 TFEU allegations included the imposition of unfair royalties and discriminatory licensing through the patent licensing programme. The complaint was rejected on the grounds of the Commission’s need to set priorities, noting that in the circumstances of the case the likelihood of establishing an infringement was limited. The Commission’s decision was appealed but upheld by the GC.238

234 Ibid., para 113.

235 [1978] 3 CMLR 44, paras 6–7.

236 https://​www​.highdefdigest​.com/​news/​show/​xperi/​Dolby/​DTS/​Receivers/​Sound​_Bars/​dolby​-withdraws​-restrictions​ -on​-third​-party​-upmixing​-for​-dolby​-audio​-codecs/​44728 – accessed 24 November 2023; see comment: Sophie Lawrance, Licensing programme terms attract Commission scrutiny (2 September 2019) (https://​www​.bristows​.com/​news/​ licensing​-programme​-terms​-attract​-commission​-scrutiny/​– accessed 24 November 2023).

237 Case AT.39913 – LED, Commission Decision of 25 October 2019 rejecting the complaint, C(2019) 7805 final (Philips LED Commission Decision) (https://​ec​.europa​.eu/​competition/​antitrust/​cases/​dec​_docs/​39913/​39913​_772​_7​.pdf – accessed 3 November 2023). Also of interest Commission Press Release IP/03/1152, Commission clears Philips/Sony CD Licensing program, 7 August 2003 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​IP​_03​_1152 – accessed 3 November 2023). 238 Case T-886/19 Design Light & Led Made in Europe and Design Luce & Led Made in Italy v European Commission (ECLI:EU:T:2022:442) (Philips LED GC). The Art 102 TFEU issues are described at paras 8–19, the GC’s review of the alleged abuses is at paras 76–93. The GC concluded that the Commission had not exceeded its administrative discretion to set priorities in deciding to reject the complaint.

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6.205 The complainant had alleged that Philips was infringing Article 102 TFEU by charging royalties based on the value of the finished lighting product, while the licensed IPR covered only part of the product, arguably contrary to Article 102(a) TFEU. The Commission had no difficulty in dealing with this argument,239 noting that this is generally not regarded as restrictive of competition and referring to paragraph 184 of the Technology Transfer Guidelines.240 6.206 In addition to the discrimination argument, which the Commission found not to be sustained on the facts, the complainant had argued that Philips imposed unfair and excessive reporting obligations on its licensees. The Commission did not exclude the possibility that such obligations could be contrary to Article 102 TFEU, but described in some detail the obligations actually imposed by Philips and their justification for doing so as well as the steps taken by Philips to ensure that information provided by way of royalty report was used only for the purposes for which it was provided. On the facts, the Commission found that there was a low likelihood of establishing an infringement of Article 102 TFEU.241 3. Excessive royalties

6.207 Article 102(a) TFEU specifies that it may be an abuse to impose unfair purchase or selling prices. This might involve either charging unfair or excessive prices for patented products or charging unfair or excessive licence fees. Establishing that any price is excessive is difficult.242 Where IPRs are involved the challenge is perhaps even greater. Excessive pricing in the context of IPR has only rarely been found to constitute abusive conduct.243 The assessment of royalty fees in the specific context of copyright collecting societies is considered from paragraph 6.266 ff below. 6.208 The applicability of Article 102 TFEU to excessive pricing has been considered in a number of cases, of which United Brands244 is regarded as the seminal case. It has been suggested that prices will be ‘excessive’ where they bear no reasonable relation to the ‘economic value’ of the

239 Philips LED GC, ibid., para 70.

240 Commission Notice, Guidelines on the application of [Article 101] of the Treaty on the Functioning of the European Union (TFEU) to technology transfer agreements, OJ [2014] C 89/3. Discussed in Chapters 2 and 3.

241 Philips LED GC (n 238), para 86.

242 See, for example, the saga relating to the CMA’s investigation into unfair pricing for phenytoin sodium capsules in the United Kingdom (Case CE/9742-13 Decision of the Competition and Markets Authority, Unfair pricing in respect of the supply of phenytoin sodium capsules in the UK, 7 December 2016). The original decision imposing fines was overturned on appeal by the Competition Appeal Tribunal (1275/1/12/17 Flynn Pharma Ltd and Flynn Pharma (Holdings) Ltd v Competition and Markets Authority [2018] CAT 11, 7 June 2018); further guidance on the correct test for unfair pricing was given by the Court of Appeal (The Competition and Markets Authority v Flynn Pharma Ltd & Anor (Rev 3) [2020] EWCA Civ 339, 10 March 2020) following which the case was reconsidered a further infringement decision taken. 243 For a broader discussion of the law relating to excessive pricing under Art 102 TFEU, the reader is referred to textbooks such as those referred to in Chapter 2 (n 86). 244 United Brands (n 13).

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product or service.245 The case law on excessive pricing246 suggests that the test is likely to involve assessing: ● the difference between the costs incurred and the price charged; and ● the price of competing products. When it comes to licensing, this type of test is difficult to apply. The incremental value of 6.209 a licence may be close to zero, and there may be no competing or clearly comparable licences.247 Despite this, the Courts have indicated that a product covered by IPR may be provided at an excessive price and that IPR itself may be licensed for an excessive royalty. Differences in prices between Member States may in some circumstances be an indicator that the higher prices or royalties are excessive.248 In the early case of Parke Davis,249 the CJEU implied that there might be circumstances in 6.210 which royalties under an IP licence could be excessive stating: ‘[a]lthough the sale price of the protected product may be regarded as a factor to be taken into account in determining the possible existence of an abuse, a higher price for the patented product as compared with the unpatented product does not necessarily constitute an abuse’ (emphasis added).250 As this was a reference to the CJEU from a national court, the CJEU confined itself to answering the precise question asked by the national court which seems to have arisen in the context of competition (and different prices) between patented products in one Member State and unpatented products coming from another Member State. This judgment was followed by Deutsche Grammophon,251 another reference from a national 6.211 court which asked the CJEU whether the imposition of high prices for IP protected material (in this case sound recordings) was abusive where those prices were higher than the price of the original product reimported from another Member State. The context of the reference was a little complex, but the Court’s answer was the same as in Parke Davis, that a mere difference in price between products would not necessarily establish that an excessive pricing abuse has occurred. However, in Deutsche Grammophon, the Court gave an indication of when such a difference could be evidence of an abuse: ‘… it may however, if unjustified by any objective criteria and if it is particularly marked, be a determining factor in such abuse’.252 245 See the discussion of Grüne Punkt (n 229), above at para 6.198 ff.

246 See, e.g., Case 26/75 General Motors Continental NV v Commission of the European Communities (ECLI:EU:C:1975:150). 247 See the discussion of comparable collective copyright licences which have different geographic footprints at para 6.266 below. 248 Case C-177/16 Autortiesību un komunicēšanās konsultāciju aģentūra/Latvijas Autoru apvienība v Konkurences padome (ECLI:EU:C:2017:689) (AKKA/LAA).

249 Case 24/67 Parke Davis & Co v Probel and Others [1968] ECR 55 (ECLI:EU:C:1968:11) (Parke Davis).

250 Ibid., para 74. This case was referred to in Volvo v Veng AG Opinion (n 126), paras 17–21 and 32 in the context of the discussion about whether and when a compulsory licence might be ordered under Art 102 TFEU. 251 Case 78/70 Deutsche Grammophon v Metro SB (ECLI:EU:C:1971:59).

252 Using comparative prices to assess whether a price is excessive has been the basis of several decisions in the field of copyright, particularly when considering the royalties charged by copyright management societies. For example, in Case C-351/12 OSA (Ochranný svaz autorský pro práva k dílům hudebním os v Léčebné lázně Mariánské Lázně as (ECLI:EU:C:2014:110), the CJEU noted that appreciably higher fees in one country which are not justified by different conditions in the two countries may infringe Art 102 TFEU. See, e.g., Case 395/87 Ministère public v Jean-Louis Tournier [1989] ECR 2521 (ECLI:EU:C:1989:319) (Tournier).

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6.212 The possibility that charging high prices for products covered by IPR could be abusive surfaced again in Renault and in Volvo v Veng253 where the Court identified ‘the fixing of prices for spare parts at an unfair level’ as an example of the type of abusive conduct that might cause the exercise of an exclusive right to be prohibited under Article 102 TFEU. 6.213 In Hilti, the GC criticized the dominant company for seeking very high royalties with a view to discouraging entry.254 Hilti’s patents were subject to licence of right provisions under English law meaning that it was obliged to offer licences. As Hilti would offer to license third parties only at high royalties the licensee had to go through a formal procedure under which the Comptroller of Patents adjudicated on the appropriate royalty (approximately six times lower than that offered by Hilti). This delayed the grant of the licences of right. 6.214 The Commission’s criticisms of Microsoft in respect of the implementation of the remedies imposed by the Commission’s March 2004 decision focussed in part on whether the fees that Microsoft proposed to charge for access to interface information were reasonable. In assessing the reasonableness of Microsoft’s proposed charges, the Commission stated that they must represent fair compensation for the value of the licensed technology and that the price charged must not include any value flowing from Microsoft’s market power.255 6.215 A case before the Court of Appeal of England and Wales relating to rights in a database of horse racing runners and riders casts some light on the way in which the issue of excessive pricing or excessive royalties might be approached in the context of IPRs.256 The Court of Appeal held, in line with United Brands, that when applying Article 102(a) TFEU to alleged excessive pricing it is necessary to assess whether the price has a reasonable relation to the economic value of the product supplied. 6.216 The Court of Appeal concluded that it is not sufficient simply to assess the value of a product on a ‘cost-plus’ basis. Whilst the cost-plus criterion might be an indicator of a competitive price, it could not be determinative alone.257 The Court of Appeal held that it is necessary to consider also the wider context in deciding whether or not the price charged is excessive or unfair. According to the Court of Appeal, this wider context encompasses factors including: ● value to the purchaser – an IPR owner may be entitled to seek to capture a proportion of the returns that use of its right has made possible; ● both direct and indirect costs of creating the IPR; and/or ● other factors which indicate the value of the data. 6.217 The Court of Appeal held that part of the value of the data reflected the overall integrity of British horseracing.

253 CICRA v Renault (n 123); Volvo v Veng (n 101).

254 Hilti GC (n 90), para 99; upheld on appeal in Hilti CJEU (n 205).

255 Microsoft Commission decision (n 207), para 107; upheld by the GC in Microsoft GC (n 92). 256 Attheraces Ltd v The British Horseracing Board [2007] ECC 7, CA (Attheraces). 257 Ibid., para 209.

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The question of excessive royalties in licences granted by dominant undertakings has been 6.218 particularly topical in recent years as it is the subject of intense scrutiny in a number of standardized industries. Those who contribute patents to a patent pool, or who declare IPRs to be ‘essential’ to the operation of a standard, often agree to license those rights on Fair, Reasonable and Non‑Discriminatory (FRAND) terms.258 There is considerable lack of clarity about the precise scope of the obligation to license on FRAND terms.259 This has led: to numerous complaints to the Commission about allegedly unfair licensing practices in the mobile telecommunications industry; to an agreement with the Commission to cap royalties for certain SEPS in the computer industry;260 to litigation on a unprecedented scale around the world about the terms on which such standardized patents are licensed; to decisions and guidance from the Commission about when seeking injunctions in patent litigation may be abusive and how to distinguish willing from unwilling licensees; and to a substantial increase in the number of patents sales/transfers as companies seek to monetize/bolster their patent portfolios. These issues are discussed in more detail at Chapter 9 in the context of the TMT sector and the licensing of standard essential patents. The Commission took its first decision in relation to excessive pricing in a pharma case in its 6.219 decision accepting pricing commitments from Aspen.261 This did not involve patented products. Although a commitments decision rather than a finding of infringement, and therefore containing only a ‘Preliminary Assessment’ of the legal issues, this is a useful summary of the Commission’s approach to excessive pricing. It broadly confirmed the continued relevance of United Brands and reiterated the Court’s position on the use of different methods to establish that a price which is excessive is also unfair.262 The Commission’s discussion of the implications of Aspen’s lack of patent coverage may be of 6.220 particular interest to IPR owners. It noted that Aspen’s products had lost their patent protection around half a century previously and commented: Patent law gives the innovator an exclusive right to the commercial exploitation of the invention for a certain period of time. This period of time compensates the originator for the innovative work. It also allows the originator to recoup the significant investment costs for research and development. After patent expiry, those costs are deemed to have been recouped. Since the Products’ patent protection had expired, it can be assumed that costs for research and development of the Products had already been recovered.263

258 See the discussion in Chapter 5 above of FRAND obligations in standardization arrangements (para 5.84 ff).

259 In very different contexts the CJEU in Post Danmark I (n 38), paras 29–30 has explained that a dominant undertaking charging different customers, different prices does not of itself constitute discrimination and in AKKA/LAA (n 248), that the use of objectively selected comparators is one way of assessing whether prices may be excessive. 260 Case COMP/38.636 – Rambus, Commission Decision of 9 December 2009, OJ [2010] C 30/17 (Rambus Commission Decision) (https://​ec​.europa​.eu/​competition/​antitrust/​cases/​dec​_docs/​38636/​38636​_1203​_1​.pdf – accessed 23 November 2023).

261 Case AT.40394 – Aspen, Commission Decision of 10 February 2021, C(2021) 724 final (Aspen) (https://​ec​.europa​.eu/​ competition/​antitrust/​cases/​dec​_docs/​40394/​40394​_5350​_5​.pdf – accessed 24 November 2023). See also Commission Press Release IP/21/524, Antitrust: Commission accepts commitments by Aspen to reduce prices for six off-patent cancer medicines by 73% addressing excessive pricing concerns, 10 February 2021 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​ en/​ip​_21​_524 – accessed 24 November 2023).

262 Aspen, ibid., paras 80–86. 263 Ibid., para 169.

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6.221 The Commission went on to note that the prices under investigation did not reflect commercial risk taking, improvements, R&D, brand building or other investments. The position is clearly very different for products which are protected by patents and in respect of which investment costs continue to be recovered and/or investments continue to be made. Establishing excessive pricing in such circumstances is liable to be significantly more difficult.264 4. Exclusivity

6.222 In Tetra Pak GC,265 the GC held that it may be an abuse of dominance for a company to acquire an exclusive licence to use new technology, where in doing so the acquiring company strengthens its own dominant position and prevents or delays others from entering the market. 6.223 The exclusive licence in question had originally been granted to a company other than Tetra Pak and had qualified for exemption under the then applicable patent licensing block exemption (Regulation 2349/84). Tetra Pak acquired the licensee and the benefit of the licence about five years after the licence had been concluded and before the machinery incorporating the licensed technology had been tested. That machinery had been developed by the licensee in collaboration with a third-party competitor of Tetra Pak. 6.224 This was an unusual case and one where the dominant undertaking held a very high market share. The principal issue discussed at the Court was the interrelationship between the relevant block exemption and Article 102 TFEU. On that issue the Court concluded that the grant of an exemption under Article 101(3) TFEU, whether a block exemption or an individual exemption did not preclude the application of Article 102 TFEU to the same conduct, if the requirements of Article 102 TFEU were satisfied.266 6.225 On the substantive question of abuse, the GC held that ‘… the mere fact that an undertaking in a dominant position acquires an exclusive licence does not per se constitute abuse within the meaning of Article [102 TFEU]’.267 The GC then summarized the basis on which the Commission had found the acquisition of the exclusive licence by Tetra Pak to infringe. It agreed with the Commission’s view that Tetra Pak had abused a position of dominance in a way that had the potential to affect the competitive structure of the market. The Court quoted with approval the Commission’s finding that the acquisition of the exclusive licence not only ‘strengthened Tetra’s very considerable dominance but also had the effect of preventing, or at the very least considerably delaying, the entry of a new competitor into a market where very little if any competition is found’.268 The factual context was important, in particular that ‘at the material time the right to use the process protected by the BTG licence was alone capable of giving an undertaking the means of competing effectively with the applicant in the field

264 It is notable that all the excessive pricing cases taken in the Member States by NCAs in respect of pharmaceuticals have related to off-patent products, see, e.g., Case CE/9742-13, Phenytoin Sodium (Pfizer and Flynn) UK – subsequently partially overturned on appeal CMA v Pfizer Inc and Flynn Pharma Ltd and Others [2020] EWCA Civ 339; investigation by the Autorità Garante dell Concorrenza E del Mercado (Italy) into Aspen Decision of 14 October 2016.

265 Tetra Pak GC (n 2), upholding Tetra Pak Commission Decision (n 2). 266 Tetra Pak GC, ibid., paras 15–43. 267 Ibid., para 23. 268 Ibid.

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of the aseptic packaging of milk’.269 The Court was clear that in the specific case, the fact of the takeover, was irrelevant, having merely provided the means for Tetra Pak to acquire the exclusive licence. It was subsequently confirmed in AstraZeneca v Commission270 that it may be an abuse of dom- 6.226 inance to acquire an exclusive licence or other exclusive right, whatever the means of doing so, and even if the acquisition does not eliminate all competition. The Commission had held in its decision, specifically referring to Tetra Pak (among other cases) that: … there is therefore no reason why the conduct in the procedure relating to the acquisition of the right cannot be considered as an abuse. The use of public procedures and regulations, including administrative and judicial processes, may, in specific circumstances, constitute an abuse, as the concept of abuse contrary to AZ’s arguments, is not limited to behaviour in the market only.271

Following AstraZeneca and Tetra Pak, the Commission again found the acquisition of exclu- 6.227 sive rights to be an abuse in Servier.272 This case is discussed in more detail below as part of the review of competition law in the pharma sector. As far as technology acquisitions are concerned, the Commission held that a technology acquisition by Servier formed part of an exclusionary strategy in circumstances where the acquired technology was never used by Servier and internal documents described the acquisition as part of ‘Servier’s Defence Mechanism’, foreclosing a rare and important source of potential competition. The Commission held that this distorted the competitive structure of the market, equating to a ‘buying out’ of potential sources of competition rather than competition on the merits of Servier’s technology. As in AstraZeneca, the acquisition of exclusive rights by Servier was not an isolated event. The 6.228 Commission’s summary of its decision explains that: The technology acquisition was complemented by Servier’s successive conclusion of five patent settlement agreements, which were capable of protecting or likely to protect Servier’s market position and deviated from competition on the merits, and contributed to the overall effects of Servier’s single and continuous infringement of Article 102 TFEU of the Treaty. Servier’s consistent and linear course of action in buying out potential sources of competition both by means of an intellectual property acquisition and reverse payment patent settlements was found to deviate from competition on the merits.273

The GC overturned the Commission’s decision under Article 102 on the basis that the 6.229 Commission had incorrectly defined the relevant market.274 That judgment has been appealed and a decision from the CJEU is awaited.

269 Ibid.

270 AstraZeneca GC (n 58).

271 Case COMP/37.507 AstraZeneca, Commission Decision of 15 June 2005, paras 742 and 743 upheld in AstraZeneca GC (AstraZeneca Commission Decision) (n 58), paras 352–368.

272 Case COMP/39.612 – Perindopril (Servier), Commission Decision of 9 July 2014 (Servier Commission Decision), paras 2800ff.

273 Summary of Servier Commission Decision, ibid., OJ [2016] C 393/7, paras 26 and 27 (https://​eur​-lex​.europa​.eu/​legal​ -content/​EN/​TXT/​HTML/​?uri​=​CELEX:​52016XC1025(01) – accessed 25 November 2023). 274 T-691/14 Servier SAS and Others v European Commission OJ [2014] C 462/25 (ECLI:EU:T:2018:922), paras 1367–1608; on appeal Case C-176/19 P Commission v Servier SAS, not yet decided.

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5. Abuse of the IP system

6.230 The discussion above shows that the strategic use of IPR (mostly, though not only, patents) and related conduct through litigation or other interactions with the patent or related regulatory systems has been the subject of competition law scrutiny almost since the first competition law case of Consten and Grundig.275 Some early interventions by the Commission which did not proceed to final decisions indicated a concern about the competition law implications of the use of IP registrations and litigation by companies which were dominant. 6.231 For example, the Commission suggested in Osram/Airam276 that it could be an abuse for a firm which is dominant in a substantial part of the EU to register a trademark ‘when it knows or ought to have known that that mark is already used by a competitor in other Member States …’ on the basis that this could raise barriers to entry by the competitor. The case was not pursued, following an agreement between the parties after the Commission’s intervention.277 6.232 Another example of Commission intervention, prompted in part by the enforcement of IPRs, is the interim measures decision in BBI/Boosey & Hawkes.278 That case involved a number of allegedly abusive actions taken by the incumbent (Boosey & Hawkes) against a new entrant (BBI). One of the allegations related to the pursuit by Boosey & Hawkes of copyright litigation against BBI which it ultimately had to abandon, but which caused delay and additional cost for the new entrant.279 The interim measures application did not rely directly on the alleged vexatious litigation and other ‘harassing tactics’;280 however, the Commission decision noted explicitly that ‘[a] course of conduct adopted by a dominant undertaking with a view to excluding a competitor from the market by means other than legitimate competition on the merits may constitute an infringement of Article [102 TFEU]’ and that the conduct specifically the subject of the interim measures decision (the termination of a pre-existing supply arrangement à la Commercial Solvents) ‘… was part of that plan’.281 The concluding paragraph of the decision on abuse put the interim measures decision as to the specific conduct complained of clearly in the context of the overall exclusionary plan: ‘However, the refusal of all supplies to GHH and RCN, and the other actions B&H has taken against them as part of its reaction to the perceived threat of BBI, would appear in the circumstances of the present case to go beyond the legitimate defence of B&H’s commercial interests’282 (emphasis added). 275 Consten and Grundig (n 204), and discussed at para 1.36.

276 Eleventh Report on Competition Policy Osram/Airam point 97, p 66.

277 Some commentators doubt that a similar approach would be taken now, on the basis that it seems unlikely that the registration of the mark would lead to significant foreclosure. See, e.g., Faull and Nikpay (n 6), para 4.730 and the discussion of the differing exclusionary potential of trademarks above at para 2.311.

278 Case IV/32.279 – BBI/Boosey & Hawkes: Interim measures, Commission Decision of 29 July 1987, OJ [1987] L 286/36 (BBI/Boosey & Hawkes).

279 Somewhat similar to the Commission’s criticisms of Hilti’s conduct leading up to and during the licence of right proceedings in Eurofix-Bauco v Hilti (n 21), discussed above at para 6.183. 280 BBI/Boosey & Hawkes (n 278), para 11. Alleged harassing tactics related to IPRs also formed a part of the complaint against Philips in Philips LED Commission Decision (n 237), where it was alleged that Philips intimidated potential licensees by ‘misleadingly claiming the infringement of patents which are not valid or close to expiry, and by not making clear infringement claims’, see Commission rejection decision (para 60). Following a review of Philips’ conduct, the Commission considered this complaint unlikely to succeed on the facts. 281 BBI/Boosey & Hawkes, ibid., para 19. 282 Ibid.

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This demonstrates a recurring theme in Article 102 TFEU enforcement, which becomes more 6.233 explicit as the case law develops, that a number of related types of conduct all of which tend to reinforce each other in their exclusionary effect and which form part of an overall exclusionary strategy can significantly increase the risk of competition law complaint and investigation, and also of ultimate liability being found – in part because it becomes increasingly difficult to defend each of the actions individually and the combination of actions plus their overall effect as ‘competition on the merits’ or ‘legitimate commercial conduct’. As already discussed, while intent to harm is not a necessary pre-requisite under Article 102 TFEU, an exclusionary or exploitative strategy or plan can be part of the overall matrix of facts that leads to a finding of abuse.283 In the specific context of bringing litigation, the relevance of intent was made explicit in the 6.234 GC’s judgment in ITT Promedia.284 That judgment held that commencing or prosecuting litigation could be abusive only in exceptional circumstances, agreeing with the Commission that this would be the case where the action: ● could not reasonably be considered to be an attempt to establish its rights and could therefore only serve to harass the defendant; and ● is conceived in the framework of a plan whose goal is to eliminate competition.285 The importance of these criteria in the context of litigation was reiterated subsequently in a case 6.235 relating to alleged vexatious trademark oppositions in the market for Irish whiskey.286 The judgment was, at time of writing, available only in French, but as far as is relevant to the question of vexatious litigation the GC reiterated that the right of access to a judge is a fundamental right, meaning that taking legal action will be likely to constitute an abuse under Article 102 TFEU only in exceptional circumstances and that the conditions established in ITT Promedia must be both interpreted and applied restrictively so as not to defeat the application of the general principle of access to the Court.287

283 See, e.g., Aspen (n 261), para 186 ff and para 8.244 ff below discussing a ‘strategy’ to exploit.

284 Case T-111/96 ITT Promedia NV v Commission of the European Communities (ECLI:EU:T:1998:183) (ITT Promedia). 285 Ibid., para 55.

286 Case T-119/09 Protégé International Ltd v European Commission (ECLI:EU:T:2012:421) (Protégé). See also the detailed discussion of the right of access to a Court and the inter-relationship with competition law in Chapter 9 below at 9.102–9.111 and 9.123–9.124.

287 The potential for abuse to flow from conduct relating to obtaining IPRs and initiating IP litigation has been pursued by NCAs. For example, in Spain the CNMC fined Merck €39 million for abuse including through bringing legal proceedings seeking a preliminary injunction during which it acted with a lack of transparency towards the Court. This was found not to be an action taken to enforce its rights but ‘part of a plan to suppress competition from the new market entrant for as long as possible’ and not, therefore, competition on the merits. CNMC Press Release, October 2022: https://​www​.cnmc​.es/​sites/​default/​files/​editor​_contenidos/​Notas​%20de​%20prensa/​2022/​20221025​_NP​ _Sancionador​_Merck​_eng​.pdf – accessed 25 November 2023. More recently still, the Italian NCA held that a Swedish company had engaged in a complex exclusionary strategy intended to maintain its position of dominance and foreclose competitors by filing for trademarks in bad faith, initiating sham litigation and undertaking a denigration campaign. Italian Competition Authority, Roxtec/Wallmax, Case No. 30737, Decision, 18 July 2023 (Italian), p 5 (https://​www​ .agcm​.it/​dotcmsdoc/​bollettini/​2023/​31​-23​.pdf – accessed 25 November 2023). See discussion in https://​www​.bristows​ .com/​news/​sham​-litigation​-meets​-competitor​-denigration​-italian​-competition​-authority​-fines​-roxtec​-for​-abuse​-of​ -dominance/​– accessed 25 November 2023).

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6.236 The principles relating to the application of Article 102 TFEU to conduct in IPR litigation have also come up in two cases before the CJEU that are considered in more detail below: AstraZeneca and Huawei v ZTE. 6.237 In AstraZeneca, the company argued that it could not be abusive for a patentee to defend an invalidity action. The Commission found that AstraZeneca’s abusive conduct consisted not in defending the validity of the patent as such, but in making misrepresentations to national patent offices which had resulted in additional protection being incorrectly granted to AstraZeneca, leading to delays and related additional costs in the legal proceedings. The GC upheld the Commission’s decision on this point.288 6.238 Huawei v ZTE arose in the context of the enforcement of standard essential patents or SEPs.289 To recap, an SEP relates to technology included in a standard. A patent is regarded as an SEP if the standard cannot be implemented without infringing it. Huawei had given an irrevocable undertaking to the relevant standard setting body that Huawei’s SEPs would be licensed on FRAND terms. It was argued that in such circumstances it would be an abuse for the patent owner to seek injunctive relief when enforcing the patent. The CJEU held that there would be no abuse as long as the SEP owner had given notice of the infringement to the potential defendant and, following an indication from the infringer of its willingness to accept a licence, made an offer to license on FRAND terms. The Huawei approach is born from the very specific situation that arises in the context of SEPs290 and it is difficult to see that it is clearly relevant in a wider context – other than perhaps by making clear that if a patent owner has made a reasonable offer to licence, subsequent enforcement actions are unlikely to be held to be abusive.291 a. AstraZeneca – misuse of patent and regulatory systems

6.239 As is clear from the examples above, cases applying Article 102 TFEU to conduct similar to abuse of process or vexatious litigation have cropped up before the CJEU from time to time,292 but a novel example in the context of IPR arose in the pharmaceutical sector where

288 AstraZeneca GC (n 58), para 610.

289 Huawei v ZTE CJEU (n 112). See the detailed discussion of the background to the case and various Commission decisions on related issues at para 9.71 ff below.

290 Even if not contrary to Art 102 TFEU, other legal considerations may apply. This could include the enforcement of a contractual obligation or some sui generis requirement. The particularity of the regime relating to SEPs is epitomized by the various efforts to resolve the correct approach to SEP licensing outside the specific field of competition law. See the proposed SEP package announced in April 2023 COM(2023)232 – Proposal for a regulation of the European Parliament and of the Council on standard essential patents and amending Regulation (EU) 2017/1001 (https://​ single​-market​-economy​.ec​.europa​.eu/​publications/​com2023232​-proposal​-regulation​-standard​-essential​-patents​_en – accessed 23 November 2023). This has proven to be controversial and is at the time of writing making its way through the legislative process. 291 See the description of Philips’ approach when licensing its LED patent portfolio, Philips LED Commission Decision (n 237), paras 60–69, which was found not to be intimidatory or harassing. The Commission’s investigations suggested that ‘Philips does not hold any essential patents that might confer upon it a position of market power and that there are viable alternatives to its IPR’ (para 54). 292 See, e.g., ITT Promedia (n 284); Protégé (n 286) para 49; Case C-70/10 Scarlet Extended SA v Société belge des auteurs, compositeurs et éditeurs SCRL (SABAM) (ECLI:EU:C:2011:771); Huawei v ZTE CJEU (n 112).

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the Commission’s decision to fine AstraZeneca around €60 million for two separate abuses of regulatory procedures was upheld by the CJEU.293 The two abuses identified by the Commission were different in nature (but had in common the 6.240 effect of making it more difficult for generic competitors to enter the market). Familiarity with this case is important to understand the flexibility and potential reach of Article 102 TFEU. It gave rise to significant commentary. A review of the issues by one of the lawyers involved in the case gives an insight into the extent of the disagreements between AstraZeneca and the Commission.294 The sectoral implications of the case are discussed in more detail in the chapter dealing with 6.241 the pharmaceutical sector, but as far as IPR and similar legal/regulatory rights are concerned, key points are: ● Using regulatory procedures in accordance with the relevant regulatory rules may be an abuse. ● Dominant firms are under an obligation to act transparently at least when dealing with public authorities including patent offices.295 ● While evidence of intention to harm competition, or of bad faith, is not necessary to establish abuse, it can be relevant and may be taken into account by the Commission when assessing whether conduct is abusive. In summary, the Commission’s decision covered two abuses which involved:

6.242

● providing misleading information to national patent offices; and ● misusing certain procedures relevant to the regulation of pharmaceuticals and the ability to place pharmaceutical products on the market.296 AstraZeneca was found to have abused its dominant position by providing misleading infor- 6.243 mation to national patent offices (as well as to its own patent agents) which enabled it to gain supplementary protection certificates (SPCs) or to obtain them for a period longer than that to which it was objectively entitled. The Commission contended that this enabled AstraZeneca to delay competitors from entering the valuable market for a certain type of drug to treat gastric ulcers (proton pump inhibitors).297

293 AstraZeneca CJEU (n 58). The fine was reduced on appeal, but the substance of the Commission’s decision on the abusive nature of AstraZeneca’s conduct was upheld.

294 Frances Murphy, ‘Abuse of Regulatory Procedures – the AstraZeneca Case: Parts 1, 2 and 3’ (2009) 30 ECLR 223, 289 and 314.

295 See the recent decision of the Spanish NCA fining Merck discussed above at (n 287) for an example of the application of this principle to litigation before a national court. 296 AstraZeneca Commission Decision (n 271).

297 Pharmaceutical manufacturers may apply for SPCs to compensate them for the long duration of the procedure for obtaining the marketing approvals which are necessary to commercialize drugs. SPCs extend patent protection for a period equal to the time between the filing of the patent application and the grant of the marketing authorization (to a maximum of five years). This procedure is provided for by Regulation 1768/92 as codified by Council Regulation (EC) 469/2009, currently the subject of reform proposals made in April 2023.

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6.244 AstraZeneca’s misrepresentation consisted in interpreting an ambiguous legal provision in its favour and providing a date based on that interpretation to some national patent offices as the ‘trigger’ date to calculate its entitlement to SPCs.298 The GC considered that AstraZeneca’s conduct amounted to a ‘misrepresentation’ capable of giving rise to an abuse of dominance based in part on the fact that AstraZeneca had not interpreted the legal provision in question consistently. It had used different interpretations for other products (and in other jurisdictions in relation to the same product) where the interpretation would not have made significant difference to its entitlement to an SPC. In addition, AstraZeneca had not explained to the national authorities the assumption it had made or the approach it had adopted when providing the information in its SPC application (without comment). 6.245 The Commission had held in its decision that AstraZeneca’s conduct was not ‘normal business behaviour’ and the GC agreed, observing: … that the submission to the public authorities of misleading information liable to lead them into error and therefore to make possible the grant of an exclusive right to which an undertaking is not entitled, or to which it is entitled for a shorter period, constitutes a practice falling outside the scope of competition on the merits which may be particularly restrictive of competition. Such conduct is not in keeping with the special responsibility of an undertaking in a dominant position not to impair, by conduct falling outside the scope of competition on the merits, genuine undistorted competition in the common market.299

6.246 The Commission had found that at least some of the national patent offices involved in granting SPCs had limited discretion and had no obligation to verify the information provided to them. The GC held that these were relevant factors to be taken into account when assessing whether, in the specific circumstances of any given case, an abuse occurred. In addition, the GC found that dominant companies were under an obligation to deal transparently with regulatory authorities both before and after exclusive rights are granted. It stated that: … in so far as an undertaking in a dominant position is granted an unlawful exclusive right as a result of an error by it in a communication with public authorities, its special responsibility not to impair, by methods falling outside the scope of competition on the merits, genuine undistorted competition in the common market requires it, at the very least, to inform the public authorities of this so as enable them to rectify those irregularities.300

6.247 The GC held that: ● it was irrelevant that some national authorities did not allow themselves to be misled; or ● the rights wrongfully obtained were subsequently revoked.301 6.248 The GC judgment is also clear that an abuse can arise in merely obtaining an exclusive right through making misleading submissions.302 It is not necessary for that right to have been enforced nor is it necessary that the acquisition would have the effect of eliminating all compe298 A CJEU ruling on a preliminary reference in a related case ultimately made it clear that AstraZeneca’s interpretation was incorrect. 299 AstraZeneca GC (n 58), para 355. 300 Ibid., para 358. 301 Ibid., para 360.

302 See discussion above at para 6.226.

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tition in order for it to constitute an abuse. The GC confirmed that it is irrelevant as a matter of competition law that there are separate remedies in the patent system to remedy the abusive conduct: Where behaviour falls within the scope of the competition rules, those rules apply irrespective of whether that behaviour may also be caught by other rules, of national origin or otherwise, which pursue separate objectives. Similarly, the existence of remedies specific to the patent system is not capable of altering the conditions of application of the prohibitions laid down in competition law and, in particular, of requiring, in cases of behaviour such as that at issue in the present case, proof of the anticompetitive effects produced by such behaviour.303

Finally, AstraZeneca had argued that if companies could be held to have abused a dominant 6.249 position in these circumstances, it would lead to a reduction in patent applications and might reduce innovation. The GC gave this short shrift holding that: … where misleading representations have been made to patent offices for the purposes of obtaining intellectual property rights to which an undertaking is not entitled, or to which it is entitled for a shorter period, … it is quite clear that, where established, such behaviour is indeed contrary to the public interest, as weighed up and applied by the legislator. As the Commission observes, such misuse of the patent system potentially reduces the incentive to engage in innovation, since it enables the company in a dominant position to maintain its exclusivity beyond the period envisaged by the legislator.304

This first type of abuse is potentially relevant to any dominant company seeking patents or 6.250 other exclusionary IPR as nothing seems to turn on the fact that the right at issue was an SPC. Of more potential relevance are other factual considerations such as whether the particular authority reviewing the application had the power to; was required to; and/or was in the habit of proceeding with a substantive review of the application. There was a further appeal on points of law to the CJEU.305 AstraZeneca argued that in order 6.251 to avoid chilling effects on applications for IP in Europe, conduct in procedures relating to the grant of IPRs should be held to be abusive only if it involves deliberate fraud or deceit and referred to the position in the US where patents obtained fraudulently can be challenged under US antitrust law. The CJEU did not directly decide the point of principle, holding that in the circumstances 6.252 of the case it was clear that AstraZeneca had engaged in deliberately misleading conduct.306 However, the CJEU was careful to address a point made both by AstraZeneca and by EFPIA (the trade body representing some pharmaceutical companies) which was, in essence, that the Commission’s approach (as upheld by the GC) would result in a standard of ‘infallibility’ in dealings with regulatory authorities. The CJEU stated explicitly that this was not the case, that 303 AstraZeneca GC (n 58), para 366. 304 Ibid., para 367.

305 AstraZeneca CJEU (n 58).

306 Ibid., paras 74 et seq. Particularly para 93: Clearly, as the General Court held … AZ’s consistent and linear conduct, as summarised above, which was characterised by the notification to the patent offices of highly misleading representations and by a manifest lack of transparency, … and by which AZ deliberately attempted to mislead the patent offices and judicial authorities in order to keep for as long as possible its monopoly on the PPI market, fell outside the scope of competition on the merits.

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each set of facts would be assessed in its precise circumstances and that the mere fact that patent applications are rejected or that objectively incorrect information is provided does not give rise to liability under Article 102 TFEU.307 6.253 The second type of abuse concerned the regulatory system for patented pharmaceuticals. It will not occur again in precisely the same way because the particular legislation has subsequently been amended, but the underlying approach remains relevant. 6.254 The Commission held that AstraZeneca had abused its dominant position by deregistering marketing authorizations for capsules of its drug while simultaneously launching a new form of the same product. This restricted the entry of generic drugs owing to the way in which marketing authorizations for generic entry (or parallel import) were granted. The result of AstraZeneca’s conduct was that manufacturers of generic versions of AstraZeneca’s drug were delayed from entering the market even after AstraZeneca’s patent had expired. 6.255 On appeal, both the GC and the CJEU upheld the Commission’s finding of abuse. AstraZeneca had argued that it was entitled under the relevant regulatory legislation to act precisely as it had. The CJEU agreed with the GC that this was irrelevant under Article 102 TFEU: ‘… the illegality of abusive conduct under Article [102 TFEU] is unrelated to its compliance or non-compliance with other legal rules and, in the majority of cases, abuses of dominant positions consist of behaviour which is otherwise lawful under branches of law other than competition law’.308 The CJEU then reiterated and affirmed a further point made by the GC: … an undertaking which holds a dominant position has a special responsibility in that latter regard … and … it cannot therefore use regulatory procedures in such a way as to prevent or make more difficult the entry of competitors on the market, in the absence of grounds relating to the defence of the legitimate interests of an undertaking engaged in competition on the merits or in the absence of objective justification.309

6.256 The case demonstrates that the mere fact that behaviour complies with regulatory or other legal obligations does not preclude the application of competition law. Unless a legal regime mandates particular behaviour, that behaviour can still be scrutinized under competition law.310 Only where companies are compelled by law or by government action to act in a particular way will their behaviour fall outside the scope of the competition provisions that apply to undertakings and only then to the extent that there is compulsion to act in a specific way so that there is no remaining scope for competition.

307 Ibid., para 99.

308 Ibid., para 132. 309 Ibid., para 134.

310 See, e.g., Case C-280/08 Deutsche Telekom AG v European Commission (ECLI:EU:C:2010:603), para 80. … it is only if anti-competitive conduct is required of undertakings by national legislation, or if the latter creates a legal framework which itself eliminates any possibility of competitive activity on their part, that Articles [101 TFEU] and [102 TFEU] do not apply. In such a situation, the restriction of competition is not attributable, as those provisions implicitly require, to the autonomous conduct of the undertakings. Articles [101 TFEU and 102 TFEU] may apply, however, if it is found that the national legislation leaves open the possibility of competition which may be prevented, restricted or distorted by the autonomous conduct of undertakings …

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b. Boehringer Ingelheim – unmeritorious patents

In 2007 the Commission commenced an investigation in relation to an alleged misuse of the 6.257 patent system by Boehringer Ingelheim. It was alleged that Boehringer Ingelheim had applied for unmeritorious patents which excluded competition in the treatment of chronic obstructive pulmonary disease. The case was closed in July 2011 after Boehringer Ingelheim entered into a settlement agreement with Almirall, the complainant. Under the settlement agreement Boehringer Ingelheim agreed to remove the alleged blocking positions and a licence was granted for two non-EEA countries.311 This area of law has also been a fertile source of action by National Competition Authorities 6.258 (NCA) in the pharmaceutical sector following the Commission’s inquiry into the European Pharmaceutical Sector. Where particularly interesting, those NCA activities are referred to below.312 c. Teva – divisional patents

On 4 March 2021, the Commission announced that it had launched a formal investigation into 6.259 possible anticompetitive conduct by Teva in relation to its drug Copaxone.313 Before the main Copaxone patent had expired in 2015, Teva had (i) strategically filed and withdrawn a number of divisional patents; and (ii) carried out a communications campaign against competing products.314 The Commission is investigating whether this conduct has resulted in delaying market entry and delayed uptake of competing generic drugs. It issued a Statement of Objections in October 2022.315 d. Other IP related abuses – patent ambush

The application of Article 102 TFEU to various potential abuses in the specific context of 6.260 standards in the TMT sector will be discussed in more detail below when looking at the interrelationship between competition law, IPRs and the conduct of those who create and utilize standards. The discussion will expand on issues already discussed above in a more general context (e.g., bringing enforcement proceedings or seeking allegedly abusive royalties). One IP issue that has arisen specifically in the context of standardization is patent ambush. A patent ambush may occur if a party acts deceptively when participating in a standardization 6.261 process, for example, by joining in meetings discussing the content of the new standard without disclosing its ownership of patents relevant to the technical solution under discussion. This may 311 Case COMP/39.246 – Boehringer Ingelheim; see Commission Press Release IP/11/842, Antitrust: Commission welcomes improved market entry for lung disease treatments, 6 July 2011.

312 See also the discussion above of the Spanish NCA’s decision to fine Merck and the Italian decision against Roxtec (n 287). 313 Commission Press Release IP/18/4581, Antitrust: Commission fines Google €4.34 billion for illegal practices regarding Android mobile devices to strengthen dominance of Google’s search engine, 18 July 2018 (https://​ec​.europa​.eu/​commission/​ presscorner/​detail/​en/​IP​_18​_4581 – accessed 23 November 2023).

314 Note the reference to the communications campaign in the Italian NCA’s decision against Roxtec (n 287), where it was held to form part of a complex strategy to exclude. 315 Commission Press Release IP/22/6062, Antitrust: Commission sends Statement of Objections to Teva over misuse of the patent system and disparagement of rival multiple sclerosis medicine, 10 October 2022 (https://​ec​.europa​.eu/​commission/​ presscorner/​detail/​en/​ip​_22​_6062 – accessed 3 November 2023).

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mean that the standard adopts technical solutions covered by patents without those involved in the discussion being aware of that fact. Once the standard is set, those seeking to implement the standard will subsequently need licences and if no disclosure has been made, and no FRAND commitment given, it may be possible for the patentee to seek to recover non-FRAND (and potentially excessive) royalties. 6.262 The extent to which patent ambush is a problem in major standards setting organizations is debatable because such organizations generally require those participating in standard setting to declare their SEPs and to promise to license them on FRAND terms. It may be more of a problem in less formal contexts. 6.263 A patent ambush case was pursued by the Commission against US chip manufacturer Rambus. In brief, the allegation was that Rambus had infringed Article 102 TFEU by intentionally concealing its ownership of patents and/or patent applications which were relevant to technical solutions incorporated in a standard set by JEDEC (a standards setting organization in the IT sector). Rambus subsequently sought to license its patents to those utilizing the standard and did so at rates considered by the Commission to be too high. The matter was settled in the EU by way of an undertaking by Rambus to the Commission to cap its royalties.316 The Commission concentrated on the level of the royalties, in part owing to the fact that Rambus was not yet dominant at the time when it participated in the standard setting meetings, but only once its patents had been incorporated in the standard. This meant that only conduct after that point (including during the licensing process) could fall within the scope of the prohibition in Article 102 TFEU.317 6.264 The Commission’s decision to accept commitments under Article 9 of Regulation 1/2003 was challenged by Hynix.318 The Commission rejected that challenge and, although Hynix initially appealed against the Commission’s Article 7 rejection decision, that appeal was subsequently withdrawn.319 6.265 In parallel with the EU investigation, the US FTC had also reviewed Rambus’ conduct and challenged it under Section 2 of the Sherman Act. That decision was ultimately overturned by a US court.320

316 Rambus Commission Decision (n 260).

317 For a discussion of the facts and background to the settlement from the perspective of two Commission officials, see Ruben Schellingerhout and Piero Cavicchi, Patent ambush in standard-setting: the Commission accepts commitments from Rambus to lower memory chip royalty rates (Commission’s Competition Policy Newsletter, Number 1 (2010), p 32) (https://​op​.europa​.eu/​en/​publication​-detail/​-/​publication/​63db3fea​-2012​-4363​-b2a9​-131db7f78ffe/​language​-en/​ format​-PDF/​source​-297611838 – accessed 30 November 2023). 318 A non-confidential version of the Commission’s Decision of 15 January 2010 to reject Hynix’ complaint is at https://​ec​ .europa​.eu/​competition/​antitrust/​cases/​dec​_docs/​38636/​38636​_1192​_5​.pdf – accessed 23 November 2023. 319 Joined Cases T-148/10 and T-149/10 SK Hynix v Commission (ECLI:EU:T:2013:358).

320 Rambus Incorporated v Federal Trade Commission, 522 F.3d 456 (D.C. Cir. 2008) (https://​www​.ftc​.gov/​legal​-library/​ browse/​cases​-proceedings/​011​-0017​-rambus​-inc​-matter – accessed 25 November 2023) provides a summary of the US proceedings and access to the underlying documents.

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e. Collecting societies

Collecting societies are organizations that manage copyright on behalf of copyright owners, 6.266 primarily in the music industry. Some concentrate on particular types of repertoire or copyright and each collecting society may have a different geographic scope. Each collecting society is likely to engage in licensing activities at various levels: licensing copyright in from artists; licensing different repertoires (whether on a geographic or other basis) between themselves; or licensing those who use the repertoire to which they have rights. Article 101 TFEU applies to many activities of collecting societies including the terms on 6.267 which they license repertoire in from artists, license it between themselves and license it on for exploitation. These licences can give rise to competition concerns particularly when they lead to the partitioning of the single market along national lines. Article 102 TFEU also applies to the activities of collecting societies. As early as 1987, the 6.268 Court held that that it would be possible for the royalty charged by a collecting society to be excessive and abusive under Article 102 TFEU.321 This was swiftly confirmed in a second judgment in the late 1980s which held: When an undertaking holding a dominant position imposes scales of fees for its services which are appreciably higher than those charged in other Member States and where a comparison of the fee levels has been made on a consistent basis, that difference must be regarded as indicative of an abuse of a dominant position. In such a case it is for the undertaking in question to justify the difference by reference to objective dissimilarities between the situation in the Member State concerned and the situation prevailing in all the other Member States.322

The collecting society in that case (SACEM) put forward various explanations for the price 6.269 differentials between France and other Member States, including the high prices charged by French discotheques, the traditionally high level of copyright protection in France and some peculiarities of French national legislation relating to recorded music. The Court was clearly unpersuaded that the reasons given necessarily accounted for the difference, although it was not necessary for it to reach a conclusion on the facts, as that was a matter for the national court which had made the reference. The Court merely confirmed that comparisons between Member States could provide useful indications of abusive pricing.323 These early cases were followed by further references from national courts and a number of 6.270 Commission decisions. The recent Latvian collecting societies judgment summarizes the position,324 confirming the application of Article 102 TFEU to collecting societies and how excessive pricing in that context might be identified. This was a reference dealing only with the application of Article 102(a) TFEU. A decision by 6.271 the Latvian competition authority to impose a fine for unfair excessive pricing on the Latvian collecting society (AKKA/LAA) was appealed to the Latvian courts. Ultimately, a number of questions were referred to the CJEU, most of which related to the precise mechanisms used 321 Case 402/85 G. Basset v Société des auteurs, compositeurs et éditeurs de musique (SACEM) [1987] ECR 1747, para 19. 322 Tournier (n 252), para 38. 323 Ibid., para 43.

324 AKKA/LAA (n 248).

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by the Latvian competition authority to assess whether the royalties charged by AKKA/LAA were excessive. 6.272 The Court dealt with the questions about the use of price comparisons in the section of its judgment beginning at paragraph 31. The Court explained, that when making comparisons for the purpose of identifying significant price differences which may be indicative of excessive prices, it is acceptable to take only a limited number of Member States in to account as long as they are selected ‘in accordance with objective, appropriate and verifiable criteria’ which can include ‘consumption habits and other economic and sociocultural factors, such as gross domestic product per capita and cultural and historical heritage’ and as long as the comparison is made on a consistent basis. 6.273 The Court went on to hold that in making the comparison the influence of different living standards and purchasing power must be considered, requiring the use of a measure of comparative purchasing power (such as the Purchasing Power Parity (PPP) Index) to enable a meaningful comparison. The Court held: … there are, as a general rule, significant differences in price levels between Member States for identical services, those differences being closely linked with the differences in citizens’ purchasing power, as expressed by the PPP index. The ability of shop or service centre operators to pay for the services of the copyright management organisation is influenced by living standards and purchasing power. Thus the comparison, for an identical service, of the rates in force in several Member States in which living standards differ necessarily implies that the PPP index must be taken into account.325

6.274 The Court confirmed that, in making its assessment, the relevant competition authority ‘… has a certain margin of manoeuvre and that there is no single adequate method …’.326 6.275 AKKA/LAA also has some interesting observations about when prices may be qualified as ‘excessive’. The referring Court had noted that the price differences between Latvia and the ‘comparable’ Member States were not so high as in some of the previous cases, notably in Tournier (discussed above) and its companion case Lucazeau.327 The CJEU grappled with the question of ‘how high is too high’ by stating: There is in fact no minimum threshold above which a rate must be regarded as ‘appreciably higher’, given that the circumstances specific to each case are decisive in that regard. Thus, a difference between rates may be qualified as ‘appreciable’ if it is both significant and persistent on the facts, with respect, in particular, to the market in question, this being a matter for the referring court to verify.328

6.276 In AKAA/LAA, the Court first reiterated the general test for excessive pricing, stating that Article 102(a) TFEU might be infringed by ‘the imposition of a price which is excessive in relation to the economic value of the service provided’329 and that in those circumstances:

325 Ibid., para 46. 326 Ibid., para 49.

327 Tournier (n 252); Cases 110/88, 241/88 and 242/88 Lucazeau and Others v SACEM and Others (ECLI:EU:C:1989:326). 328 AKKA/LAA (n 248), para 55.

329 Ibid., para 35, quoting Case C‑52/07 Kanal 5 Ltd and TV 4 AB v Föreningen Svenska Tonsättares Internationella Musikbyrå (STIM) upa (ECLI:EU:C:2008:703) (Kanal 5 Ltd and TV 4), para 28 and the case law cited.

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IP, DOMINANCE AND ABUSE … the questions to be determined are whether the difference between the cost actually incurred and the price actually charged is excessive, and, if the answer to that question is in the affirmative, whether a price has been imposed which is either unfair in itself or unfair when compared with competing products.330

Having done so, it made clear that there are various ways to seek to establish that excessive 6.277 prices may have been charged including the use of suitable comparisons, while bearing in mind that the undertaking accused of excessive pricing may always seek to show that its prices are fair by reference to objective factors.331 The CJEU went on to note that, even if the fees satisfy the requirements of being high both 6.278 significantly and persistently, rather than the high level being merely temporary and episodic, they may still be justified. For example, the collecting society may rely on objective differences between the Member State in question and those used for the comparison. Such objective differences might include the fees actually paid to rights holders in the relevant Member State. The CJEU is also keen not to reward inefficiency, reiterating a comment previously made in Tournier about the relevance of administrative costs: When the proportion of fees taken up by collection, administration and distribution expenses rather than by payments to copyright holders is considerably higher, the possibility cannot be ruled out that it is precisely the lack of competition on the market in question that accounts for the heavy burden of administration and hence for the high level of fees.332

The CJEU drew heavily on the case law discussed above in a further reference, this time from 6.279 the Belgian Court.333 This reference related to the allegedly abusive nature of rates charged by the national collecting society (SABAM) for the use of its repertoire at festivals. It was alleged that the royalties charged were based on a tariff that did not reflect the economic value of the services provided by SABAM and that SABAM’s conduct was abusive, contrary to Article 102 TFEU. SABAM used a tiered- or tranch-based tariff for royalty assessment, rather than analysing more precisely which music was actually played at a festival and also had set its charges by reference to gross receipts without necessarily deducting all the extraneous costs. The questions posed by the national court went to the degree of precision required by a collect- 6.280 ing society when setting its royalty fees to ensure that they could not be unfair and abusive by charging more than was justified by reference to the value obtained by the licensee. As is its wont, the CJEU reformulated the questions posed by the referring court and addressed 6.281 itself to the following issue: … whether Article 102 TFEU must be interpreted as meaning that it constitutes an abuse of a dominant position, within the meaning of that article, for a collective management company which has a de facto monopoly in a Member State to impose on organisers of musical events, in respect of the right to communicate musical works to the public, a charging scheme in which, on the one hand, the cop330 Ibid., para 36, quoting United Brands (n 13), para 252.

331 Ibid., para 61. Note that the use of the word ‘fair’ appears to be deliberate and is repeated in the operative part of the judgment. 332 Ibid., para 58.

333 Case C-372/19 Belgische Vereniging van Auteurs, Componisten en Uitgevers CVBA (SABAM) v Weareone. World BVBA, Wecandance NV (ECLI:EU:C:2020:959) (SABAM v Weareone World).

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS yright royalties due are calculated on the basis of a tariff applied to the gross receipts from ticket sales, without its being possible to deduct from those receipts all the costs pertaining to the organisation of the festival which are not related to the musical works which are performed at it, and, on the other, a flat-rate system in tranches is used in order to determine the share of those works which is taken from that management company’s repertoire.334

6.282 The CJEU referred back to its earlier cases such as Basset, Tournier and Kanal 5 and TV4 to confirm that charging royalties by reference to the gross turnover of the licensee did not in itself amount to an abuse, but was a normal exploitation of copyright, which pursued the legitimate aim of safeguarding the interests of those whose copyright was being exploited and that such royalties represented the consideration paid for that exploitation through communication to the public. The CJEU also noted, agreeing with the AG, that requiring too granular an analysis of the elements which fed into a charging scheme risked a disproportionate increase in the costs of collecting societies, meaning that a tariff based on gross receipts without necessarily deducting organizational costs was not in itself abusive. 6.283 However, and unsurprisingly, the CJEU went on to hold that such a scheme might be prohibited under Article 102 TFEU if, on the facts (a matter for the national court) ‘the royalty level actually set pursuant to that charging scheme is unreasonable in relation to the economic value of the service provided … taking account of all the circumstances of that case, including the royalty rate set and the receipts on which that rate is based’.335 6.284 As to the use of a flat rate tariff, the CJEU reiterated that the royalty rate applied by a collecting society must have regard to the use actually made of the copyrighted works.336 The CJEU noted that the tariff applied by SABAM did have some regard to the number of copyright protected works actually used, by permitting the festival organizer to obtain a discount from the basic tariff depending on the number of SABAM works performed at the festival. However, the CJEU found that if alternative technical means existed which would enable SABAM to calculate use on a more precise basis than the flat rate tariff without leading to a disproportionate increase in the costs of doing so, it might be abusive to continue using the less precise method which could lead to systematic significant over-compensation for SABAM and its members at the expense of the licensees.337 6.285 These cases are interesting not only for those involved in advising collecting societies but also for the light they shed on the interplay between the existence of exclusive rights and abuse and, in particular, as to various considerations that may be relevant in excessive or unfair pricing cases.

334 Ibid., para 24. 335 Ibid., para 48.

336 Ibid., para 50, referring to Kanal 5 Ltd and TV 4 (n 329), para 39, and Grüne Punkt CJEU (n 229), para 143. 337 See also the discussion of similar issues in Philips LED licensing (n 238).

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II. SUMMARY ON ARTICLE 102 In conclusion, Article 102 TFEU continues to be an endless source of interesting case law and 6.286 fascinating policy choices and discussions. This is of limited comfort to the practitioner seeking to advise clients or to companies seeking a brief, inexpensive and clear answer to the twin questions: am I dominant?; and is this proposed conduct abusive? The fact specific nature of competition law and of Article 102 TFEU in particular means that only in ‘vanilla’ cases with clear factual parameters will it be possible to advise that no infringement is possible – and in such cases clients are unlikely to seek advice. In addition to providing an overview of how Article 102 TFEU has been applied in practice 6.287 and how it continues to evolve, as well as specific guidance on issues related to the acquisition, ownership and exercise of IPRs, this chapter has sought to provide some general rules of thumb to help approach the detailed issues dealt with in some of the cases. Such guidance may appear overly simplistic, but often clients seek to avoid risk, rather than to have the most cutting-edge analysis of every case that might be relevant or to understand the nuances of Commission policy choices. This may be particularly so at a time when the sands of Article 102 TFEU enforcement appear to be shifting in the face of new technologies and market conditions – epitomised in the Commission’s recent Article 102 TFEU package. Looking at the client’s two big questions then, here are a few summary points of guidance.

6.288

A. Dominance This is a question of fact based on an assessment of evidence which can ultimately be answered 6.289 definitively only by a Court, usually after scrutiny of expert economic testimony and therefore on facts not available to an adviser, other than in very clear (and thus unusual) circumstances. In a normal commercial context one way of assessing the risk of a meaningful allegation of 6.290 dominance might be to ask some of the following questions and balance the replies against the classic definition of dominance:338 ● Does the client feel that it can implement price increases; offer reductions in service levels; or fail to maintain or improve quality without suffering short-term and painful commercial consequences which will be difficult to overcome? ● Can the client impose harsh trading terms on its suppliers or distributors without losing their support? ● Can it obtain preferential treatment for itself? ● Is the client constantly looking over its shoulder and feeling a genuine short-term threat to its commercial success? ● Are the client’s margins under pressure and its products at risk of being overtaken by new offerings? ● Does the client have reliable information showing product categories in which it has shares of supply of more than around 35–40 per cent which have remained reasonably stable for

338 See para 6.10 above.

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a period of time; are those categories which are not likely to suffer new entry or significant competitive pressure from other goods or services? ● Does the client have product offerings in which it boasts of being ‘must-have’ or which it describes as ‘cash cows’ – and is there any basis in fact for that internal view? ● How is the client described externally, by the financial press, by competitors, by investors – is it seen as having market power or pricing power? ● Does the client benefit from significant entry barriers in some or all of its product offerings? 6.291 The answers to these subjective questions will not establish whether a company is dominant, but if the responses tend towards showing limited competitive pressure and significant confidence in the ability to raise prices, or even to maintain prices rather than passing on reductions in costs, there is a significant risk that dominance may be found to exist and it would be wise to think about potential issues of abuse more carefully. B. Abuse 6.292 Whether a course of conduct amounts to abuse is a question of law based on an assessment of the relevant factual and economic context. It is objective and depends on the effect of the conduct on competition and ultimately on consumers. In some cases (e.g., certain types of predatory pricing or conduct intended to partition the single market) an effect on competition may be assumed and, although the assumption can be displaced, such conduct is very risky. In many other situations it is difficult to give definitive advice, although conduct which falls within the categories identified in Article 102 TFEU itself or other conduct with a strong tendency to exclude or exploit other market participants will be more risky. 6.293 Ultimately, the most detailed legal analysis and advice will be required where a client: 1. has strong commercial reasons for pursuing particular conduct and wishes to have a full understanding of the likely legal assessment of that conduct by a court or competition authority, and how any risks of an adverse finding can be mitigated; or 2. has been accused of anticompetitive conduct and wishes to understand the risks that the accusation might be held to be well-founded; or 3. believes that an undertaking with which it has dealings is acting anticompetitively and wants to understand whether it has a good basis for its concerns, which it could pursue; or 4. has a very strong market position (sometimes called ‘super dominance’339) which makes potentially anti-competitive conduct objectively more likely to be found to infringe, and also increases the likelihood of complaints or investigations. 6.294 Outside those scenarios, detailed legal analysis can help clients take informed decisions about the risks of the commercial strategies they may choose to adapt. Such choices ultimately come down to the overall assessment of the actual competition law risk involved and the risk toler339 Opinion of AG Fennelly delivered on 29 October 1998 in Joined Cases C-395/96 P and C-396/96 P, Compagnie Maritime Belge NV and Dafra-Lines v Commission of the European Communities (ECLI:EU:C:1998:518), para 137. Post Danmark II (n 48), para 30. The precise role of very high market shares in Art 102 TFEU cases continues to be discussed TeliaSonera (n 196), para 81. Note that reliance on the concept of super dominance has been criticized: Robert Donoghue and Jorge Padilla, The Law and Economics of Article 102 TFEU (3rd edn, Bloomsbury Publishing, 20 August 2020).

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ance of each client. It is very difficult to distil those aspects of risk into a few paragraphs but some guidance is given below. Once a realistic prospect of dominance has been identified, a client has several options. First, it 6.295 should congratulate itself, as (other than for former state monopolies) a potentially dominant position is often the reward for outstanding competitive efforts in innovation, service and quality. Next, there is a choice depending on the client’s situation: (i)

Does the client accept that the possibility of dominance will affect some of its strategic decisions because it will affect the way in which other participants see it, and thus the risk that competition law arguments may be deployed against it? ● ●

●

● ●

If so, it will seek to understand the Article 102 TFEU risk of its commercial decisions and may decide to avoid those which are riskier under Article 102, rather than taking the chance of a time-consuming, expensive dispute and/or investigation. This will involve a generally risk-averse approach to potentially abusive conduct. There is a continuum. In some commercially important situations, a client may be willing to spend time and energy identifying how it can achieve its commercial goals while limiting (though not avoiding) risk. When assessing risks of abuse in any context, clients should bear in mind that abuse is less likely if strategies and plans focus on improving performance and competitiveness, and in passing on the benefits of its performance to customers, rather than on hindering or undermining competitors.340 Risk will be reduced if rights and procedures (such as the IP system) are approached and utilized in a way which is squarely in line with their underlying purpose, rather than seeking to instrumentalize them strategically to inhibit third parties. If a particular strategy seems unusual, complex or counter-intuitive, the client’s competitive rationale can be stress-tested against the idea of ‘normal competition’ or ‘competition on the merits’.

For any lawyer, being willing to ask questions and seek understanding is usually time well spent 6.296 and this is particularly the case when giving advice on Article 102 TFEU. (ii) Does the client wish to maintain maximum commercial flexibility to take steps that may be risky for a dominant company? ● ●

●

If so, it may wish to undertake a more thorough review of its market position and seek expert economic input about the real risks of dominance and/or super dominance. It may also decide to invest in detailed legal advice tailored precisely to any particular course of conduct in the light of a more complete investigation of the factual context, rather than undertaking only a light-touch review which would be more suitable for a company likely to choose to avoid conduct involving significant risk under Article 102 TFEU. The red light, even for a client which is more risk tolerant and wishes to take more aggressive steps to protect or improve its market position, is that conduct which has exclusionary or exploitative effects and for which there is limited plausible procompet-

340 In sporting terms, ‘play the ball, not the opponent’, might be the analogy.

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itive rationale, or which does not make commercial sense in its own terms, gives rise to very significant risks for a dominant company under Article 102 TFEU.

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CHAPTER 7 MERGERS AND IP I. OVERVIEW 7.01 A. Introduction 7.01 II. JURISDICTION 7.11 A. EU Merger Regulation 7.11 B. Concentrations 7.14 C. Turnover Thresholds 7.27 D. Substantive Appraisal 7.39 1. Introduction 7.39 2. Innovation concerns 7.42 3. Existing research and development programmes7.47 4. General innovation concerns 7.56 5. Non-horizontal concerns 7.62 6. Procedural issues 7.83 7. Conclusion on innovation 7.86 E. Big Data Concerns 7.89 III. ANCILLARY RESTRICTIONS 7.96

A. Acquisitions and Joint Ventures B. Principles Applicable to Common Restrictions in Acquisitions 1. Licence agreements 2. Non-competition clauses and IPR C. Principles Applicable to Common Restrictions in Joint Ventures 1. Licence agreements 2. Non-competition covenants IV. REMEDIES A. Types of Remedies 1. Licence agreements 2. Re-branding 3. Interoperability 4. Access to data V. CONCLUSION

7.99 7.100 7.100 7.105 7.112 7.112 7.114 7.119 7.122 7.122 7.135 7.139 7.145 7.151

I. OVERVIEW A. Introduction So far, we have discussed how competition law controls both unilateral conduct (abuse of 7.01 dominance) and bi/multi-lateral conduct (anticompetitive agreements). The third limb of most competition law regimes is the control of structural changes in the market. Arrangements which will change the market on a lasting basis are subject to review and approval by competition authorities. Such regimes may apply not only to full-blown mergers or takeovers but also to transactions such as joint ventures or the acquisition of very significant assets. In broad terms, the underlying competition concern addressed by merger control regimes is 7.02 that following the transaction the market will be less competitive because of the removal of an independent participant from the market and/or the increasing market share of the remaining participants.1 Greater concentration gives rise to concerns that it may be reflected in greater 1

Other policy considerations may play a role in merger control regimes whether explicitly or otherwise. These might include a concern about foreign acquisitions of important undertakings or industries, or the ‘public interest’ more broadly.

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market power with consequential potential for anticompetitive outcomes. Similar concerns can arise from joint ventures although the concerns will flow from longstanding contractual links rather than a change in ownership. 7.03 Concerns arising in merger control procedures are generally referred to as: ● ‘horizontal’ (where the transaction is between competitors or those at the same level in the market – e.g., two companies involved in the development and supply of drugs for cancer therapy); ● ‘vertical’ (where the transaction is between companies operating at different levels in the same market – e.g., manufacturer of raw ingredients and supplier of finished pharmaceutical product); or ● conglomerate (where the parties are not active in the same market, either horizontally or vertically, but have significant power in different – often related – markets). Some transactions may give rise to two, or even three of these considerations.2 7.04 Merger control requires an assessment of the likely future effects on competition if the transaction is permitted to proceed. Various potential harmful effects may be foreseen. Four broad theories of possible anticompetitive effects have been developed in the EU. In very general terms,3 and in descending order of likelihood, these are: ● Unilateral/non-coordinated effects: these may occur where the ability to exercise market power will arise or be enhanced simply as a result of a merger. ● Coordinated effects: these may occur where the merged entity will be better able to coordinate behaviour with others following a merger. ● Vertical effects: two potential vertical effects may be of concern: (i) where the merger may make it easier to foreclose third parties; and (ii) where the combination of the two undertakings concerned in a vertical relationship makes coordination with others more likely. ● Conglomerate effects: where two undertakings who were previously in neither a horizontal nor a vertical relationship are combined, the underlying concern is that others will be foreclosed, for example through tying and bundling of products of the previously independent undertakings. 7.05 A further consideration has recently gained some attention, that of ‘killer acquisitions’, where large incumbents acquire smaller actual or potential competitors, even start-ups or other early-stage competitors, potentially preventing their subsequent growth and avoiding future competitive pressures. This consideration tends to be more prominent where innovation and

2

3

This chapter is concerned only with the competition law concerns that are dealt with in merger control, although sometimes the boundaries are hard to identify clearly. One example of a transaction giving rise to multiple concerns was Case No COMP/M.2220 – General Electric/ Honeywell, Commission Decision of 3 July 2001. The Commission’s findings on vertical and conglomerate effects were annulled by the General Court (GC), but the concerns about horizontal issues were upheld – Case T-210/01 General Electric Company v Commission of the European Communities (ECLI:EU:T:2005:456) (General Electric/Honeywell GC).

See the Commission’s Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings, OJ [2004] C 31/5 (Horizontal Merger Guidelines); and Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of concentrations between undertakings, OJ [2008] C 265/6 (Non-Horizontal Merger Guidelines).

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dynamic competition are particularly important. The OECD has described this concern as follows:4 Start-up or nascent firms play a vital role in competitive markets, but traditionally, their relevance to merger control has been limited to providing evidence that a relevant market was likely to become increasingly competitive. Recent empirical work has shown that in some cases the acquisition of a nascent firm has triggered the loss of not only a competitive constraint, but also a product (as when a retail acquisition results in a store closure). Such cases have been labelled ‘killer acquisitions’. Killer acquisitions are therefore a theory of harm, which is a particular variation on the more general ‘loss of potential competition through acquisition of a nascent firm’ theory of harm.

Almost all EEA Member States now have a national merger control regime.5 There is also 7.06 a pan-European regime which is intended to deal with major transactions, referred to as Union Dimension Concentrations.6 The term ‘concentration’ is often used in the EU to describe the type of transaction which is subject to control and review under the merger control regime. Merger control at EU level was first introduced in 1989. The present regime has been in place 7.07 since 1 May 2004. Transactions which do not meet the jurisdictional criteria for notification at an EU level may fall within one or more national regimes. The jurisdictional rules governing which authority has the power to review a concentration are 7.08 complex. At a national level, they can vary considerably7 but generally, merger control thresholds are based on a revenue test or a market share test in a given territory – and sometimes both. The pan-European regime is designed to catch transactions between large companies which affect the EU and/or transactions that have a significant impact in several Member States. The EU and most Member States have mandatory notification regimes for concentrations meeting the applicable thresholds. A failure to notify a qualifying transaction can result in significant penalties. Many merger control regimes provide that a notifiable transaction may not be com-

4 5

6

7

Organisation for Economic Co-operation and Development (OECD), Start-ups, Killer Acquisitions and Merger Control (2020, Foreword, p 3) (www​.oecd​.org/​daf/​competition/​start​-ups​-killer​-acquisitions​-and​-merger​-control​-2020​.pdf – accessed 8 November 2023).

Although this was not the case when the EU Merger Control Regime was introduced in 1989. In addition, numerous countries outside the EU also have merger control regimes. This can lead to significant difficulties in coordinating reviews and managing filings. As mentioned above, some regimes have regard to non-competition related considerations and may have additional controls operating in tandem with competition law. This book does not deal with non-competition law-based mechanisms to review transactions which are often dealt with under separate national security or ‘foreign direct investment’ review powers.

European Council Regulation (EC) No 139/2004 on control of concentrations between undertakings (the EC Merger Regulation), 20 January 2004 (the EU Merger Regulation). Although the regulation refers to ‘Community’ dimension concentrations, the effects of the treaty of Lisbon mean that ‘Union’ is more appropriate. Notices and Guidelines relating to EU merger control can be found at: https://​competition​-policy​.ec​.europa​.eu/​mergers/​legislation/​notices​-and​ -guidelines​_en – accessed 8 November 2023.

Those with a need for detailed information on jurisdictional issues can refer to some of the numerous textbooks that deal with the subject such as Bellamy and Child, European Union Law of Competition (8th edn, Oxford University Press, 20 December 2018); Faull and Nikpay (eds), The EU Law of Competition (3rd edn, Oxford University Press, 20 March 2014); Richard Whish and David Bailey, Competition Law (10th edn, Oxford University Press, 26 August 2021); Christopher Jones and Lisa Weinert (eds), EU Competition Law Volume II: Mergers and Acquisitions (3rd edn, Edward Elgar, 2021) (Jones and Weinert).

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pleted until it has been approved.8 Taking unauthorized steps to do so is colloquially known as ‘gun-jumping’.9 7.09 Several issues need to be considered when intellectual property rights (IPRs) arise in the context of an acquisition or merger. Even where an acquisition is confined to one or more IPRs (such as a brand or a patent portfolio), this could constitute a concentration and be subject to review under the EU Merger Regulation. 7.10 This chapter provides a brief overview of the key jurisdictional criteria according to which the EU Merger Regulation is applied. It also considers how the Commission has assessed transactions between IP-rich businesses and the types of remedy which have been accepted to address substantive concerns.

II. JURISDICTION A. EU Merger Regulation 7.11 The EU merger regime applies to ‘concentrations’,10 that is to mergers, acquisitions of control and the creation of so-called ‘full function’ joint ventures which meet the turnover thresholds in the EU Merger Regulation. 7.12 The regime is designed to offer a one-stop shop; where the jurisdictional thresholds are satisfied, the transaction will be subject to review by the Commission and will not need to be notified separately in any of the countries which form the European Economic Area (EEA).11 In principle the EU regime, where applicable, displaces the regimes of the individual Member States. The ability to make a single notification and undergo one review covering all countries within the EEA is a significant benefit to those seeking clearance.12 8

9 10 11 12

The merger regime in the UK is unusual in that, in principle, pre-notification is not mandatory nor is there a mandatory standstill obligation. The UK also has a dual threshold based on the share of supply of affected goods and services or the turnover of the target. In practice, those involved in any transaction likely to come to the attention of the UK authorities will need to take advice on the advantages of making a voluntary filing in the UK as the authorities regularly investigate transactions which have not been pre-notified and the time pressures involved in dealing with these enquiries can be significant. Since Brexit, acquisitions which have an effect in both the EU and the UK no longer benefit from the ‘one stop shop’ available under the EU Merger Control Regime.

See, e.g., Commission Press Release IP/23/3773, Mergers: Commission fines Illumina and GRAIL for implementing their acquisition without prior merger control approval, 12 July 2023 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​ip​ _23​_3773 – accessed 8 November 2023). Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings, 2008/C 95/01, OJ [2008] C 95/1 (https://​eur​-lex​.europa​.eu/​legal​-content/​EN/​TXT/​ HTML/​?uri​=​CELEX:​52008XC0416(08) – accessed 8 November 2023) (Jurisdictional Notice). See the discussion below of situations where referrals between the EU and Member States may arise (para 7.13 and (n 13) below). Although the proliferation of merger control regimes around the world means that even with pan-European clearance, merger control processes will inevitably require a significant period – and can entail significant differences in approach, as seen in the recent Microsoft/Activision transaction (Case No M.10646 – Microsoft/Activision Blizzard, Commission Decision of 15 May 2023 (https://​ec​.europa​.eu/​competition/​mergers/​cases1/​202330/​M​_10646​_9311516​_7443​_3​.pdf – accessed 20 November 2023)). See also Microsoft Press Release, Microsoft to acquire Activision Blizzard to bring the

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The regime permits transactions to be shifted between authorities. For example, parties to 7.13 a transaction not satisfying the jurisdictional requirements of EU Merger Regulation may approach the Commission before notification seeking to combine what would be three or more national filings and make a single filing to the Commission. This would enable them to deal only with the substantive and procedural requirements of the EU Merger Regulation and to benefit from the one-stop shop. In some circumstances, the parties might prefer to seek to refer a transaction down from the Commission to appropriate national authorities. Similar procedures are also possible for post-notification referrals in certain circumstances.13 B. Concentrations Article 3(1) of the EU Merger Regulation explains that a concentration will arise from:

7.14

1. the merger of two or more previously independent undertakings or parts of undertakings; 2. the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings. The change of control must be on a lasting basis, causing a change in the structure of the 7.15 market.14 The jurisdictional guidance note15 explains that the concept of ‘concentration’ is applied primarily by a qualitative assessment. The focus is on the nature of control and how it changes as a result of the transaction. Control is defined widely. It means the possibility of exercising decisive influence over an 7.16 undertaking.16 Control may arise from rights, contracts or other methods. Control may be exercised by a single undertaking (sole control) or by two or more undertakings acting together (joint control). It may arise from minority shareholdings and is a matter of fact.17

13

14 15 16

17

joy and community of gaming to everyone, across every device, 18 January 2022 (Microsoft Press Release) (https://​news​ .microsoft​.com/​2022/​01/​18/​microsoft​-to​-acquire​-activision​-blizzard​-to​-bring​-the​-joy​-and​-community​-of​-gaming​ -to​-everyone​-across​-every​-device/​ – accessed 29 August 2023); and https://​esportsinsider​.com/​2023/​07/​microsoft​ -activision​-blizzard​-acquisition – accessed 29 August 2023. Commission Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain categories of cases, Brussels, 26 March 2021, C(2021) 1959 final (Article 22 Communication) (https://​ec​ .europa​.eu/​competition/​consultations/​2021​_merger​_control/​guidance​_article​_22​_referrals​.pdf – accessed 29 August 2023); Practical information on implementation of the ‘Guidance on the application of the referral mechanism set out in Article 22 of the Merger Regulation to certain categories of cases’ – Frequently Asked Questions and Answers (Q&A) (https://​competition​-policy​.ec​.europa​.eu/​system/​files/​2022​-12/​article22​_recalibrated​_approach​_QandA​.pdf – accessed 29 August 2023). In April 2023, the Commission adopted the latest in a series of Merger Simplification Packages (https://​competition​-policy​.ec​.europa​.eu/​mergers/​publications/​simplification​-merger​-control​-procedures​_en – accessed 29 August 2023). The changes enter into force on 1 September 2023. EU Merger Regulation (n 6), Recital 20. Jurisdictional Notice (n 10).

EU Merger Regulation (n 6), Art 3(2).

Those acquiring minority shareholdings need to be careful about the possibility of acquiring de facto control. If this happens without prior notification and clearance, a significant fine may be imposed. See Case C-84/13 P Electrabel SA v European Commission (ECLI:EU:C:2014:2040).

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7.17 Where a transaction involves the acquisition by one previously independent undertaking of control over another, or the merger of two previously independent undertakings, a concentration can readily be identified. The EU Merger Regulation states that the acquisition of part of one or more undertakings may also fall to be reviewed. Article 3(1)(b) is clear that a concentration may arise in a number of ways, including through the acquisition of assets, by contract or ‘by any other means’. 7.18 The acquisition of a licence can give rise to a concentration as long as the licence is exclusive (at least within the EU) and as long as its grant or assignment means the transfer of a turnover generating activity sufficient to constitute a business. In Microsoft/Yahoo,18 Microsoft proposed to enter into a ten-year exclusive licence for Yahoo’s core search technologies. Microsoft had also agreed to accept the transfer of at least 400 Yahoo employees. Yahoo would not operate a search engine or a search advertising platform of its own for at least ten years. 7.19 The Commission concluded that the search and advertising platform technology, human capital and advertising customers were the three most important aspects of the transaction. First, Yahoo would not be able to operate a search engine business because Microsoft had obtained exclusive access to all the core technologies of its search engine. Secondly, the number of employees being transferred was considered to be sufficient to enable Microsoft to run that search engine business. And thirdly, Yahoo’s search advertising customers in each country would be migrated to Microsoft once Microsoft had launched its search advertising service in that country. Because the arrangements transferred assets constituting the whole or part of an undertaking with a ‘market presence’ to which a turnover could be attributed, the EU Merger Regulation applied. 7.20 Other arrangements in which licences and other rights are transferred have also been held to be concentrations. While franchise arrangements generally are not concentrations, they may qualify as such. In Blokker/Toys ‘R’ Us,19 Blokker had concluded a franchise agreement affecting six Toys ‘R’ Us Dutch stores, with the remaining three to be closed. Blokker argued that control of a business did not transfer because the transaction involved only a franchise agreement, with ancillary agreements necessary to facilitate the execution of the franchise agreement. The Commission disagreed: the ‘mere fact that a franchise agreement is part of the operation cannot exclude the whole operation from the application of the Merger Regulation’. On the facts: ● Blokker took over all the assets constituting the Toys ‘R’ Us business in the Netherlands, including the leases, personnel and brand name; ● Blokker was able to select the products within particular categories and also to decide their prices; ● Toys ‘R’ Us had no rights to retain control of the Netherlands Toys ‘R’ Us business; and ● Blokker was permitted to add other product categories to the business not usually associated with Toys ‘R’ Us.

18 Case No COMP/M.5727 – Microsoft/Yahoo! Search Business, Notification of January 2010 (https://​ec​.europa​.eu/​ competition/​mergers/​cases/​decisions/​M5727​_20100218​_20310​_261202​_EN​.pdf – accessed 18 November 2023). 19

Case No IV/M.890 – Blokker/Toys ‘R’ Us, Commission Decision of 26 June 1997, C(97) 1884 final (https://​ec​.europa​ .eu/​competition/​mergers/​cases/​decisions/​m890​_19970626​_664​_en​.pdf – accessed 18 November 2023).

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The Commission found that the operation would lead to a lasting change in the structure of 7.21 the Blokker and Toys ‘R’ Us undertakings because the agreements were long lasting. As all of the assets relating to the business were acquired, a turnover could be clearly attributed to those assets. The Commission concluded that Blokker was gaining control of the day-to-day operations and that Toys ‘R’ Us would no longer determine the course of the business. This gave rise to a concentration under the EU Merger Regulation. If an arrangement creating a joint venture is to be subject to review under the EU Merger 7.22 Regulation, the resulting joint venture must perform on a lasting basis all the functions of an autonomous economic entity.20 The joint venture must have a management dedicated to its day-to-day operations and access to sufficient resources (finance, staff and other assets) to be able to conduct its business activities on a lasting basis.21 Those activities may involve intangible assets, such as IPRs. One example is PRSfM/STIM/GEMA/JV22 which involved the creation of a joint venture by the 7.23 UK, Swedish and German music collecting societies. The purpose was to create a cross-border online music licensing and copyright administration service with two principal functions. The first was to provide multi-territorial, multi-repertoire licences of mechanical and per- 7.24 forming rights in musical works. These were to be made available to digital service providers operating in more than one Member State and were to cover online exploitation. The licensing hub would offer its services both to its parent companies (the notifying parties) and to any other collecting society wishing to obtain licences from the joint venture and to use its services. The joint venture’s second function was the provision of copyright administration services. 7.25 Those services would be available to collecting societies and to publishers who had previously withdrawn their online mechanical rights from a legacy collecting society. Having done so, those publishers were free to grant licences directly to users but might wish to engage a third party to administer royalty collection. The joint venture also offered back-office services relating to the administration of licences whether granted by the joint venture; the parent collecting societies; other collecting societies; or any other publishers who became customers of the joint venture. The Commission considered that the joint venture would have sufficient resources to operate 7.26 independently as a business. The transaction consolidated the back-office functions of the parents together with all relevant assets and IPRs. These included the rights to the copyright database and licence processing tools. The IPRs were central to the functioning and purpose of the joint venture and formed a key part of the analysis. The Commission confirmed that the joint venture met the requirements of full functionality and could therefore be dealt with under the EU Merger Regulation.

20

Jurisdictional Notice (n 10), para 92.

22

Case No M.6800 – PRSfM/STIM/GEMA/JV, Commission Decision of 16 June 2015, C(2015) 4061 final (https://​ec​ .europa​.eu/​competition/​mergers/​cases/​decisions/​m6800​_20150616​_20600​_4523168​_EN​.pdf – accessed 18 November 2023).

21

Ibid., para 94.

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C. Turnover Thresholds 7.27 In principle, only concentrations which have a Union Dimension23 are governed by the EU Merger Regulation. This was intended to ensure that only transactions capable of having a significant impact in a substantial part of the EU were subject to EU review, with national merger control regimes taking responsibility for smaller transactions or for those with a more limited geographic impact.24 7.28 The EU Merger Regulation contains two alternative turnover thresholds. If either is met, the transaction qualifies for review: 1. The primary turnover threshold25 is met where: (a) combined aggregate worldwide turnover of all the undertakings concerned is more than €5,000 million; and (b) aggregate EU-wide turnover for each of at least two undertakings concerned is more than €250 million; unless (c) each of the undertakings concerned achieved more than two-thirds of its EU-wide turnover in one and the same Member State. 2. The alternative turnover threshold26 is met where: (a) combined aggregate worldwide turnover of all the undertakings concerned is more than €2,500 million; and (b) aggregate EU-wide turnover for each of at least two undertakings concerned is more than €100 million; and (c) in each of at least three EU Member States, combined aggregate turnover of all the undertakings concerned is more than €100 million; and (d) at least two of the undertakings concerned each have more than €25 million in at least the same three EU Member States identified above; unless (e) each of the undertakings concerned achieved more than two-thirds of its EU-wide turnover in one and the same Member State. 7.29 Since its last reform in 2014, there have been no changes to the substance of the jurisdictional tests, or to the turnover thresholds themselves. Some have suggested that a move towards an alternative, ‘transaction value’ test might be appropriate to deal with a concern that certain transactions involving highly valuable undertakings fall outside the jurisdiction of the EU Merger Regulation where the businesses concerned have not yet generated substantial turnover or did not do so within the EU. These are the so-called killer acquisitions mentioned above at paragraph 7.05.

23

EU Merger Regulation (n 6), Art 1.

25

EU Merger Regulation (n 6), Art 1(2).

24

26

At the time of its adoption, the EU Merger Control Regime was novel, filling a gap in the original competition law provisions of the founding treaties. The interplay between national and EU wide merger control has continued to evolve. An interesting overview of the early evolution of the EU merger regime can be found in Nicholas Levy, ‘EU Merger Control: From Birth to Adolescence’ (2003) 26(2) World Competition (Kluwer Law International), 195–218. Ibid., Art 1(3).

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One example of an acquisition which raised concerns about the potential anticompetitive 7.30 effects of non-notifiable transactions was Facebook/WhatsApp.27 Ultimately that acquisition was reviewed under the EU merger regime by the Commission following a referral instigated by the parties who wished to take advantage of the one-stop shop. A public consultation on the procedural and jurisdictional aspects of EU merger control 7.31 followed in 2016. That consultation included a Commission proposal that the EU Merger Regulation could be revised by adding a ‘transaction value’ threshold which would bring acquisitions of high-value start-ups and other small targets within the EU Merger Control Regime. This was perceived to have particular importance in sectors which are rich in innovation and IP.28 The proposal was criticized widely and was not pursued.29 The Commission continued to consider its options. In March 2021, it published an evaluation 7.32 of the results of the 2016 consultation30 together with a communication on the operation of Article 22 of the EU Merger Regulation.31 Article 22 can be used to bring a transaction before the Commission under the EU Merger Regulation even though it does not meet the turnover criteria. Article 22 was originally included in the EU Merger Control regime at a time when several Member States had no domestic merger control regimes. Its purpose was to enable Member States to ask the Commission to review a transaction about which a Member State had particular concerns. Article 22 therefore enables Member States to ask the Commission to review a transaction as 7.33 long as it affects trade between Member States (thus satisfying the basic requirement for EU competition law intervention) and may significantly affect competition in the territory of the Member State(s) making the request. Those criteria are intended to ensure that the transaction being referred has a sufficient connection to both the referring Member State(s) and the EU. The 2021 evaluation and communication stated that the Commission had identified Article 7.34 22 as an appropriate mechanism under which it could acquire jurisdiction over smaller trans-

27 28 29

30 31

Case M.7217 – Facebook/WhatsApp, Commission Decision of 3 October 2014, C(2015) 7239 final (Facebook/WhatsApp). (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m7217​_20141003​_20310​_3962132​_EN​.pdf – accessed 18 November 2023).

See Marc Ivaldi, Nicolas Petit and Selçukhan Ünekbaş, Killer Acquisitions: Evidence from EC Merger Cases in Digital Industries (Toulouse School of Economics Working Paper No. 13-1429, 27 March 2023).

A size of transaction test has been adopted in Germany, which amended its merger control rules on 9 June 2017, incorporating a new €400 million value of transaction threshold to capture transactions where one party has limited or no turnover in Germany, but nonetheless has a ‘significant presence’. At least Austria and South Korea have done likewise, and Italian law now enables a review for mergers involving small innovative undertakings even if the normal thresholds are not met. A 2019 report prepared for the Commission on competition policy particularly directed at digital issues, concluded that a change to the EU thresholds would be premature, and recommended the monitoring of how transaction value thresholds in Member States operated: Crémer, de Montjoye and Schweitzer, Competition Policy for the Digital Era (Report for the European Commission, April 2019), p 10. Commission staff working document, Evaluation of procedural and jurisdictional aspects of EU merger control, SWD(2021) 66 final. Article 22 Communication (n 13).

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actions.32 The Communication made clear to Member States that the Article 22 referrals of certain categories of case would no longer be discouraged as had been the case in the past.33 7.35 The sort of cases where an Article 22 referral would not be discouraged were described as involving undertakings that might evolve into significant players. The Commission noted that it foresaw such cases as arising particularly ‘… in the digital economy, where services regularly launch with the aim of building up a significant user base and/or commercially valuable data inventories, before seeking to monetise the business …’ and in ‘… sectors such as pharmaceuticals and others where innovation is an important parameter of competition …’ or in respect of ‘… companies with access to or impact on competitively valuable assets, such as raw materials, intellectual property rights, data or infrastructure’.34 7.36 The Article 22 Communication needs to be read in conjunction with the Commission’s 2005 Notice on Case Referral35 but it is clear that the Commission sees it as having real relevance particularly in markets where IP or innovation are key. This was made clear in a speech by Competition Commissioner Margarethe Vestager in September 2020, announcing the new policy at a conference marking the 30th anniversary of the EU Merger Control Regime.36 7.37 The most noted use of the new approach so far has been in respect of the Illumina/Grail transaction. This transaction was the subject of a complaint to the Commission in December 2020 (having been made public in late September 2021). After discussion with the Member States, Article 22 referral requests were made by four EU Member States (as well as Norway and Iceland from the EEA). The referral requests were accepted by the Commission in April 2021. 7.38 The substantive aspects of the Commission’s review are dealt with as far as relevant below at paragraph 7.65. Perhaps unsurprisingly, Illumina appealed procedural aspects of the Commission’s use of Article 22 to the GC. The GC declined to overturn the Commission’s decision.37 Illumina has appealed that judgment to the CJEU.38 It is likely to take some time before a final conclusion on the Commission’s new approach is available, but until then the Commission seems likely to take confidence from the GC’s judgment and to continue to 32

Ibid., para 11.

34

Ibid., para 9. See also para 19.

33 35

Ibid., para 9.

Commission Notice on Case Referral in respect of concentrations, OJ [2005] C 56, p 2 (https://​eur​-lex​.europa​.eu/​legal​ -content/​EN/​ALL/​?uri​=​CELEX​%3A52005XC0305​%2801​%29 – accessed 29 August 2023). Additional guidance can be found in the European Competition Authorities (ECA) Principles on the application, by National Competition Authorities within the ECA, of Articles 4(5) and 22 of the EC Merger Regulation, January 2005 (https://​ec​.europa​.eu/​ competition/​ecn/​eca​_referral​_principles​_en​.pdf – accessed 31 August 2023).

36 Speech/20/2884 Margarethe Vestager, The Future of EU Merger Control, 11 September 2020, International Bar Association 24th Annual Competition Conference (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​speech​_20​ _2884 – accessed 31 August 2023). 37

Case T-227/21 Illumina, Inc. v European Commission (ECLI:EU:T:2022:447) (Illumina/Grail GC).

38 Case C-611/22 Appeal brought on 22 September 2022 by Illumina, Inc. against the judgment of the General Court (Third Chamber, Extended Composition) delivered on 13 July 2022 in Case T-227/21, Illumina v Commission (ECLI:EU:C:2023:205) (Illumina/Grail CJEU). On 21 March 2024 Advocate General (AG) Emiliou gave an Opinion proposing that the GC judgment be set aside and the Commission’s Decisions annulled: Advocate General’s Opinion in Joined Cases C-611/22 P Illumina v Commission and C-625/22 P Grail v Commission and Illumina (ECLI:EU:C:2024:264).

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pursue sub-threshold transactions where it considers it appropriate (and can persuade the Member States to make a referral).39 It seems likely that transactions of a type prone to the use of this mechanism will involve innovation and IPR. The outcome of the appeal to the CJEU as to the procedural aspects of the Illumina/Grail transaction is of critical importance those advising acquisitive undertakings (or those likely to be acquired) particularly where a target undertaking is below the turnover threshold for merger review, but is being acquired for a very significant sum, apparently disproportionate to its turnover. D. Substantive Appraisal 1. Introduction

The substantive test under the EU regime is whether the transaction will cause a significant 7.39 impediment to effective competition (SIEC).40 Article 2(3) of the EU Merger Regulation provides: ‘A concentration which would significantly impede effective competition, in the [internal] market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position, shall be declared incompatible with the [internal] market.’ It is for the Commission to establish that a merger is incompatible with the internal market. According to the CJEU, the Commission must reach a conclusion in the light of ‘its assessment of the economic outcome attributable to the merger which is most likely to ensue’.41 The appraisal criteria are set out in Article 2(1) of the EU Merger Regulation. These are 7.40 not exhaustive and, in practice, the Commission will have regard to any relevant factor. The Commission has published guidelines explaining important aspects of its assessment.42 These are intended to assist companies and those advising them. They repay careful reading if asked to consider a potential merger, but detailed analysis of their content is outside the scope of this book.

39

40

41 42

See also the Meta (Facebook) acquisition of Kustomer, cleared in January 2022 subject to conditions (Commission Press Release IP/22/652, Mergers: Commission clears acquisition of Kustomer by Meta (formerly Facebook), subject to conditions, 27 January 2022 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​ip​_22​_652 – accessed 31 August 2023). The Commission accepted a referral request in April 2021 from Austria (to whom the deal had been notified under its domestic regime) and a number of other Member States. Notably, this transaction was also reviewed by the German competition authority under the German regime. Unlike the ‘One-stop shop’ principle which applies in most EU merger control reviews, Art 22 cases permit the Commission to consider the anticompetitive effects of a transaction only in the referring jurisdiction, leaving it open to others to carry out parallel investigations. Germany also cleared the transaction in February 2022 (Bundeskartellamt Press Release, Bundeskartellamt clears acquisition of Kustomer by Meta (formerly Facebook), 11 February 2022 (https://​www​.bundeskartellamt​.de/​SharedDocs/​Meldung/​EN/​Pressemitteilungen/​2022/​ 11​_02​_2022​_Meta​_Kustomer​.html – accessed 31 August 2023)). EU Merger Regulation (n 6), Art 2.

Case C-413/06 P Bertelsmann AG and Sony Corporation of America v Independent Music Publishers and Labels Association (Impala) (ECLI:EU:C:2008:392), para 52.

These can be found together at https://​competition​-policy​.ec​.europa​.eu/​mergers/​legislation/​notices​-and​-guidelines​_en and include Commission Notice on the definition of relevant market for the purposes of Community competition law, OJ [1997] C 372/5 (Market Definition Notice). This notice was the subject of a consultation and a revised draft had been published but not adopted at the time of writing (https://​competition​-policy​.ec​.europa​.eu/​public​-consultations/​2022​ -market​-definition​-notice​_en – accessed 31 August 2023); Horizontal Merger Guidelines (n 3); and Non-Horizontal Merger Guidelines (n 3).

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7.41 While mergers have the potential to harm competition43 they are also capable of being procompetitive. Likely harm to competition is most obvious if a merger gives the merged parties (or indeed anyone else) the ability and incentive profitably to raise prices. The Commission has also adopted theories of harm relating to other parameters of competition including, for example, the possible diminishing of innovation. This is considered further below. It is notable that parties notifying a merger to the Commission are required to provide information relevant to an assessment of its impact on innovation44 when making that notification. 2. Innovation concerns

7.42 The Commission originally focused most closely on the potential for effects on price and output when assessing proposed mergers. With greater experience and an increasing focus on the importance of innovation in a modern economy,45 the Commission began to take more interest in whether a transaction might affect innovation.46 Innovation concerns are likely to be particularly relevant in transactions involving IP-rich businesses and/or technology. 7.43 There is extensive commentary on the impact of mergers on innovation.47 No presumption, whether economic or legal, has been established as to the effect on innovation of consolidation. In some cases, a merger may increase the parties’ incentives to bring new innovations to market and thereby increase the competitive pressure on rivals to innovate in turn.48 A concentration may also increase the parties’ ability to innovate if it combines complementary assets, increases scale economies, or provides cost efficiencies.49 7.44 Effective competition may be adversely affected by a merger between two important innovators. The Commission’s Horizontal Merger Guidelines50 acknowledge the possibility of innovation concerns arising in the context of mergers and acquisitions. A merger between close competitors may mean that successful innovations of one party can ‘cannibalize’ the profits of the other and result in potentially competitive innovations being side-lined. Mergers involving 43

See the brief discussion above at para 7.04 of various types of harm to competition that may be foreseen.

45

See discussions above at para 7.05 ff.

44 46

47

48 49

50

For example, in relation to IPRs, R&D activities and pipeline products.

By way of background, see the Commission’s Competition Policy Brief, EU Merger Control and Innovation, April 2016 (https://​ec​.europa​.eu/​competition/​publications/​cpb/​2016/​2016​_001​_en​.pdf – accessed 31 August 2023). In the United States, see US Department of Justice and the Federal Trade Commission’s Horizontal Merger Guidelines, 19 August 2010, para 6.4 (Innovation and Product Variety). For an indication of a changing focus at the US antitrust agencies see, e.g., the speech given by Lina Khan, chair of the FTC, at a conference in Brussels in spring 2022: https://​www​.ftc​.gov/​ system/​files/​ftc​_gov/​pdf/​CRA​%20speech​.pdf; and one by AAG Jonathan Kantner of the DoJ in January that year: https://​www​.justice​.gov/​opa/​speech/​assistant​-attorney​-general​-jonathan​-kanter​-delivers​-remarks​-modernizing​-merger​ -guidelines – both accessed 8 November 2023.

See, e.g., two fairly recent reviews of the issues from a European perspective: Jullien and Lefouili, Horizontal Mergers and Innovation, August 2018 (https://​www​.tse​-fr​.eu/​sites/​default/​files/​TSE/​documents/​doc/​by/​jullien/​policy​_paper​ _merger​_innovation​_revised​_august​_2018​.pdf – accessed 20 November 2023); and Kokkoris and Valletti, Innovation Considerations in Horizontal Merger Control (https://​qmro​.qmul​.ac​.uk/​xmlui/​bitstream/​handle/​123456789/​63689/​ Kokkoris​%20Innovation​%20Considerations​%20in​%20Horizontal​%20Merger​%20Control​%202020​%20Accepted​.pdf​ ?sequence​=​2 – accessed 20 November 2023). See Horizontal Merger Guidelines (n 3), para 38.

See Horizontal Merger Guidelines, ibid., para 81; Non-Horizontal Merger Guidelines (n 3), para 13.

Horizontal Merger Guidelines, ibid. The Guidelines state that increased market power resulting from a merger may manifest itself in various ways, including through diminished innovation (para 8).

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smaller ‘maverick’ firms may also reduce innovation where such firms had previously provided an important source of competition in innovation. Such concerns were considered by the EU Courts in Deutsche Börse AG v Commission.51 The 7.45 Commission had concluded that a transaction between two major stock exchanges, which would have created a quasi-monopoly in some areas, would have limited the introduction of new products and reduced innovation in technology, process and market design for financial derivatives. The GC upheld, among other things, the Commission’s conclusions on the effect of the proposed merger on innovation. In other cases, the Commission has considered innovation concerns in respect of the existing 7.46 research and development programmes of the merging parties and in respect of innovation in the market more generally, including in the context of non-horizontal mergers. The Non-Horizontal Merger Guidelines52 refer explicitly to the potential for intervention where innovation concerns53 arise, observing that innovation concerns are likely to arise where third parties may be foreclosed from access to a tangible or intangible asset necessary to innovate. As will be seen below (see paragraph 7.119 ff), remedies relating to IPR are commonly proposed to address concerns arising in such scenarios. 3. Existing research and development programmes

The Commission has concluded many times that overlaps between the merging parties’ existing 7.47 research and development programmes could reduce competition in existing or future markets. Given the nature of the pharmaceutical and agro-chemicals industries, many of these decisions have related to acquisitions in the life sciences sector. The Commission has held that where overlaps exist between the pipelines of the merging parties (either between pipeline products, or between pipeline products and products already in the market), there could be an impact on long-term innovation, as well as on competition in existing and future product markets. The Commission is concerned that such transactions may result in the elimination of a credible 7.48 competitor, the discontinuation of parallel research programmes and/or (in the context of the pharmaceutical industry) a reduction of investment in late-stage clinical trials. One of the main concerns will be in connection with future price effects. To that extent, the analysis does not differ substantially from the assessment of competitive effects involving existing products. Such concerns largely relate to overlaps with products in the final stage of development. Some of the cases in which innovation played a part in the Commission’s analysis are described briefly below. The importance of IP related remedies is clear. In Medtronic/Covidien,54 Medtronic was the market leader for drug-coated balloons to treat 7.49 vascular diseases. The Commission found that it faced limited competition. The target firm, Covidien, had a late-stage pipeline product which was expected to enter in the near future.

51

Case T-175/12 Deutsche Börse AG v European Commission (ECLI:EU:T:2015:148).

53

Ibid., para 10.

52 54

Non-Horizontal Merger Guidelines (n 3).

Case No M.7326 – Medtronic/Covidien, Commission Decision of 28 November 2014 (https://​ec​.europa​.eu/​competition/​ mergers/​cases/​decisions/​m7326​_20141128​_20212​_4138173​_EN​.pdf – accessed 18 November 2023).

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The transaction would have eliminated competition from the innovative pipeline product in a market where there was limited existing competitive pressure on Medtronic. 7.50 The proposed transaction was approved only subject to the divestiture of the pipeline product. That divestiture included manufacturing equipment, related IPRs, the scientific and regulatory material necessary to complete the clinical trials, and key personnel. The remedies were designed to provide the purchaser with all the assets required to bring the competing product to the market. A mirror commitment was accepted by the Federal Trade Commission (FTC) in the US. 7.51 In Pfizer/Hospira,55 the innovation concerns related to an overlap in infliximab biosimilars for treating autoimmune conditions such as rheumatoid arthritis and Crohn’s disease. At the time, only one infliximab biosimilar was on the market. It had been developed by Celltrion and was co-marketed independently (and under competing brands) by Celltrion and Hospira (the subject of the proposed acquisition). The acquirer, Pfizer, was at an advanced stage of developing a competing infliximab biosimilar drug56 as was one other competitor. The Commission concluded that following the merger it was likely that Pfizer would either: 1. have delayed or discontinued development of its pipeline biosimilar drug to focus on Hospira’s product (reducing innovation and future competition); or 2. have handed Hospira’s product back to Celltrion (eliminating price competition between Hospira and Celltrion under the existing arrangements). 7.52 In response to the Commission’s concerns about innovation, Pfizer committed to divest its pipeline infliximab biosimilar drug (as well as other divestments to address issues not relating to innovation). The innovation related remedy involved the divestment of Pfizer’s relevant IPRs (including knowhow57). The Commission permitted a licence back to Pfizer of non-EEA marketing rights for the pipeline product. 7.53 The Teva/Allergan Generics58 transaction combined two of the four largest generic pharmaceutical companies. The Commission raised a number of concerns including in respect of innovation. In response, the parties agreed to divest some pipeline generic molecules, along with a number of molecules already on the market.

55 56 57

58

Case No M.7559 – Pfizer/Hospira, Commission Decision of 4 August 2015 (https://​ec​.europa​.eu/​competition/​mergers/​ cases/​decisions/​m7559​_20150804​_20212​_4504355​_EN​.pdf – accessed 18 November 2023). Biosimilar drugs aim to have the same therapeutic mechanism as, and be clinically equivalent to, original patented biological drugs. However, unlike generics, biosimilars are not exact copies. Consequently, there is room for non-price competition between distinct biosimilars of the same molecule. Knowhow is particularly important in the development and manufacture of biosimilars which also require very substantial time and effort in addressing regulatory requirements, as the party bringing the biosimilar to market must demonstrate that the quality, safety and efficacy of the biosimilar are not significantly different from the original biologic, with a very high level of structural homology. An interesting discussion of competition between biosimilars and biologics can be found in Fiona A. Scott Morton, Ariel Dora Stern and Scott Stern, The Impact of the Entry of BioSimilars: Evidence from Europe (Harvard Business School (DASH Harvard.edu), July 2017).

Case No M.7746 – Teva/Allergan Generics, Commission Decision of 10 March 2016 (https://​ec​.europa​.eu/​competition/​ mergers/​cases/​decisions/​m7746​_4632​_3​.pdf – accessed 18 November 2023).

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In J&J/Actelion,59 the innovation concerns related to insomnia drugs. Anticipating the 7.54 Commission’s likely concern, the transaction as notified provided that Actelion’s insomnia research programme would be transferred before the merger to a newly created company in which J&J would have only a minority shareholding. However, the Commission concluded that J&J could still have influenced the new company’s strategic decisions. In addition, although J&J’s own insomnia research programme was co-developed with a third party, the Commission found that J&J would also have been able to influence that research programme. J&J subsequently offered remedies limiting its strategic influence over both of the drugs which were under active development. The transaction was approved subject to conditions intended to ensure that the clinical development of the innovative insomnia drugs of the respective parties would not be adversely affected. The Commission has also raised concerns about the effects on innovation at earlier stages of 7.55 development. For example, in Novartis/GSK (Oncology),60 the competition concerns related in part to duplicate late-stage (phase III clinical trials) and earlier stage (phases I and II clinical trials) development programmes. The Commission considered it likely that Novartis would have stopped developing two innovative drugs for the treatment of skin and ovarian cancer (for which late-stage clinical trials were being conducted) and that were also potentially useful for treating other cancers (in respect of which early-stage clinical trials were under way). The transaction was approved only on condition that Novartis would fully return one of the drugs to its owner and licensor and divest the other drug. The Commission also sought and received assurances that clinical studies would continue for the divested drugs as a result of a cooperation agreement between the new owner and a suitable partner. 4. General innovation concerns

The Commission has also concluded that a merger may reduce incentives for the merging firms 7.56 to innovate without identifying an effect on any particular existing research programme. The Commission’s concern is that innovation will typically be stifled: 1. by mergers which bring together important and close innovators with similar research and development capabilities; 2. by transactions in a sector where innovation is an important parameter of competition; 3. where the number of effective innovation players that can be reliably identified is limited; and 4. where the barriers to entry are high.61 One example of this concern in practice was General Electric/Alstom.62 That transaction brought 7.57 together two energy businesses of significant importance in the market for heavy duty gas 59 Case No M.8401 – J&J/Actelion, Commission Decision of 9 June 2017 (https://​ec​.europa​.eu/​competition/​mergers/​ cases/​decisions/​m8401​_740​_3​.pdf – accessed 18 November 2023). 60 Case No M.7275 – Novartis/GSK (Oncology), Commission Decision of 28 January 2015 (https://​ec​.europa​.eu/​ competition/​mergers/​cases/​decisions/​m7275​_20150128​_20212​_4158734​_EN​.pdf – accessed 18 November 2023). 61

62

Speech by Carles Esteva Mosso, Innovation in EU Merger Control, 66th ABA Section of Antitrust Law Spring Meeting, Washington, 12 April 2018 (https://​ec​.europa​.eu/​competition/​speeches/​text/​sp2018​_05​_en​.pdf – accessed 31 August 2023).

Case No M.7278 – General Electric/Alstom (Thermal Power – Renewable Power & Grid Business), Commission Decision of 8 September 2015 (General Electric/Alstom) (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m7278​_6808​ _3​.pdf – accessed 18 November 2023).

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turbines of a type mainly used to generate electricity in gas-fired power plants. General Electric was the largest manufacturer of such heavy-duty gas turbines, and Alstom the third or fourth largest worldwide. The combined undertaking would have had more than 50 per cent of the EEA market for heavy duty gas turbines and also high market shares on the worldwide market for 50 Hz frequency heavy duty gas turbines.63 7.58 The Commission found that, as well as traditional horizontal concerns, the transaction raised innovation concerns. These were exacerbated by the fact that Alstom was typically viewed as a strong innovation competitor by reference to R&D investment, headcount and capabilities.64 Alstom’s technology was found to be ‘one of the most advanced, flexible and cleanest available’, and Alstom was actively pursuing pipeline projects to deliver innovative heavy-duty gas turbines to customers in the medium to longer term. The Commission found evidence from General Electric’s post-closing integration plans that it would have eliminated most of Alstom’s R&D capabilities in heavy-duty gas turbines. The Commission also found that the market had very high technological and financial barriers because of the large up-front investments in research and development, testing and manufacturing required to participate. It concluded that the transaction would eliminate an important innovator, reducing innovation pressure on remaining market participants. 7.59 The transaction was cleared only in return for remedies including the divestment of the technologically most advanced parts of Alstom’s heavy-duty gas turbines business and key personnel for the further development of those products. The importance of innovation in designing the relevant remedies is clear from the Commission’s press release which noted that the divestment would offer ‘the purchaser advanced R&D capabilities and incentives to continue pushing innovation on this important market for Europe’.65 7.60 In Dow/DuPont,66 the Commission’s investigation primarily concerned the parties’ activities in pesticides, where the merger would create the leading supplier and focussed on the standard concerns about the effect of the transaction on prices of overlapping products which were already on the market. However, the Commission also raised concerns about innovation in pesticides, in particular a significant reduction in the number of R&D-focused participants in the industry over the previous 50 years, accompanied by a reduction in R&D expenditure, even though the costs of developing new active ingredients for use by the industry were increasing. The Commission was concerned that the transaction would hamper competition in innovation at both the industry level and in individual ‘innovation spaces’, that is, crop/pest combinations in national markets. To remedy these concerns, the parties agreed to divest DuPont’s global R&D organization.

63

All heavy-duty gas turbines in the EEA operated at 50Hz frequency although 60Hz turbines were used elsewhere.

65

Ibid. It is worth noting that at the time the EU provided funds for research into heavy-duty gas turbines under its Research and Technological Development Framework Programme.

64 Commission Press Release IP/15/5606, Mergers: Commission clears GE's acquisition of Alstom's power generation and transmission assets, subject to conditions, 8 September 2015 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​IP​_15​ _5606 – accessed 31 August 2023).

66 Case No M.7932 – Dow/DuPont, Commission Decision of 27 March 2017 (Dow/DuPont) (https://​ec​.europa​.eu/​ competition/​mergers/​cases/​decisions/​m7932​_13668​_3​.pdf – accessed 18 November 2023).

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Bayer/Monsanto67 combined the world’s largest supplier of seeds and the second largest supplier 7.61 of pesticides. The businesses of the merging parties were largely complementary. However, the Commission was concerned that innovation might be reduced in three product markets in which it considered rivalry to be important to innovation. The Commission considered the parties to be important innovators, with overlaps in their research programmes. The innovation concerns were addressed by the divestment of research and development assets. 5. Non-horizontal concerns

The most significant innovation concern likely to arise in a non-horizontal context is input 7.62 foreclosure. This could come about if the merged entity would be likely to restrict access to products or services (including access to innovative products) that one or other of the merging parties would have supplied in the absence of the merger. The concern is that this may raise rivals’ costs or otherwise make competition downstream more difficult68 leading to higher prices to consumers. The Commission recognizes, however, that efficiencies resulting from a merger could also lead to lower prices to consumers, so an anticompetitive impact cannot be assumed. Innovation concerns in a non-horizontal context may also flow from a degradation of R&D 7.63 capability across an industry which might be exacerbated by further concentration, even with limited horizontal overlaps, as hinted at in Dow/DuPont. Innovation considerations may also play a part in the decision to scrutinize a particular transac- 7.64 tion more closely than might at first seem likely. For example, if a transaction involves one or more undertakings who are likely to benefit from a recent innovation the Commission might consider that current market shares do not necessarily capture the likelihood of future competitive strength.69 The extent of IPR protection will play a role in this assessment. A very recent example of innovation concerns in a vertical merger was the Commission’s 2022 7.65 decision to prohibit Illumina’s acquisition of GRAIL.70 The explicit rationale for prohibiting the transaction was the Commission’s view that the transaction ‘would have stifled innovation, and reduced choice in the emerging market for blood-based early cancer detection tests’.71 The Commission found that Illumina was ‘the unrivalled supplier of NGS systems for genetic 7.66 and genomic analysis’72 and that the target, GRAIL, used NGS systems73 to develop cancer tests (as did others seeking to develop such tests). According to the Commission, the cancer tests in question use a blood sample to detect cancer in patients before symptoms have developed and can be used to detect different types of cancer. The Commission described this as 67 Case No M.8084 – Bayer/Monsanto, Commission Decision of 21 March 2018 (https://​ec​.europa​.eu/​competition/​ mergers/​cases1/​202150/​M​_8084​_8063669​_13738​_3​.pdf – accessed 18 November 2023). 68

Non-Horizontal Merger Guidelines (n 3), para 31.

70

Case No M.10188 – Illumina/GRAIL, final decision not yet publicly available (Illumina/GRAIL Commission Decision) (https://​competition​-cases​.ec​.europa​.eu/​cases/​M​.10188 – accessed 31 August 2023).

69

71

Ibid., para 26(a).

Commission Press Release IP/22/5364, Mergers: Commission prohibits acquisition of GRAIL by Illumina, 6 September 2022 (Illumina/GRAIL Commission Press Release).

72 Ibid. 73

NGS systems are ‘next generation sequencing’ systems and include instruments, consumables and ancillary services.

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providing a potentially transformative tool in cancer diagnosis and treatment. GRAIL was a customer of Illumina, as were GRAIL’s rivals. 7.67 The Commission’s theory of harm was that the acquisition of GRAIL would have incentivized Illumina to foreclose GRAIL’s competitors in the development of NGS-based cancer detection tests by denying them access to an essential input, namely Illumina’s NGS systems. Given Illumina’s position in the supply of NGS systems, the Commission found that Illumina would, post-merger, have both the incentive and the ability to foreclose, placing GRAIL’s rivals at a competitive disadvantage. The Commission was concerned not only about the potential for Illumina to refuse to supply its products to GRAIL’s competitors, but also about less obvious foreclosure strategies including the potential to increase prices to non-vertically integrated undertakings or to degrade the quality of the products supplied or to delay delivery to third parties. 7.68 The competition concerns focused squarely on innovation. The Commission press release stated: … GRAIL and its rivals are currently engaged in an innovation race to develop and commercialise early cancer detection tests. While there is still uncertainty about the exact results of this innovation race and the future shape of the market for early cancer detection tests, protecting the current innovation competition is crucial to ensure that early cancer detection tests with different features and price points will come to the market.

7.69 The parties suggested remedies which they argued would address the Commission’s concerns. These are dealt with below as part of the discussion on IPR remedies. Several of the remedies proposed were aimed at lowering IP-based entry barriers and included a commitment to terminate patent litigation against one of Illumina’s rivals in the NGS market, as well as an offer to conclude patent licences. 7.70 The Commission rejected the proposed remedies on the basis that they did not enable it to conclude that competition would be preserved long term. It found that the remedies proposed would neither have removed Illumina’s incentives to seek to foreclose GRAIL’s competitors nor would they have removed Illumina’s ability to do so. It concluded that even if the remedies were implemented, they would not deal with the concern that emergent competition in the development of blood-based tests for early cancer detection would be eliminated, or at least hindered, and that innovation would be harmed.74 7.71 The review of this transaction has been made procedurally more complicated not only by Illumina’s challenge to the EU’s decision to take jurisdiction over the transaction75 but also by the fact that Illumina completed the acquisition while the Commission’s investigation was

74

75

In the parallel US proceedings the FTC subsequently decided in March 2023 to block the acquisition: see FTC Press Release, FTC Orders Illumina to divest cancer detection test maker GRAIL to protect competition in life-saving technology market, 3 April 2023. Note that the FTC’s internal administrative law judge had found that the FTC had failed to prove its case, but this finding was overturned by the full FTC. In April 2023, the FTC decided to stay enforcement of its order until Illumina’s substantive appeal has been heard. See discussion at para 7.37 ff above.

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in progress.76 This resulted, after various interim steps, in a significant fine (€432 million) for Illumina and a symbolic fine (€1,000) for GRAIL for so-called ‘gun jumping’.77 The imposition of those fines and the Commission’s ‘gun jumping’ decision is also being appealed. The Commission has also required Illumina to unwind the transaction so as to give full effect 7.72 to the prohibition decision.78 Such measures are permitted under Article 8(4)(a) of the EU Merger Regulation. The Commission’s decision contains two main obligations: first to restore the situation as it was before the merger was completed (including a requirement that GRAIL must be ‘as viable and competitive … as it was before Illumina’s acquisition’); and, pending that, to observe ‘transitional measures’ until the transaction has been dissolved. Illumina has 12 months to do so with the possibility of a three-month extension. Illumina still has an appeal pending before the EU Courts (an appeal to the CJEU of the 7.73 GC’s judgment that the Commission was entitled to take jurisdiction over the transaction under Article 2279). Illumina has stated that: ‘If Illumina wins its jurisdictional challenge at the ECJ, the basis for the EC’s divestiture order would be eliminated. However, if Illumina is not successful with either its ECJ jurisdictional appeal or in a final decision of the U.S. Fifth Circuit Court of Appeals, the company will divest GRAIL.’80 This saga appears to have some way to run but demonstrates conclusively the Commission’s commitment to pursuing innovation-based theories of harm, even in the context of non-horizontal transactions. An even more recent vertical merger illustrates the novelty and difficulty of pursuing innovation 7.74 theories of harm and the potential for different merger control authorities to reach different views. In early 2022, Microsoft announced its intention to acquire Activision.81 Microsoft is active in the provision of video gaming services through its Xbox console. It also distributes games through cloud streaming services. After its investigation,82 the Commission found that that acquisition could harm competition in the distribution of games by cloud streaming services and that Microsoft’s existing position in the market for PC operating systems would be strengthened. The concerns relating to cloud streaming services focused on the fact that this was ‘an inno- 7.75 vative market segment that could transform the way many gamers play video games’ but was currently only nascent. The principal issue identified was again with potential input foreclosure, namely that ‘… if Microsoft made Activision’s games exclusive to its own cloud game streaming

76

Although it did agree to hold the two entities separate after the acquisition formally completed.

78

Commission Press Release IP/23/4872, Commission orders Illumina to unwind its completed acquisition of GRAIL, 12 October 2023 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​ip​_23​_4872 – accessed 8 November 2023).

77

79 80 81 82

Commission Press Release 2 (n 9).

The AG has recommended that the CJEU should annul the Commission’s jurisdictional decision. See discussion at para 7.37 ff above.

Illumina Press Release, Illumina responds to European Commission's divestiture order, 13 October 2023 (https://​investor​ .illumina​.com/​news/​press​-release​-details/​2023/​Illumina​-responds​-to​-European​-Commissions​-divestiture​-order/​ default​.aspx – accessed 20 November 2023). Microsoft Press Release (n 12). Microsoft/Activision (n 12).

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service, Game Pass Ultimate, and withheld them from rival cloud game streaming providers, it would reduce competition in the distribution of games via cloud game streaming’. 7.76 Microsoft sought to address these concerns by offering licensing commitments (to last for ten years). The Commission cleared the acquisition83 accepting the proposed commitments and concluding that not only did they address its competition concerns but were also a significant improvement for consumers which would help the development of innovative cloud gaming technology. One aspect of the commitments identified by the Commission was they would ensure comparable quality for Activision games whether steamed or downloaded in the traditional fashion. 7.77 When announcing the final decision, the EU Competition Commissioner, Margarethe Vestager put the focus firmly on innovation saying: ‘In such a fast-growing and dynamic industry, it is crucial to protect competition and innovation. … The commitments offered by Microsoft will enable for the first time the streaming of such games in any cloud game streaming services, enhancing competition and opportunities for growth.’84 7.78 Given the global nature of the transaction, it was reviewed by competition authorities around the world and several of them, including the US FTC and the UK Competition and Markets Authority (CMA), expressed serious doubts both about its impact on competition and about whether the remedies offered were sufficient to overcome those concerns. 7.79 In the US, the FTC had lost a court action seeking to extend a temporary order to prevent Microsoft from closing the transaction85 but continued to challenge the acquisition in the courts. 7.80 In the UK, the CMA originally blocked the transaction and rejected the remedies offered by Microsoft. The CMA’s concerns were largely focused on the impact on innovation in cloud gaming and particularly the potential for input foreclosure.86 The remedies offered by Microsoft were deemed to be inadequate, in part because of the limited coverage of the remedies offered but also because the CMA has a distinct preference for structural remedies rather than behavioural remedies requiring continued oversight by the CMA. In this context, the head of the CMA panel that decided to block the transaction said that Microsoft’s: … proposals were not effective to remedy our concerns and would have replaced competition with ineffective regulation in a new and dynamic market. Cloud gaming needs a free, competitive market to drive innovation and choice. That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job.

83

Commission Press Release IP/23/2705, Mergers: Commission clears acquisition of Activision Blizzard by Microsoft, subject to conditions, 15 May 2023 (Microsoft/Activision Commission Press Release).

84 Ibid. 85

86

CMA Press Release, New Microsoft/Activision deal addresses previous CMA concerns in cloud gaming, 22 September 2023 (https://​www​.ftc​.gov/​legal​-library/​browse/​cases​-proceedings/​2210077​-microsoftactivision​-blizzard​-matter – accessed 20 November 2023).

CMA Press Release, Microsoft/Activision deal prevented to protect innovation and choice in cloud gaming, 26 April 2023 (https://​www​.gov​.uk/​government/​news/​microsoft​-activision​-deal​-prevented​-to​-protect​-innovation​-and​-choice​-in​ -cloud​-gaming – accessed 29 August 2023).

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The CMA’s decision was appealed to the UK Competition Appeal Tribunal (CAT). That 7.81 case was temporarily stayed following the US decision and the CMA announced that it would consider submissions by Microsoft that a material change of circumstance had occurred.87 The CMA approved the acquisition in October 2023 following an agreement by Microsoft to transfer Activision’s cloud gaming rights to French company Ubisoft before completing the transaction.88 The arrangement involved the divestment of Activision’s global cloud streaming rights for 15 years, subject to a carve out for the EEA. In the EEA, Activision’s cloud streaming rights are licensed to Ubisoft, allowing it to stream and sub-license streaming of the Activision games in the EEA. In addition, Microsoft receives a non-exclusive licence back sufficient to allow it to comply with the commitments it had previously given to the EU and to comply with existing contractual obligations to third parties. Both the Illumina/GRAIL and Microsoft/Activision transactions show the importance that 7.82 merger control authorities now attach to concerns about innovation in non-horizontal acquisitions. They also make clear how contested some of these theories are in practice. From the perspective of those considering offering remedies, the importance of designing remedies which will address the authorities’ concerns while being enforceable and capable of monitoring cannot be overstated. Licences are often seen as the only feasible avenue to approval but the licences that are offered need to be drafted so as to persuade sceptical merger control authorities that they will genuinely prevent the sort of foreclosure of opportunity and potential degradation of service or supply that was fatal (at least so far) in Illumina/GRAIL. 6. Procedural issues

The Commission is less likely to accept a proposed merger involving an important innovator 7.83 under the simplified procedure, even if all other required conditions are met.89 The standard merger notification forms require relevant information on the R&D programmes, IPRs and pipeline products of the parties.90 Any positive effects of a merger on innovation are usually assessed by the Commission in the 7.84 context of efficiencies rather than when considering the potential for the transaction to have a substantial impact on effective competition.91 The Horizontal Merger Guidelines92 note 87

88

89 90 91 92

CMA: Anticipated acquisition by Microsoft Corporation of Activision Blizzard, Inc. – Notice inviting comments on submission received on material change of circumstances and/or special reason within the meaning of section 41(3) of the Enterprise Act 2002 (https://​assets​.publishing​.service​.gov​.uk/​media/​64c76​965f921860​00d866797/​Notice​_inviting​ _comments​_on​_submission​_received​_on​_material​_change​_of​_circumstances​_and​-or​_special​_reason​_​.pdf – accessed 1 September 2023).

CMA Press Release, New Microsoft/Activision deal addresses previous CMA concerns in cloud gaming, 22 September 2023 (https://​www​.gov​.uk/​government/​news/​new​-microsoft​-activision​-deal​-addresses​-previous​-cma​-concerns​-in​-cloud​ -gaming – accessed 20 November 2023). The acquisition subsequently closed in mid-October 2023. At the time of writing in November 2023, it appeared that the US FTC intended to continue its challenge to the transaction. Commission Notice on a simplified procedure for treatment of certain concentrations under Council Regulation (EC) No 139/2004 (2013/C 366/04), para 11; Horizontal Merger Guidelines (n 3), para 20. Sections 8.7 and 8.9 of the Form CO and Section 7.2.3 of the Short Form CO.

Innovation in EU Merger Control (n 61). To this extent the procedure reflects the general approach under both Arts 101 and 102 TFEU of first establishing an anticompetitive effect and then assessing whether efficiencies can be established. There is no ‘rule of reason’ in merger control any more than elsewhere in EU competition law. Horizontal Merger Guidelines (n 3), para 81.

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that it is for the parties to show that the usual requirements for establishing countervailing efficiencies are met, namely, that the efficiencies identified are transaction specific, verifiable and likely to be passed on to consumers. Unsurprisingly, vertical or conglomerate transactions are regarded as more likely to give rise to efficiencies than horizontal mergers. The Horizontal Guidelines note that conglomerate and vertical mergers offer substantial possibilities for efficiencies, including increased innovation. In TomTom/Tele Atlas,93 for example, the Commission recognized that vertical integration between a navigation systems provider and a digital maps developer would improve mapping services for consumers. 7.85 As discussed below in the context of remedies, the Commission will generally require the divestment of relevant research programmes to address significant innovation concerns. Such a divestment will usually include everything required for the acquirer to continue with the innovation such as research facilities, IPRs, data, knowhow and relevant employees. Where the merging parties need to retain some elements for their other activities and cannot therefore divest them entirely, they may offer to license relevant IP and other rights. 7. Conclusion on innovation

7.86 The Commission has not established any presumption that a merger will have a negative impact on innovation. Instead, a detailed review of each case is required, including the overlaps between the parties’ R&D capabilities and projects, the importance of rival innovators, and the barriers to entry. Having said that, the Commission’s decisions in merger cases clearly reflect its wider policy of promoting innovation within the EU. 7.87 The Commission’s approach is not without critics. In the context of pharmaceuticals, for example, whilst there may be credible concerns regarding horizontal overlaps in late-stage pipeline products, these are much more difficult to establish when looking at drugs earlier in the development process or when considering wider innovation concerns. Success rates for early-stage drugs are notoriously low, with perhaps only a third of drugs in Phase II likely to move to Phase III trials. This makes the counterfactual difficult to establish as, even at that stage, success is not certain with regulatory, pricing and prescription barriers still to overcome. 7.88 Outside the horizontal context, the Commission’s approach to innovation concerns in vertical mergers is likely to be thoroughly scrutinized following Illumina/GRAIL. In the US, Illumina’s appeal against the parallel FTC decision is also likely to result in a thorough discussion of the various innovation theories of harm adopted by the merger control bodies and of their robustness.94 E. Big Data Concerns 7.89 Data is an increasingly valuable asset. While not an IPR as such, it has some characteristics in common with knowhow and is also an important aspect of the innovation economy. Concern 93 Case No M.4854 – TomTom/Tele Atlas, Commission Decision of 14 May 2008 (https://​ec​.europa​.eu/​competition/​ mergers/​cases/​decisions/​m4854​_20080514​_20682​_en​.pdf – accessed 20 November 2023). 94

The FTC’s brief to the US Court of appeals for the Fifth Circuit is publicly available: https://​www​.ftc​.gov/​system/​files/​ ftc​_gov/​pdf/​illumina​_v​.​_ftc​_ftc​_brief​_public​_version​_8​.4​.23​.pdf. At the time of writing, the Court was seeking views from the parties on the implications of the EU’s decision to order the acquisition to be unwound.

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about the effect on competition of concentrated ownership of enormous quantities of data has grown steadily over the last ten years.95 As data is not the subject of this book, the treatment of data in mergers is not dealt with in detail in this chapter, but some of the considerations relating to data and its importance have been fundamental to the Commission’s concerns about ‘killer acquisitions’ and below threshold mergers, already discussed above. As in the context of standard essential patents (discussed in Chapter 9) the impact of big data and related concerns have led to a legislative response outside the scope of traditional competition instruments.96 In essence, the competition concern is that the more data a company has, the better its ability to 7.90 obtain insights into its users and their preferences and to predict market trends and behaviour. Coupled with the sophisticated use of analytics, it can help a company obtain a significant competitive advantage and, ultimately, secure greater profits. The general view is that it was this confidence in the promise of future value that led Facebook to pay over $19 billion in 2014, more than $30 a user, to acquire WhatsApp, a start-up that had generated only $10.2 million in revenue and lost over $135 million the previous year.97 In approving that acquisition,98 the Commission reiterated its view that competition law con- 7.91 siderations relating to the use of data are separate from those relating to privacy considerations, stating that any ‘privacy-related concerns flowing from the increased concentration of data within the control of Facebook as a result of the Transaction do not fall within the scope of the EU competition law rules but within the scope of the EU data protection rules’.99 This followed the position of the CJEU as previously set out in Asnef-Equifax: ‘any possible issues relating to the sensitivity of personal data are not, as such, a matter for competition law, they may be resolved on the basis of the relevant provisions governing data protection’.100 This statement reflects an important distinction between the protection of consumers’ personal 7.92 data, a matter for data protection law; and the potential impact of data on competition between companies, a relevant consideration for competition law.101 Nevertheless, competition authori95

Speech by European Commissioner Vestager, Big Data and Competition, at EDPS‑BEUC Conference on Big Data, 29 September 2016. See also Unlocking digital competition: report of the Digital Competition Expert Panel, March 2019 for the UK government; and Crémer, de Montjoye and Schweitzer (n 29).

96 Commission’s Digital Markets Act – https://​commission​.europa​.eu/​strategy​-and​-policy/​priorities​-2019​-2024/​europe​ -fit​-digital​-age/​digital​-markets​-act​-ensuring​-fair​-and​-open​-digital​-markets​_en – accessed 1 September 2023. 97

Facebook/WhatsApp (n 27).

99

Facebook/WhatsApp (n 27), para 164.

98

Over which it did not have automatic jurisdiction, as the transaction did not meet the turnover thresholds in the EU Merger Regulation (n 6). The parties asked the Commission to review the transaction using the mechanism in Art 4(5) of the EU Merger Regulation and it was subsequently cleared. The tale had a further twist when in 2017 the Commission fined Facebook €110 million for providing it with incorrect or misleading information during the review process. The information in question related to Facebook’s ability to match the data sets of WhatsApp and Facebook. Facebook had informed the Commission that it did not have the ability to establish automated matching between users’ accounts. This subsequently turned out to be inaccurate.

100 Case C-238/05 Asnef-Equifax v Asociación de Usuarios de Servicios Bancarios [2006] ECR I-11125 (ECLI:EU:C:2006:734).

101 Regulators have recognized that data protection and competition law are ‘separate but related jurisdictions’, see, e.g., Opinion 8/2016, European Data Protection Supervisor, Opinion on coherent enforcement of fundamental rights in the age of big data. In Case No M.8788 – Apple/Shazam, Commission Decision of 6 September 2018, the Commission Press Release IP/18/5662, Mergers: Commission clears Apple’s acquisition of Shazam, 6 September 2018, stated that a ‘merger decision does not release companies from respecting all relevant data protection laws’.

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ties are increasingly recognizing the potential significance of data to competition between firms and a number have issued reports, opened sector inquiries or set up new units to help deal with this subject matter.102 The data protection regulators are also keenly aware of the potential for crossover with the European Data Protection Supervisor noting: Competition law aims to ensure fair and undistorted competition through, for instance, the protection against abuse of market power. Many services, particularly those online, are marketed as free but in effect require payment in the form of personal information from customers. Collaboration between policy-makers in data protection, competition and consumer protection could help to ensure the efficiency of the internal market as well as the welfare and choice available to consumers.103

7.93 The relationship between the data protection regime and competition enforcement was the subject of an important judgment by the CJEU104 in July 2023. In substance, the CJEU held that personal data is an essential parameter of competition in a modern economy and must be taken into consideration by competition authorities when assessing behaviour under competition law. Having said that, the CJEU observed that it is not for the competition authorities to monitor or enforce data protection law, which is the task of the data protection authorities with whom the competition authorities must liaise and consult as required by the duty of sincere cooperation contained in Article 4(3) TFEU. 7.94 The impact of data has been assessed by the Commission in a number of mergers. It has been concerned that the (lack of) data or access to data can act as an effective barrier to entry. This concern focusses on two areas: 1. whether access to a data set is essential (e.g., if it cannot be replicated by competitors); and 2. in relation to network effects. 7.95 The Commission has also identified potential competition concerns where a company might be able to use acquired data to target its competitors’ customers.

III. ANCILLARY RESTRICTIONS 7.96 The EU Merger Regulation provides for merger clearance decisions to extend to ‘restrictions directly related and necessary to the implementation of the concentration’.105 In practice this means that any arrangements which are integral to and covered by the merger clearance will not give rise to competition law risk under Article 101 TFEU. The statement in the EU Merger

102 In May 2016, the French and German competition authorities published a joint paper, Competition Law and Data, that considered the extent to which data confers market power. A joint sector inquiry by the Italian Competition Authority, the Communications Authority and the Italian Data Protection Authority was launched in May 2017, focusing on platforms to assess whether Big Data might: (i) constitute a barrier to entry; and/or (ii) facilitate anticompetitive practices which could hinder development and technological progress. The CMA is establishing a ‘data unit’ to enhance its ability to investigate digital competition law issues, including Big Data, algorithms, and machine learning.

103 https://​edps​.europa​.eu/​data​-protection/​our​-work/​subjects/​competition​_en – accessed 20 November 2023.

104 Case C-252/21 Facebook Inc and Others v Bundeskartellamt (ECLI:EU:C:2023:537), see particularly para 36 and following.

105 EU Merger Regulation (n 6), Sections 6(1)(b), 8(1) and 8(2).

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Regulation has been supplemented by guidance in the ancillary restrictions notice.106 All agreements, such as those for the sale of shares or assets of an undertaking, which carry out the main object of a concentration,107 are considered integral. Agreements relating to the future use of IPRs or knowhow by the parties may fall into this category. If agreements contain ancillary restrictions, these are objectively assessed against the criteria of whether they have ‘direct relation and necessity’108 to the transaction. The assessment of particular restrictions and whether they meet the test of being ‘directly 7.97 related and necessary to the implementation of the concentration’ is largely a matter for the parties.109 The only exception will be for novel cases where there is genuine uncertainty and where the parties request a ruling from the Commission about the ancillary nature of particular arrangements. This is unlikely to arise very often. The test for making a request is whether the question is ‘not covered by the relevant Commission notice in force or a published Commission decision’.110 If parties are uncertain about the likely treatment of a particular restriction having reviewed 7.98 the ancillary restrictions notice, they may find further guidance in Commission decisions about exceptional circumstances where a decision was necessary. Such previous cases have dealt with situations such as: ● circumstances involving a high degree of customer loyalty;111 ● a market in which there is a long product life cycle;112 ● products or services in respect of which there is a limited number of alternative suppliers;113 and ● a transaction in respect of which longer protection of knowhow is required.114 A. Acquisitions and Joint Ventures Ancillary restrictions give rise to different considerations depending on whether the concen- 7.99 tration is an acquisition or the formation of a joint venture. In an acquisition, as a general rule, ‘restrictions benefiting the seller are either not directly related and necessary to the implemen-

106 Commission Notice on restrictions directly related and necessary to concentrations, OJ [2005] C 56/24 (Ancillary Restrictions Notice (2005)). 107 Ibid., para 10. 108 Ibid., para 11.

109 This is further clarified by the Recital 21 of the EU Merger Regulation (n 6), which notes that ‘Commission decisions declaring concentrations compatible with the common market … should automatically cover such restrictions, without the Commission having to assess such restrictions in individual cases.’ 110 Ibid.

111 Case No COMP/M.1980 – Volvo/Renault V.I., Commission Decision of 1 September 2000, para 56 (https://​ec​.europa​ .eu/​competition/​mergers/​cases/​decisions/​m1980​_en​.pdf – accessed 21 November 2023).

112 Case No IV/M.1298 – Kodak/Imation, Commission Decision of 23 October 1998, para 73 (https://​ec​.europa​.eu/​ competition/​mergers/​cases/​decisions/​m1298​_en​.pdf – accessed 21 November 2023). 113 Case No IV/M.550 – Union Carbide/Enichem, Commission Decision of 13 March 1995, para 99 (https://​ec​.europa​.eu/​ competition/​mergers/​cases/​decisions/​m550​_en​.pdf – accessed 21 November 2023).

114 Case No IV/M.197 – Solvay-Laporte/Interox, Commission Decision of 30 April 1992, para 50 (https://​ec​.europa​.eu/​ competition/​mergers/​cases/​decisions/​m197​_en​.pdf – accessed 21 November 2023).

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tation of the concentration at all,[115] or their scope and/or duration need to be limited’ in some way.116 The authorities accept that a purchaser requires a greater level of protection from the subsequent activities of the seller as the purchaser needs to be assured that it will be able to acquire the full value of the undertaking and that this will not be undermined by the seller’s future conduct. Justifications for protections benefitting the seller are less obvious. B. Principles Applicable to Common Restrictions in Acquisitions 1. Licence agreements

7.100 It is common for IPRs to transfer from the seller to the purchaser. This will often be an essential part of ensuring that the purchaser will be able to exploit the acquired assets and to market the goods and services supplied by its newly acquired entity. 7.101 In some cases, the seller may wish or need to retain the right to exploit certain of its IPRs (in particular, trademarks, business names, design rights and copyrights) for use in activities outside the scope of the acquired business. Then, licence agreements will be required. Either the seller will retain ownership of the relevant assets and license them to the purchaser, or the seller may transfer all its rights to the seller but conclude licence back arrangements for relevant IP.117 In some circumstances, the licence will have the same effect as a partial transfer of rights, allowing the purchaser to enjoy the full benefit of the assets as if it were the owner. A licence of this type will be considered to be directly related to and necessary for the implementation of the concentration.118 7.102 Simple or exclusive licences of patents, similar rights or of knowhow119 are typically necessary and an integral part of an acquisition. There is no requirement that such licences should be time limited. They may be limited to certain fields of use where appropriate in the context of the activities being transferred to the purchaser.120 7.103 By contrast, territorial limitations on manufacture reflecting the territory of the transferred activity are not considered necessary for implementation of the concentration. Where the seller is granting a licence to the buyer, any territorial restrictions will be subject to the same considerations as apply to non-competition clauses.121

115 Ancillary Restrictions Notice (2005) (n 106), para 17 footnote; Commission Decision of 27 July 1998 (IV/M.1226) – GEC/GPTH, para 24 (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m1226​_en​.pdf – accessed 21 November 2023).

116 Ancillary Restrictions Notice (2005), ibid., para 17; and see, e.g., for a clause aiming to protect a part of the business remaining with the seller to ensure that the business is able to establish itself on the market independently: Case No. IV/M.319 – BHF/CCF/Charterhouse, Commission Decision of 30 August 1993, para 16 (https://​ec​.europa​.eu/​ competition/​mergers/​cases/​decisions/​m319​_en​.pdf – accessed 21 November 2023). 117 Ancillary Restrictions Notice (2005), ibid., para 27. 118 Ibid., para 31.

119 As defined in Art 1(1)(i) of Commission Regulation (EC) No 772/2004 of 27 April 2004 on the application of Article 81(3) of the Treaty to categories of technology transfer agreements, OJ [2004] L 123/11 (presumably now the equivalent definition in the 2014 TTBER, which is unchanged). 120 Ancillary Restrictions Notice (2005) (n 106), para 28. 121 Ibid., para 29.

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Any restrictions which go beyond the limited framework described above will not be con- 7.104 sidered to be necessary for the implementation of the concentration. This will also be the case in respect of any restrictions which benefit the seller, rather than the purchaser.122 The competition law implications of restrictions relating to IP which are not ancillary will need to be assessed separately from the concentration. The parties will need to self-assess as for other potentially anticompetitive agreements, applying the usual criteria under Articles 101(1) and 101(3) TFEU (including the Technology Transfer Block Exemption and Guidelines).123 2. Non-competition clauses and IPR

A purchaser will usually wish to negotiate contractual protection to prevent the seller from 7.105 competing with the newly acquired business for a period after completion. Such protection, in the form of a non-compete, is acknowledged to be necessary to ensure that purchasers are able to enjoy the full value of the assets, both physical and intangible (e.g., knowhow and goodwill) that have been acquired. As a result, non-compete provisions are regarded as directly related to the concentration.124 Non-competition clauses will not be considered necessary if the transfer involves only physical 7.106 assets (such as land, buildings or machinery) or where the transfer relates to exclusive rights (e.g., the assignment of patents or similar rights). In such circumstances, the purchaser would be able to take direct action against any infringements by the seller and no additional contractual protection is necessary.125 Non-competition clauses are justified only to the extent that they enable the legitimate objective 7.107 of implementing the concentration. If a non-competition provision is to be regarded as ancillary to a notified transaction and benefit from the merger clearance, its duration, geographical scope, subject matter and the persons subject to it must not exceed what is reasonably necessary to protect the purchaser’s legitimate interests.126 Assessing necessity involves two questions: 1. Is the restriction objectively necessary for the implementation of the main operation; and 2. Is the restriction proportionate to such implementation?127 When a concentration includes the transfer of customer loyalty in the form of both goodwill 7.108 and knowhow, non-compete clauses will be considered ancillary for periods of up to three years.128 This is considered necessary to protect the buyer’s investment, particularly where there are limited assets and a substantial part of the value of the business transferred is goodwill and

122 Ibid., para 30.

123 Commission Regulation No 316/2014 of 21 March 2014 on the application of Article 101(3) of the TFEU to categories of technology transfer agreements, OJ [2014] L 93/17 (TTBER). Discussed in detail at Chapter 3 above. 124 Ancillary Restrictions Notice (2005) (n 106), para 18. 125 Ibid., para 21.

126 Ibid., para 19; Case 42/84 Remia BV and others v Commission of the European Communities [1985] ECR 2545 (ECLI:EU:C:1985:327), paras 19 and 20.

127 Case T-112/99 Métropole Télévision (M6) and Others v Commission of the European Communities [2001] ECR II-2459 (ECLI:EU:T:2001:215) (Métropole Télévision), para 106.

128 Ancillary Restrictions Notice (2005) (n 106), para 20.

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knowhow.129 Longer periods may exceptionally be justified, for example, where the market in which the business operates has a relatively high degree of customer loyalty and the product has an extended life cycle.130 Where only goodwill is transferred, the Ancillary Restrictions Notice states that non-compete clauses are deemed to be justified only for periods up to two years.131 7.109 Non-compete clauses limited to the products and services which represent the business being transferred are justified as they guarantee the transfer to the acquirer of the full value of the acquisition.132 Agreements which go beyond this will be regarded as ancillary only in exceptional circumstances. 7.110 To be ancillary, non-compete clauses must also be limited in geographic scope to the area in which the seller was offering the goods or services affected before the concentration took place.133 Protection against competition from the seller in product or service markets in which the transferred undertaking was not active before the transfer is not considered necessary.134 7.111 Non-solicitation and confidentiality clauses are evaluated in a similar way to non-competition clauses.135 It is recognized, however, that there may be exceptional justification for confidentiality clauses lasting for longer periods concerning technical knowhow.136 C. Principles Applicable to Common Restrictions in Joint Ventures 1. Licence agreements

7.112 Licences granted by parent undertakings to a joint venture will typically meet the test of being directly related and necessary to the creation of the joint venture (irrespective of whether they

129 Ibid., para 20; Case No COMP/M.2077 – Clayton Dubilier & Rice/Iteltel, Commission Decision of 1 September 2000, para 15 (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m2077​_en​.pdf – accessed 21 November 2023); Case No IV/M.1127 – Nestle/Dalgety, Commission Decision of 2 April 1998, para 33 (https://​ec​.europa​.eu/​competition/​ mergers/​cases/​decisions/​m1127​_en​.pdf – accessed 21 November 2023); Case No COMP/M.2305 – Vodafone Group PLC/EIRCELL, Commission Decision of 2 March 2001 (Vodafone Group PLC/EIRCELL), paras 21 and 22 (https://​ec​ .europa​.eu/​competition/​mergers/​cases/​decisions/​m2305​_en​.pdf – accessed 21 November 2023). 130 Ancillary Restrictions Notice (2005), ibid., see fn 5 and the cases cited there.

131 Case No IV/M.1482 – KingFisher/Grosslabor, Commission Decision of 12 April 1999, para 26 (https://​ec​.europa​.eu/​ competition/​mergers/​cases/​decisions/​m1482​_en​.pdf – accessed 21 November 2023) – non-competition clauses are covered by this decision only to the extent that their duration does not exceed two years. 132 Case No COMP/M.2355 – Dow/Enichem Polyurethane, Commission Decision of 6 April 2001, para 28 (Dow/Enichem Polyurethane) (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m2355​_en​.pdf – accessed 21 November 2023).

133 Ancillary Restrictions Notice (2005) (n 106), paras 23–24; citing, e.g., Case No IV/M.884 – KNP BT/Bunzl/Wilhelm Seiler, Commission Decision of 14 February 1997, para 17 (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​ m884​_en​.pdf – accessed 21 November 2023) – confirms circumstances that contractual prohibitions on competition are acceptable; Vodafone Group PLC/EIRCELL (n 129), para 22. 134 Ancillary Restrictions Notice (2005), ibid., para 23. The rationale here is that the purchaser will not have acquired any goodwill in territories that were not previously exploited by the seller and hence will not require protection. 135 Ibid., para 26.

136 Case No IV/M.1167 – ICI/Williams, Commission Decision of 29 April 1998, para 22 (https://​ec​.europa​.eu/​ competition/​mergers/​cases/​decisions/​m1167​_en​.pdf – accessed 21 November 2023); Case No COMP/M.1832 – Ahold/ ICA Förbundet/Canica, Commission Decision of 6 April 2000 (Ahold/ICA Förbundet/Canica), para 26 (https://​ec​.europa​ .eu/​competition/​mergers/​cases/​decisions/​m1832​_en​.pdf – accessed 21 November 2023).

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are exclusive, time-limited137 or restricted to particular fields of use that correspond to the activities of the joint venture).138 Licences granted by a joint venture to one of its parents are assessed in the same way as in an 7.113 acquisition.139 Licence agreements between parents are not considered directly related and necessary to the implementation of a joint venture and will require a separate review.140 2. Non-competition covenants

Non-competition clauses which are limited to the lifetime of the joint venture141 and having 7.114 effect between the joint venture and its parent undertakings are permitted.142 These clauses reflect the reality of the withdrawal of the parents from the market concerned and enable the joint venture to assimilate knowhow and goodwill provided by its parents. The parties to a joint venture will wish to ensure both the viability of the joint venture itself 7.115 and the protection of the value of the assets being contributed by each parent. For example, significant knowhow is often provided by the parents to the joint venture and the joint venture may itself subsequently develop knowhow. Specific justification will be required for any non-compete obligations that extend beyond the 7.116 life of the joint venture. In practice, it is common to see non-compete obligations contained in separate clauses, one for the life of the joint venture which will be regarded as ancillary to the transaction and require no further consideration, and a second for a limited period post-termination which may not be regarded as ancillary and would therefore need to be assessed under Article 101 TFEU in the normal way. This approach should enable a court to apply a ‘blue pencil’ test or similar approach to severing the post-termination provision should it ultimately not be permitted and become unenforceable under Article 101(2) TFEU. This will ensure that at least the protection of the non-compete for the lifetime of the joint venture remains.

137 However, see Case No IV/36.237 – TPS, Commission Decision of 3 March 1999, paras 35–36, upheld in Métropole Télévision (n 127), paras 122–135 – the grant of exclusive broadcasting rights to a joint venture for an excessive period of time was held to be unnecessary and therefore not ancillary to its creation. 138 Ancillary Restrictions Notice (2005) (n 106), para 42. 139 Ibid., para 43. 140 Ibid.

141 Case No COMP/M.1913 – Lufthansa/Menzies/LGS/JV, Commission Decision of 29 August 2000 (Lufthansa/Menzies/ LGS/JV), para 18 (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m1913​_en​.pdf – accessed 21 November 2023).

142 Ancillary Restrictions Notice (2005) (n 106), para 36; Case No IV/M.1042 – Eastman Kodak/Sun Chemical, Commission Decision of 15 January 1998, para 40 (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m1042​_19980115​ _310​_en​.pdf – accessed 21 November 2023); Case No IV/M.727 – BP/Mobil, Commission Decision of 7 August 1996, para 51 (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m727​_en​.pdf – accessed 21 November 2023) – joint venture agreement provided that each of BP and Mobil will not carry on or be concerned or interested within the territory any business similar to or likely to be in competition with any part of the joint venture’s business for the duration of the joint venture; Case No IV/M.751 – Bayer/Hüls, Commission Decision of 3 July 1996, para 31 (https://​eur​-lex​.europa​.eu/​ legal​-content/​EN/​TXT/​PDF/​?uri​=​CELEX:​31996M0751 – accessed 21 November 2023); Ahold/ICA Förbundet/Canica (n 136), para 26.

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7.117 In the same way as for acquisitions of the whole or part of an undertaking, non-competition obligations in joint venture arrangements must match the products, services and territories covered by the joint venture agreement. If they extend beyond the geographical area in which the parents offered the relevant products or services before establishing the joint venture, they are unlikely to be regarded as ancillary.143 A non-compete obligation can be regarded as ancillary if it covers territories where the parent companies have at the time of the transaction already invested in preparation to enter.144 Similarly, non-competition clauses can include products and services at an advanced stage of development at the time of the transaction, as well as products and services which are fully developed but not yet marketed.145 7.118 Non-solicitation and confidentiality clauses are evaluated in the same way as non-competition covenants.146 The Commission is therefore likely to view non-solicitation clauses as directly related and necessary to the implementation of the joint venture provided they are confined to the duration, geography and products covered by the joint venture agreement.

IV. REMEDIES 7.119 Where the Commission has identified concerns in its assessment of a transaction under the EU Merger Regulation, the parties may propose remedies to resolve those competition concerns.147 In most cases, commitments in relation to remedies will be implemented following clearance, but there may be occasions where this happens before a clearance decision.148 The Commission has published a notice explaining its approach to remedies under the merger control regime.149 The governing principle is that the remedies proposed must resolve the possibility that the transaction may significantly impede effective competition. 7.120 Although the Commission may not impose conditions unilaterally (i.e., it is for the parties to suggest appropriate remedies), it may make suggestions.150 Where a need for remedies is

143 Lufthansa/Menzies/LGS/JV (n 141), para 18; Case No COMP/M.2243 – Stora Enso/Assidoman/JV, Commission Decision of 22 December 2000, para 49, last sentence (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​ m2243​_en​.pdf – accessed 21 November 2023). 144 Ancillary Restrictions Notice (2005) (n 106), para 37. 145 Ibid., para 38.

146 Ibid., para 41; Dow/Enichem Polyurethane (n 132), para 28 ‘non-solicitation clause may be evaluated, by analogy to the non-compete obligations, as necessary to guarantee the transfer to the acquirer of the full value of the assets transferred’.

147 A concentration that significantly impedes effective competition is incompatible with the common market and the Commission is required to prohibit it. Under the merger regulation it is the Commission’s responsibility to show that a concentration would significantly impede competition. If it does so, the transaction can be cleared only if commitments capable of resolving its concerns are offered.

148 Commission notice on remedies acceptable under Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation), OJ [2004] L 24/1; and under Commission Regulation (EC) No 802/2004, OJ [2008] C 267/1 (Remedies Notice), paras 4–6 (https://​eur​-lex​.europa​.eu/​legal​ -content/​EN/​ALL/​?uri​=​CELEX​%3A52008XC1022​%2801​%29 – accessed 1 December 2023). 149 Remedies Notice, ibid.

150 General Electric/Honeywell GC (n 2), para 52; and Case T-97/05 EDP – Energias de Portugal, SA v Commission of the European Communities [2005] ECR II-3745 (ECLI:EU:T:2005:333), para 105.

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identified, the Commission prefers structural remedies, in particular divestitures151 rather than behavioural remedies.152 This arises in part because of the difficulty of monitoring compliance with behavioural commitments. In addition, as the EU Courts have pointed out, the purpose of the EU Merger Control Regime is to ensure competitive market structures and remedies must be designed to achieve that aim.153 Sometimes, however, a behavioural commitment (for instance not to use trademarks or to grant access to essential facilities on non-discriminatory terms), may also be capable of remedying the identified harm to competition.154 The key is to avoid the creation or strengthening of a dominant position leading to a significant impediment to competition. Only commitments which will avoid such an outcome may be accepted. Where the Commission has identified concerns it is for the parties to offer appropriate com- 7.121 mitments. In principle the parties will need to describe what the commitment is; explain why it is suitable to remove the competition concerns; and provide information about any business (including any IPR or brands) to be divested.155 If the proposed remedies do not eliminate the competition concern entirely, the Commission must prohibit the concentration.156 A. Types of Remedies 1. Licence agreements

Where a divestiture is feasible, this will ordinarily be preferable to granting a licence to IPRs.157 7.122 This will avoid potential concerns such as possible influence being exercised by the licensor over the licensee’s conduct and the potential for disputes about terms or implementation and scope of the licence. Divestiture is particularly likely to be preferred where the competition concerns arise from the market position covered by IPRs, since divestitures avoid a lasting relationship between the merged entity and its competitors.158 The divestiture of brands and licences may 151 Remedies Notice (n 148), paras 15–17.

152 In practice, the Commission has considerable flexibility in deciding how commitments are structured: Case T-177/04 easyJet Airline Co. Ltd v Commission of the European Communities [2006] ECR II-1931 (ECLI:EU:T:2006:187) (easyJet v Commission), para 197.

153 Case C-12/03 P Tetra Laval BV v European Commission [2005] ECR I-987 (ECLI:EU:C:2010:280), para 86; EU Merger Regulation (n 6), Recital 8.

154 Case T-102/96 Gencor Ltd v Commission of the European Communities [1999] ECR II-753 (ECLI:EU:T:1999:65) (Gencor v Commission GC), para 319. See also for a discussion of the relevant principles, albeit now not completely up to date, Ariel Ezrachi, ‘Behavioural Remedies in EC Merger Control – Scope and Limitations’ (2006) 29(3) World Competition (Kluwer Law International) 459–479. See also Jones and Weinert (n 7), particularly Chapter 2 of Simon Vande Walle, Legal framework and criteria for assessing remedies.

155 Form RM, introduced by Commission Regulation (EC) No 1033/2008 of 20 October 2008 amending Regulation (EC) No 802/2004 implementing Council Regulation (EC) No 139/2004 on the control of concentrations between undertakings OJ [2008] L 279/3, specifies the content to be included in a remedies offer.

156 Gencor v Commission GC (n 154), para 316; Remedies Notice (n 148), para 8; Case T-282/02 Cementbouw Handel & Industrie BV v Commission of the European Communities [2006] ECR II-319 (ECLI:EU:T:2006:64), para 307; and EU Merger Regulation (n 6), Recital 30. 157 Remedies Notice, ibid., para 38.

158 Ibid.; Case No COMP/M.6459 – Sony/Mubadala/EMI Music Publishing, Commission Decision of 19 April 2014 (divestiture of rights in musical works with covenant not to solicit authors) (https://​ec​.europa​.eu/​competition/​mergers/​ cases/​decisions/​m6459​_4326​_2​.pdf – accessed 21 November 2023) ; but cf, Gencor v Commission GC (n 154), para 319; Case T-114/02 BaByliss SA v Commission of the European Communities (ECLI:EU:T:2003:100), para 170 (on their face, behavioural commitments may be effective to prevent creation or strengthening of dominant position).

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be an acceptable ‘structural’ remedy in some instances.159 The Commission will need to be persuaded that either the brands and other assets being transferred already constitute a viable business or, exceptionally, that the package put together as the basis for the commitment will be sufficient to allow effective competition, and that the business created will be immediately viable.160 7.123 Paragraphs 61–69 of the Remedies Notice are relevant to commitments which diverge from the Commission’s preferred divestiture model. That notice states that the Commission will accept such commitments only where the commitment proposed has effects at least equivalent to a divestiture.161 Examples given in the Remedies Notice of circumstances in which the Commission may accept licence-based remedies include where requiring divestiture would impede efficient, current research or would be impossible because of the nature of the business.162 When offered as commitments in lieu of divestment, licences will normally need to be exclusive and contain neither field of use nor geographical restrictions. They should enable the licensee to compete as effectively with the parties as if a divestiture had taken place.163 Where there is uncertainty about the scope of licensed rights necessary to allow competition from the licensee, the parties to the transaction will have to divest the underlying IPR to ensure that sufficient rights are transferred. The parties may then obtain a suitable licence back. 7.124 The Commission has accepted remedies granting third parties access to patents, knowhow, information required for interoperability,164 television content,165 or other IP where the licences granted are considered to be at least as effective in restoring competition as divestiture or where 159 Case No M.5721 – Otto/Primondo Assets, Commission Decision of 16 February 2010, para 103 (sale of trademarks, trademark applications, and domain names together with customer data of home-shopping business was a structural remedy) (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m5721​_20100216​_20212​_en​.pdf – accessed 21 November 2023); and Case No COMP/M.1806 – AstraZeneca/Novartis, Commission Decision of 26 July 2000 (https://​ ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m1806​_en​.pdf – accessed 21 November 2023). Para 37 of the Remedies Notice, ibid., is sceptical of such remedies, describing them as sufficient only in exceptional cases. 160 Remedies Notice, ibid., para 37; see, e.g., Case COMP/M.3779 – Pernod Ricard/Allied Domecq, Commission Decision of 24 June 2005 (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m3779​_20050624​_20212​_en​.pdf – accessed 21 November 2023). 161 Remedies Notice, ibid., para 62.

162 Ibid., para 38. See, e.g., Case No COMP/M.2972 – DSM/Roche Vitamins, Commission Decision of 23 July 2003 (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m2972​_en​.pdf – accessed 21 November 2023); and Case No IV/M.555 – Glaxo/Wellcome, Commission Decision of 28 February 1995 (https://​ec​.europa​.eu/​competition/​mergers/​ cases/​decisions/​m555​_en​.pdf – accessed 21 November 2023). 163 Remedies Notice, ibid., para 38.

164 Case No COMP/M.3083 – GE/Instrumentarium, Commission Decision of 2 September 2003 (GE/Instrumentarium) (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m3083​_en​.pdf – accessed 21 November 2023); Case No COMP/M.2861 – Siemens/Draegerwerk, Commission Decision of 30 April 2003, OJ [2003] L 291/1 (https://​eur​-lex​ .europa​.eu/​legal​-content/​EN/​TXT/​PDF/​?uri​=​CELEX:​32003D0777 – accessed 21 November 2023).

165 Case No COMP/M.2876 – Newscorp/Telepiu’, Commission Decision of 2 April 2003, OJ [2004] L 110/73, paras 225 ff (access to content, platform and technical services for pay-TV network) (https://​ec​.europa​.eu/​competition/​ mergers/​cases/​decisions/​m2876​_en​.pdf – accessed 21 November 2023); Case No COMP/JV.37 – BskyB/Kirch Pay TV, Commission Decision of 21 March 2000, affirmed in Case T-158/00 Arbeitsgemeinschaft der öffentlich-rechtlichen Rundfunkanstalten der Bundesrepublik Deutschland (ARD) v Commission of the European Communities [2003] ECR II-3825 (ECLI:EU:T:2003:246) (ARD v Commission GC); Case No M.7194 – Liberty Global/Corelio/W&W/De Vijver Media, Commission Decision of 24 February 2015 (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m7194​ _20150224​_20600​_4264271​_EN​.pdf – accessed 21 November 2023).

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the access remedies/licences form part of a combined package of measures to reduce entry barriers.166 As discussed above, the control of technology or IPR may lead to concerns about possible fore- 7.125 closure in a downstream market.167 One example mentioned in the Remedies Notice is where information is necessary for interoperability. Foreclosure concern in such cases can be resolved by a commitment to grant access to the necessary information.168 Similar considerations arise where undertakings commonly cooperate by licensing patents to each other and there are concerns that, owing to changed incentives after the transaction, the merged entity may not provide licenses to the same extent. Commitments to continue to grant licences on the same basis can remove this concern.169 In such circumstances, the Commission is likely to require that future non-exclusive licences should be made available to third parties who are dependent on access. Licences offered by way of commitment must be effective to remedy the competition concern 7.126 identified and must not contain terms or conditions that would impede the implementation of an effective remedy. This implies that the terms and conditions on which the licence is to be granted must be known at the time the remedy is accepted. According to the Remedies Notice, if no pre-existing terms and conditions are available, their content should be clearly apparent from the commitments. This might require the use of a pricing formula or even the grant of royalty free licences.170 Licences granted in normal market circumstances (outside the context of remedies discussions) 7.127 may contain obligations on the licensee to provide the licensor with information about the downstream market. Such obligations may be problematic in the context of licences offered to remedy a concern about a merger if they would transmit competitively sensitive information to the licensor about the activities of those with whom it competes downstream. The Remedies Notice provides that licences offered by way of commitments must exclude the provision of confidential information about the competitive behaviour of licensees who are active competitors in the downstream market.171 To be effective, such commitments must include suitable procedural provisions to enable effective monitoring and enforcement.172 In practice, much of the monitoring will be done by those who require access. This means that it is important to provide a means for timely enforcement. Offering fast dispute resolution through arbitration 166 Remedies Notice (n 148), paras 61–65. 167 Ibid., para 65.

168 For example, Case No COMP/M.6564 – ARM/Giesecke & Devrient/Gemalto/JV, Commission Decision of 6 November 2012 (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m6564​_20121106​_20212​_2779342​_EN​ .pdf – accessed 21 November 2023). 169 See Case COMP/M.3998 – Axalto/Gemplus, Commission Decision of 19 May 2006 (https://​ec​.europa​.eu/​competition/​ mergers/​cases/​decisions/​m3998​_20060519​_20212​_en​.pdf – accessed 21 November 2023). 170 Remedies Notice (n 148), para 65. 171 Ibid., para 65,

172 Ibid., para 66; see, e.g., Case No COMP/M.2803 – Telia/Sonera, Commission Decision of 10 July 2002 (https://​ ec​.europa​.eu/​competition/​mergers/​cases1/​202209/​M​_2803​_8193668​_59​_6​.pdf – modified by https://​ec​.europa​.eu/​ competition/​mergers/​cases1/​202209/​M​_2803​_8193674​_62​_5​.pdf – both accessed 21 November 2023); Case No COMP/M.2903 – DaimlerChrysler/DeutscheTelekom/JV, Commission Decision of 30 April 2003 (https://​ec​.europa​.eu/​ competition/​mergers/​cases/​decisions/​m2903​_20030430​_600​_en​.pdf – accessed 21 November 2023).

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(together with trustees) will be important in persuading the Commission of the likely effectiveness of the remedy.173 7.128 If the Commission can conclude that the mechanisms in the commitments will allow market participants to enforce the remedies effectively, no permanent monitoring of the commitments by the Commission is required. The Commission would only intervene where parties do not comply with solutions resulting from dispute resolution mechanisms.174 7.129 A recent example of a transaction in which IP remedies were not accepted as suitable to resolve the Commission’s concerns was the Illumina/GRAIL acquisition discussed above.175 In that case, the competition concerns revolved around innovation in a vertical context and focused particularly on input foreclosure. The key concern was that the acquirer (Illumina) would deny rivals of the target (GRAIL) access to Illumina’s market leading NGS systems. The Commission had identified high barriers to entry including IP litigation by Illumina as it sought to enforce its IPRs against those seeking to develop or market NGS systems which could provide alternatives for competitors to GRAIL. 7.130 Illumina offered remedies intended to address the concerns about barriers to entry and about input foreclosure. The Commission did not accept the commitments offered on the basis that they did not enable the Commission to conclude that competition would be preserved on a lasting basis. The Commission decided that the proffered commitments did not fully remove Illumina’s ability or incentives to foreclose GRAIL’s rivals and would not have prevented the transaction’s detrimental effect on competition.176 7.131 Illumina had offered a commitment aimed at reducing IPR barriers to entry by agreeing: first, to stop patent lawsuits against a particular rival NGS supplier for three years; and secondly, to offer a licence to some of Illumina’s patents to rival NGS suppliers. The Commission concluded that it was not possible to accept these commitments as they: would not have ensured the emergence of a credible alternative to Illumina for GRAIL’s rivals in the short to medium term. The patent licence would have only had a limited impact because the covered patents were due to expire in the short term, and because Illumina has many other patents that competitors would need to develop an alternative NGS system.

7.132 The Commission also found that even if the IP barriers to entry were sufficiently reduced or removed, this would not be sufficient to address the competition concerns owing both to other entry barriers and also to the significant costs and uncertainties for customers in switching from Illumina’s established and proven products.

173 The Commission wants to be sure that the remedies will be effectively implemented and with timely enforcement options. If the commitments are too complex or require regular monitoring by the Commission they are more likely to be rejected: ARD v Commission GC (n 165), paras 212, 295 and 352; and easyJet v Commission (n 152), para 186, discusses arbitration clauses. 174 ARD v Commission GC, ibid., paras 212, 295 and 352.

175 Illumina/GRAIL Commission Decision (n 70). It is also worth considering the concerns expressed by the CMA about the licensing remedies originally offered in the Microsoft/Activision transaction (n 12) (which was cleared by the Commission subject to licensing commitments – Microsoft/Activision Commission Press Release (n 83). 176 Illumina/GRAIL Commission Press Release (n 71).

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This reinforces the point that IP remedies offered to address entry barrier concerns need to be 7.133 crafted carefully to ensure that the remedy offered will be effective to remove those barriers, allowing the possibility for true alternatives to emerge. If the removal of those barriers leaves other significant barriers, the remedies are unlikely to be sufficient. As well as offering IP related remedies to address entry barrier concerns at the upstream level, 7.134 Illumina had also offered a supply-based remedy (to last for ten years) to address concerns about foreclosure downstream. This was also deemed to be insufficient as it would not address all of the Commission’s concerns (e.g., as to Illumina’s ability to degrade technical support to third parties), would be easy to circumvent and would be difficult to monitor. 2. Re-branding

The Commission will, exceptionally, accept commitments from the merging parties to grant 7.135 a third party an exclusive, time-limited licence for a brand. The purpose of such an arrangement is to allow the licensee to encourage customers to move from the licensed brand to a new brand which will be developed or supported over a period of time, creating a viable competitor. By requiring the licensee to re-brand, the product in a specified period177 this remedy falls short of full divestiture and allows the merged entity to retain ownership of the original brand. Such a remedy carries greater risks that effective competition will not be maintained or restored 7.136 than would be involved in a full divestiture. To increase the licensee’s prospects of success in establishing itself as an effective competitor through its re-branded product, the parties may also commit not to use the brand for a further period after the expiry of the initial licence (the blackout phase). This should give the licensee a chance to transfer customers to its own brand. To be acceptable as a commitment, both the licence term and the blackout period must be sufficiently long to render the re-branding remedy effectively similar to a divestiture.178 A re-branding remedy carries higher risks for restoring effective competition than a divestiture 7.137 because the licensee may not succeed in establishing itself as an active competitor. As a result, the brand to be transferred must be widely used and well-known.179 To ensure that the remedy is viable may also require a transfer of knowhow or a licence of part of the assets needed to produce or distribute products under the licensed brand.180 The licence will need to be exclusive and comprehensive, including necessary IPRs to ensure customers will recognise the familiarity 177 Remedies Notice (n 148), para 40.

178 For example, taking into account the life cycle of products, c.f. Case No COMP/M.2621 – SEB/Moulinex, Commission Decision of 11 November 2003 (SEB/Moulinex) (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m2621​ _20031111​_590​_en​.pdf – accessed 21 November 2023), para 141, where effectively the duration of the commitments covered a period equal to about three product life cycles; confirmed by judgment of CFI in Case T-119/02 Royal Philips Electronics NV v Commission of the European Communities [2003] ECR II-1433 (ECLI:EU:T:2003:101), para 112. 179 Case No COMP/M.3544 – Bayer Healthcare/Roche (OTC), Commission Decision of 19 November 2004, para 59 concerning the divestiture of the Desenex brand (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m3544​ _20041119​_20212​_en​.pdf – accessed 21 November 2023). 180 Case No COMP/M.3149 – Procter&Gamble/Wella, Commission Decision of 30 July 2003, para 60 (https://​ec​ .europa​.eu/​competition/​mergers/​cases/​decisions/​m3149​_en​.pdf – accessed 21 November 2023); Case No IV/M.623 – Kimberly-Clark/Scott Paper, Commission Decision of 16 January 1996, OJ [1996] L 183/1 para 236(i) (https://​eur​-lex​ .europa​.eu/​legal​-content/​EN/​TXT/​PDF/​?uri​=​CELEX:​31996D0435 – accessed 21 November 2023). This is particularly important during the licence phase while the licensee needs to prepare for the launch of a new competitive brand.

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of the re-branded product. The merging parties will not be allowed to undermine the effect of the re-branding exercise by using similar words or signs.181 7.138 The Remedies Notice highlights that the identity of the potential licensee is also a key factor for the success of a rebranding commitment. If there is uncertainty about suitable licensees being available and capable of carrying out the re-branding exercise, the parties may consider concluding a licence during the merger control procedure if possible, rather than offering a prospective commitment, so as to give the Commission comfort about the feasibility of the remedy and reduce its competition conerns.182 3. Interoperability

7.139 The Commission has shown itself to be concerned that concentrations do not reduce interoperability where this is a parameter of competition in an affected market. This can have consequences for IPR – particularly in relation to software copyright. Some examples of cases in which remedies to ensure interoperability have been accepted are given below. 7.140 The merger between Intel (leading producer of central processing units (CPUs) and chipsets) and McAfee, (a provider of IT security and anti-virus software solutions) was cleared subject to commitments.183 The Commission was concerned that Intel would have the ability to degrade the interoperability of its hardware with security solutions provided by McAfee’s rivals. The underlying issue was the potential for Intel to give McAfee preferential access to its CPU development. As a result, McAfee’s rivals might no longer be viewed as effective competitors for IT security and anti-virus software solutions for use with computers using Intel chipsets. To address this concern, Intel agreed to disclose instructions and interoperability information on a transparent and royalty free basis. 7.141 Similarly, the merger between US conglomerate General Electric and Finnish medical system manufacturer Instrumentarium184 gave rise to concerns about possible foreclosure of the markets for patient monitors and CIS (Clinical Information Systems). The Commission was concerned that any reduction in interoperability following the transaction could ultimately foreclose competing companies, resulting in higher prices and reduced choices for hospitals. 7.142 In response, General Electric committed to keep interfaces ‘open’ by agreeing to provide interface options in accordance with industry practice and accepting an obligation to ensure that interface information and necessary data were available free of charge for those wishing to develop and maintain open interfaces.

181 Remedies Notice (n 148), para 41; Case No COMP/M.2337 – Nestlé/Ralston Purina, Commission Decision of 27 July 2001, para 68 (https://​ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m2337​_en​.pdf – accessed 21 November 2023); SEB/Moulinex (n 178), para 141. 182 Remedies Notice, ibid., para 42.

183 Case No COMP/M.5984 – Intel/McAfee, Commission Decision of 26 January 2011 (https://​ec​.europa​.eu/​competition/​ mergers/​cases/​decisions/​m5984​_1922​_2​.pdf – accessed 21 November 2023). 184 GE/Instrumentarium (n 164).

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In the acquisition by Cisco of Finnish video communications solutions supplier Tandberg,185 7.143 the Commission considered that a lack of sufficient interoperability between alternative solutions meant that Tandberg’s competitors already had difficulties in ensuring interoperability with Cisco’s systems. The Commission was also concerned about the terms of an existing licence agreement offered by Cisco to ensure interoperability with the Cisco video communications solution. It considered that this licence gave Cisco a significant time and technology advantage, reducing the ability of other market participants to differentiate between themselves or to keep pace with Cisco. As Tandberg and Cisco were considered to be each other’s closest rival worldwide, the Commission was concerned that the merger would exacerbate these pre-existing concerns. Cisco committed to divest to an independent industry body the rights in its proprietary inter- 7.144 operability protocol. It also committed to offer royalty free licences to third parties during the period before that divestment took effect. The Commission regarded this combination of commitments as a structural remedy addressing the interoperability concerns. 4. Access to data

Access to data (or an inability to access data) can have similar effects as IPRs or lack of 7.145 interoperability information in some circumstances. Again, remedies may be offered and, if appropriately crafted, may be acceptable. Similar fundamental considerations will apply to the design of such remedies. Some examples of remedies offered in cases where data was of potential concern are given below. One difference between data and IP which emerges clearly from the Commission’s practice is the ability for data (and data sets) to be replicated in some circumstances, meaning that the mere acquisition of data may not always give rise to significant foreclosure concerns and that access rights may not always be an appropriate remedy. In Google/DoubleClick,186 the Commission considered whether the combination of the parties’ 7.146 data sets would allow the merged entity to achieve a position that could not be replicated by its competitors. DoubleClick was the market leader in advertising-side and publisher-side ad serving. It collected significant data each time an ad was served. Google in turn collected considerable data on browsing behaviour. The concern was that the combined data controlled by the merged entity would allow it to link individual users’ search history to past web surfing behaviour, potentially enabling more highly targeted ads to be served. The Commission was initially concerned that competitors unable to match this offering would become marginalized, enabling the merged entity to raise its prices.187 However, the fact that DoubleClick’s contracts prevented it from using data it had collected to 7.147 improve serving to advertisers other than the particular advertiser on behalf of which the particular data was generated and collected affected the Commission’s ultimate decision.188 While 185 Case No COMP/M.5669 – Cisco/Tandberg (2010), Commission Decision of 29 March 2010 (https://​ec​.europa​.eu/​ competition/​mergers/​cases/​decisions/​m5669​_2153​_2​.pdf – accessed 21 November 2023).

186 Case No COMP/M.4731 – Google/DoubleClick, Commission Decision of 11 March 2008 (Google/DoubleClick) (https://​ ec​.europa​.eu/​competition/​mergers/​cases/​decisions/​m4731​_20080311​_20682​_en​.pdf – accessed 21 November 2023). Some of the merger control decisions where data was a consideration have subsequently been criticized. 187 Ibid., pp 95–96. 188 Ibid., p 67.

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it recognized that these contracts could be renegotiated, the Commission concluded that there would be limited ability and incentive to do so as advertisers would not be willing to let other advertisers have access to data collected on their behalf. 7.148 The Commission also noted that data of the type held by DoubleClick was readily available to competitors as it could be purchased easily from third parties.189 It concluded that the acquisition would not significantly impede effective competition and that no remedies were required. 7.149 In Microsoft/LinkedIn,190 the main concern was that Microsoft would pre-install LinkedIn on Windows PCs and integrate it with Microsoft Office, making it harder for new professional networking services to be developed. The Commission was also initially concerned about the effect of the transaction on the market for customer relationship management software solutions on the basis that Microsoft might deny competitors access to the full LinkedIn database, preventing them from developing advanced functionalities through machine learning. The Commission finally concluded that access to the full LinkedIn database was not essential to compete and that Microsoft faced strong competitors in any event.191 7.150 The Commission also analysed the market for online advertising services, to assess whether competition concerns arose from the concentration of user data that could be used for advertising purposes in the hands of Microsoft and LinkedIn. On the facts, the Commission was satisfied that the transaction would not reduce the amount of data available to third parties (neither Microsoft nor LinkedIn had ever made data available to third parties for advertising purposes) and that large amounts of user data were available on the market from other sources.192

V. CONCLUSION 7.151 The review and control of mergers (or concentrations) to prevent significant lessening of competition and consequential anticompetitive outcomes has become an increasingly important aspect of competition law enforcement, not only in the EU but worldwide. This chapter has given only a brief overview of this complex area of law and practice. 7.152 It is apparent from the brief discussion above that IPR has a role to play in the review of many concentrations, being relevant to the acquisition and maintenance of market power, to defining relevant and affected markets and in the context of remedies. It is also clear that this role is particularly crucial in sectors of fundamental importance to a modern economy, where innovation and dynamic competition are key. 7.153 The importance of IPR as both an aspect of market power and a remedy to potential anticompetitive outcomes has become particularly apparent over the last five or six years with greater focus on innovation aspects of mergers and the willingness of the Commission (and other 189 Ibid., p 97.

190 Case M.8124 – Microsoft/LinkedIn, Commission Decision of 6 December 2016 (https://​ec​.europa​.eu/​competition/​ mergers/​cases/​decisions/​m8124​_1349​_5​.pdf – accessed 21 November 2023). 191 Ibid., see pp 53–60, in particular recitals 273–276. 192 Ibid., recitals 176–181.

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merger control authorities including those in the US and the UK) to pursue innovation related theories of harm in novel contexts, including in vertical mergers. Overall, however, the issues that arise from the acquisition, ownership and licensing of IPR 7.154 are similar in the context of merger control as in other aspects of EU competition law and an understanding of the general principles discussed in Chapter 1 and of the application of those principles under Articles 101 and 102 TFEU will stand the reader in good stead also when considering the competition law implications of a structural change in the market.

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CHAPTER 8 IPR/COMPETITION LAW ISSUES IN THE PHARMACEUTICAL SECTOR I. INTRODUCTORY REMARKS 8.01 II. ARTICLE 101 AND IPR IN THE PHARMACEUTICAL SECTOR8.38 A. R&D/Product Development 8.41 B. Licensing Following the Research Phase 8.48 1. Post-expiry royalties 8.52 a. The early decisions 8.53 b. Ottung v Klee – the first Court case8.57 c. Ottung v Klee confirmed 8.64 d. The implications of the case law 8.68 e. What if a simple right to terminate is not commercially feasible?8.77 f. Summary 8.86 2. Grant back obligations 8.93 C. Co-marketing, Co-promotion and Authorized Generics 8.98 D. Parallel Trade 8.110 E. Agreements at the Time of Generic Entry8.117 F. Agreements to Coordinate Higher Prices8.121 III. LITIGATION AND SETTLEMENTS 8.131 A. Lundbeck8.136 1. Potential competition 8.145 2. By object 8.156 B. Paroxetine8.165 1. Potential competition 8.168 a. Relevance of the market context8.168 b. Factual considerations 8.169 2. Patent issues 8.171 3. By object 8.175 a. Market features 8.176 b. Patent/settlement specific issues8.178 c. Agreement/factual specific issues8.182 d. Potential counter-arguments/ scope of the patent 8.186 e. Relevance and assessment of procompetitive effects in

‘by-object’ analysis 8.189 By effects – effect of uncertainty – counterfactual8.191 C. Servier8.194 D. Cephalon/Teva8.206 E. Pay For Delay – Summary 8.210 IV. ARTICLE 102 TFEU AND IPR IN THE PHARMACEUTICAL SECTOR 8.214 A. Some Concepts 8.214 B. Dominance 8.215 1. Relevance of the Anatomic Therapeutic Classification 8.216 2. Market definition in generics/ Paroxetine – the relevance of patents 8.237 3. Dominance and IPRs in pharma 8.244 C. Abuse 8.253 1. The abuse of patent/regulatory procedures8.253 a. AstraZeneca8.254 b. Pfizer Italy – divisional patents 8.280 c. Reckitt Benckiser – UK – exclusionary strategy 8.285 d. Boehringer Ingelheim – Commission – misuse of patent system8.288 e. Teva/Copaxone – Commission – misuse of divisional patents 8.291 f. Denigration – Commission – Teva/Copaxone; Vifor/ Pharmacosmos8.297 g. Spain – CNMC – Merck Sharp and Dohme misuse of legal procedures/withholding information8.300 h. Use of blocking patents – Switzerland/EU – Novartis/Eli Lilly8.302 2. Pay for delay and other exclusionary strategies8.304 a. Les Laboratoires Servier (Servier)8.305 b. Paroxetine/generics8.309

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IPR/COMPETITION LAW ISSUES IN THE PHARMACEUTICAL SECTOR

I. INTRODUCTORY REMARKS The way in which competition law affects the pharmaceutical sector has some quirks owing to 8.01 the nature of the sector, including the regulatory environment within which pharmaceuticals are manufactured, marketed and supplied.1 This has been commented on in case law: ‘In the pharmaceutical sector, competitive relationships respond to mechanisms which differ from those determining competitive interactions normally present in markets which are not so heavily regulated.’2 As far as the application of competition law is concerned, two further specific considerations 8.02 are important: ● obtaining and enforcing intellectual property rights (IPRs) (and other means of protecting exclusivity) is regarded as fundamental to long-term success in the pharmaceutical sector;3 and ● the pharmaceutical sector is characterized by undertakings operating on an international basis while supplying products into largely national markets. Before moving to a review of the specific application of competition law in the pharmaceutical 8.03 sector, it is worth reflecting briefly on these two features to consider how competition law might take them into account.

1

2 3

This chapter inevitably cannot deal with all the relevant aspects of the pharmaceutical industry in detail. For a thorough review of the law in Europe relating to pharmaceuticals readers may wish to consult Trevor Cook, Cook: Pharmaceuticals Biotechnology and the Law (3rd edn, LexisNexis Butterworths, 27 June 2016 – the 4th edn expected mid-2024) (Cook) or the less up-to-date, but still useful Maria Isabel Manley and Marina Vickers (eds), Navigating European Pharmaceutical Law: An Expert’s Guide (Oxford University Press, 24 September 2015). Three important resources which will assist immeasurably in understanding the sector and the approach of the EU authorities to the enforcement of competition law over the last 15 years are: the Final Report on the 2009 Pharmaceutical Sector Enquiry, COM(2009) 351 final, adopted 8 July 2009 (https://​data​.consilium​.europa​.eu/​doc/​document/​ST​-12097​-2009​-ADD​-1/​en/​pdf – accessed 29 November 2023) (the 2009 Pharma Report) and the Commission’s follow up report to the EU Council and the European Parliament in 2019 (the 2019 Pharma Report). This Report can be accessed at https://​op​.europa​.eu/​en/​ publication​-detail/​-/​publication/​9cb466c8​-7b71​-11e9​-9f05​-01aa75ed71a1, where it is available as a downloadable pdf (accessed 29 November 2023). This was updated in January 2024 by European Commission, Directorate-General for Competition, Update on competition enforcement in the pharmaceutical sector (2018–2022) – European competition authorities working together for affordable and innovative medicines – Report from the Commission to the Council and the European Parliament, Publications Office of the European Union, 2024, (the 2024 Pharma Report) which can be accessed at https://​op​.europa​.eu/​en/​publication​-detail/​-/​publication/​4607d76b​-bf28​-11ee​-b164​-01aa75ed71a1 where it is available as a downloadable pdf – accessed 19 April 2024. That most recent report is not dealt with in this book, owing to its recent publication, but the underlying themes remain the same as in 2009 and in the 2019 Pharma Report.

Case T-321/05 AstraZeneca AB and AstraZeneca plc v European Commission (ECLI:EU:T:2010:266) (AstraZeneca GC), upheld on appeal Case C-457/10 P (ECLI:EU:C:2012:770) (AstraZeneca CJEU).

That is so particularly for those bringing new medicines to market, but increasingly generic manufacturers also have patent portfolios which may cover dosing regimens, manufacturing processes and other aspects of manufacture and delivery.

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8.04 Those who develop new drugs and bring them to market rely on the protection provided by intellectual property (IP) law (patents and SPCs4 particularly) to protect their investment.5 This was accepted by the Commission in 2009: Intellectual property rights are a key element in the promotion of innovation. The protection of intellectual property rights is important to all sectors of economic life and is paramount to Europe’s competitiveness. However, it is particularly important for the pharmaceutical sector … The exclusivity periods granted through patent law and other mechanisms (SPC, data exclusivity) provides incentives to originator companies to continue innovating.6

8.05 The importance of innovation, and the desire to ensure that long-term incentives to innovate are not undermined by short-term considerations, has been recognized by the European Commission (Commission) more generally. It has observed: Competition usually induces companies in a market with a given technology to offer the best products at the lowest prices. However, it is innovation which causes product markets to change as improved products and production processes are introduced, leading to greater consumer satisfaction and lower production costs.7

8.06 Competition law has a role to play in driving developments in innovation as well as other aspects of product and service. The core of the debate is about the extent to which competition enforcement of the sort seen over the last 15 or 20 years stimulates innovation or, alternatively, whether over-active intervention on competition grounds (and particularly when IPRs are in play) might chill such innovation. Nowhere is that debate more intense, nor the stakes higher, than in the pharmaceutical sector. Deciding on the best policy balance of initial innovation and follow on developments in medicine and healthcare can be intensely political, driven by economic and industrial considerations particular to specific jurisdictions. For example, political and economic considerations driving policy choices will differ depending on whether the jurisdiction in question has traditionally had many companies primarily working in pharmaceutical research and development or, alternatively, a long history of supporting follow on development and generic production. Differing policy stances may flow from budgetary concerns, or because protection of innovation in pharmaceuticals was not deemed appropriate.8

4

5

6 7 8

According to the explanatory memorandum accompanying the Commission’s April 2023 proposal for a unitary SPC: Supplementary protection certificates (SPCs) are sui generis intellectual property (IP) rights that extend the 20-year term of patents for medicinal or plant protection products (PPPs) by up to 5 years. They aim to offset the loss of effective patent protection due to the compulsory and lengthy testing required in the EU for the regulatory marketing authorisation of these products. Brussels, 27.4.2023 COM(2023) 222 final (the April 2023 SPC proposal) at p 1. As mentioned previously, the role of IP in stimulating innovation is not universally accepted.

Communication from the Commission, Executive Summary of the Pharmaceutical Sector Inquiry Report, 8 July 2009 (Sector Inquiry Executive Summary), p 2.

Organisation for Economic Co-operation and Development (OECD), Directorate for Financial and Enterprise Affairs: Competition Committee, Roundtable on Competition, Patents and Innovation, Note by the Delegation of the European Commission (2 June 2009, DAF/COMP/WD (2009) 52) (the Note to the OECD), para 7. In some European countries pharmaceutical products could not be patented until the second half of the 20th century. In Italy, e.g., pharmaceutical patents were prohibited until 1978 and patents for pharmaceutical products were introduced in Spain only in 1986. This is discussed in Michele Boldrin and David K. Levine, The Pharmaceutical Industry. In Against Intellectual Monopoly (Cambridge University Press, 2008, doi:10.1017/CBO9780511510854.009, pp 212–242).

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It is for competition advocates and authorities to try to reach an acceptable policy outcome, 8.07 balancing competing interests and expectations. In 2013, in the context of significant competition-focused intervention in the pharmaceutical sector by the EU authorities, the then Vice President of the Commission responsible for competition policy, observed: In their different ways, both the patent system and the system that enforces competition law in the EU pursue common goals. A well-functioning IPR system can in fact promote competition by encouraging firms to invest in innovation. And both competition policy and the intellectual-property protection system do contribute to create the right framework for innovators.9

These statements are now regarded as uncontroversial at a high level of generality. However, 8.08 the detailed implementation of competition law may not always be aligned with the operation of the IP system. In part this is because of the way in which competition law incentivizes innovation is different, but it also reflects the fact that the timeframe within which competition enforcement operates in practice is much shorter than that of the IP regime. In some instances, competition law initiatives may reflect dissatisfaction with aspects of the way in which the IP regime operates.10 Such issues of legal policy may seem remote from daily business decisions and legal analysis. 8.09 However, the way in which policy debates evolve into enforcement priorities can be crucial particularly in a sector where the pressures to provide ever greater value for money alongside the imperative to develop complex therapies for an ageing population are at the core of the industry’s place in society. A further key feature of the way in which the pharmaceutical sector interacts with EU law is 8.10 the inescapable fact that Europe still has many separate national markets for pharmaceuticals. Those markets are supplied primarily by companies operating across borders (and often globally), in the context of a system of competition law which has as a key goal the creation and maintenance of a single regional market.11

9

Speech/13/1042 Commissioner Joaquin Almunia, Intellectual property and competition policy, 9 December 2013.

11

In addition, until recently it was a geographically disparate area across which national IPRs and enforcement regime played a significant role, inevitably leading to a degree of single market fragmentation. Recent efforts by the EU to mitigate this concern include the April 2023 SPC proposal (n 4) and the adoption and implementation of the Unitary Patent System and the Unified Patent Court about which the Commission recently said: As regards patent policy, one of the actions mentioned in the Action Plan relates to the launch of the Unitary Patent System. The Unitary Patent, together with the Unified Patent Court (UPC), will enter into force on 1 June 2023. This new powerful tool for European companies, and especially SMEs, will create a one-stop-shop for patent protection and enforcement in the EU. Commission Press Release IP/23/2454, Intellectual property: Harmonised EU patent rules boost innovation, investment and competitiveness in the Single Market, 27 April 2023 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​IP​_23​_2454 – accessed 29 November 2023). The Unified Patent Court began to carry out its functions in the late summer of 2023.

10

For example, a degree of dissatisfaction with some of the prosecution procedures relating to divisional patents can be observed running alongside recent competition complaints, and consequent Commission actions (see paras 8.288–8.296 below) and similar considerations can be seen playing out in the context of enforcing and licensing SEPs where policy initiatives and competition enforcement are evolving in parallel (alongside developments in national law) (see para 9.159 ff below).

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8.11 As discussed previously,12 the EU policy that has had the most direct effect on the development of EU competition law has been the drive to achieve a single market and to remove barriers to trade between EU Member States. Market integration was the original rationale for the EU; the fundamental and original purpose of the entire edifice of EU law was, and to a large extent remains, the creation of a single trading bloc in which artificial barriers to trade are removed and services, goods, capital and workers are able to move without hindrance from government regulation (the so-called ‘four freedoms’). Formal legal harmonization of the rules which govern market participation was a crucial step to establishing the four freedoms as a practical reality. In parallel with legislative harmonization, the goal of market integration has been pursued by prohibiting private conduct that might maintain or restore barriers to interstate trade. 8.12 The impact of this underlying policy on the pharmaceutical sector was first felt in the context of IPRs enforcement. The EU Courts over time established limits on the use of national IPRs to prevent the movement of products from Member State to Member State through the application of the principle of Community (now ‘Union’) Exhaustion.13 The market integration goal has also directly affected the application of competition law in the pharmaceutical sector under both Article 101 TFEU and under Article 102 TFEU. The precise effects are discussed in more detail below. 8.13 When considering how competition law may affect the conduct of pharmaceutical companies in the EU when obtaining, enforcing, and licensing IPRs and related rights, the potential impact of this focus on market integration should never be overlooked: its continuing importance in a competition law context has been reflected in CJEU judgments: The Court has, moreover, held … in relation to the application of Article [101 TFEU] and in a case involving the pharmaceuticals sector, that an agreement between producer and distributor which might tend to restore the national divisions in trade between Member States might be such as to frustrate the Treaty’s objective of achieving the integration of national markets through the establishment of a single market. Thus, on a number of occasions the Court has held agreements aimed at partitioning national markets according to national borders or making the interpenetration of national markets more difficult, in particular those aimed at preventing or restricting parallel exports, to be agreements whose object is to restrict competition within the meaning of that article of the Treaty.14

8.14 In addition to those overarching considerations, other relevant features of the pharmaceutical sector include the market specific considerations summarized briefly below and discussed further, as far as relevant, in the remainder of the chapter.15

12

See para 1.87 ff above.

14

Joined Cases C-501/06 P and others GlaxoSmithKline Services Unlimited, formerly Glaxo Wellcome plc v Commission of the European Communities and Others [2009] ECR I-9291 (ECLI:EU:C:2009:610) (Glaxo (Spain)), para 61.

13

15

Discussed at para 1.96 ff.

For discussion of many of these complex topics readers may wish to refer to specialist textbooks such as: Cook (n 1); Wolf Sauter, Marcel Canoy and Jotte Mulder (eds), EU Competition Law and Pharmaceuticals (Edward Elgar Publishing, 15 November 2022); Sally Shorthose (ed), Guide to EU and UK Pharmaceutical Regulatory Law (8th edn, Wolters Kluwer, January 2023).

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This is an industry which spends proportionately more on R&D than most others.16 However, 8.15 as many have noted: ‘… most research leads nowhere. The few winners must pay for all the losers’17 and the trend of greater research spend resulting in fewer successful products has not been positive. The OECD found in 2019 that ‘… given the increase in R&D expenditure, the number of approvals per inflation-adjusted R&D spending has declined steadily’.18 The impact of high R&D activity and the commercial need to protect any results is directly 8.16 reflected in the extent of the IPR portfolios of pharmaceutical companies, including sui generis rights specific to the pharma sector (such as SPCs,19 regulatory data protection,20 paediatric21/ orphan drug22 extensions). As explained above, such protection is regarded by the industry as important to its incentives to invest, given that the marginal cost of manufacturing conventional pharmaceuticals is usually low.23 16 See, e.g., OECD, Health at a Glance 2019: OECD Indicators (OECD Publishing, Paris) (https://​doi​.org/​10​.1787/​ 4dd50c09​-en – accessed 26 August 2023) which noted that: On average across OECD countries, the industry spent nearly 12% of its gross value added on R&D. This is almost as high as in the electronics and optical and air and spacecraft industries, and considerably higher than across manufacturing as a whole and that ‘… Expenditure on R&D in the pharmaceutical industry in OECD countries grew by 14% in real terms between 2010 and 2016. For a detailed (and more recent) discussion of EU pharmaceutical R&D spend, together with an overview of its importance in the EU see the Commission Communication COM(2020) 761 final, Pharmaceutical Strategy for Europe, Brussels, 25 November 2020, which noted that in the EU ‘Medicine producers made the biggest contribution to research investment in 2019, with over €37 billion.’ (p 3). 17 18 19

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21

22

23

Rt Hon Sir Robin Jacob, ‘Competition Authorities Support Grasshoppers: Competition Law as a threat to Innovation’ (2013) 9(10) Competition Policy International (https://​fordhamipinstitute​.com/​wp​-content/​uploads/​2015/​11/​6A​-2​ -Jacob​-Robin​-paper​.pdf – accessed 22 November 2023). Health at a Glance 2019: OECD Indicators (n 16). Explained above at (n 4).

This is explained by the European Federation of Pharmaceutical Industries and Associations (EFPIA, which is a trade body for the European Pharmaceutical Industry) as follows: In order to obtain a marketing authorisation, pharmaceutical companies need to submit extensive data relating to preclinical and clinical trials to demonstrate the quality, efficacy and safety of the medicine to be approved. Regulatory data protection (RDP) protects innovative companies’ investment in generating this extensive body of data through a limited period of exclusivity on the data, starting from marketing authorisation. (https://​www​.efpia​.eu/​about​-medicines/​development​-of​-medicines/​intellectual​-property/​ – accessed 22 November 2023).

The Paediatric Regulation came into force in the European Union (EU) on 26 January 2007. Its objective is to improve the health of children in Europe by facilitating the development and availability of medicines for children aged up to 17 years. Regulation (EC) No 1901/2006 of the European Parliament and of the Council of 12 December 2006 on medicinal products for paediatric use, OJ [2006] L378/1, provides incentives to pharmaceutical companies who undertake the work necessary to bring a paediatric product to market by offering a potential extension of the SPC and a possible two years of market exclusivity for paediatric orphan medicinal products.

The EU Orphan Regulation (Regulation (EC) No 141/2000 of the European Parliament and of the Council of 16 December 1999 on orphan medicinal products, OJ [2000] L18/1), was adopted in 2000 to encourage the development of treatments for rare diseases by providing incentives to pharmaceutical companies. See https://​www​.eurordis​ .org/​information​-support/​list​-of​-the​-marketing​-authorisations/​orphan​-medicines​-regulation/​ – accessed 22 November 2023. While the costs of developing and marketing biosimilars may be proportionately greater than those of generic pharmaceuticals owing to their more complex molecular structure, some similar dynamics exist and an equivalent effort to encourage their development and use has been made within the EU. For a discussion of some of the issues, see Avantika Chowdhury, Adriano Barbera and Sam Carr, Biosimilar Competition: An Economist’s Perspective (1st edn, Oxera Consulting LLP, published in GCR’s Guide to Life Sciences, 21 October 2022).

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8.17 The way in which patent law interacts with the particularities of the pharmaceutical sector are not discussed in detail in this text, save where it is important to understand the outcome of a particular competition law intervention.24 However, it is important to recognize at a high level that the varying nature of the inventions for which patents can legitimately be obtained, the complexity of patent law and prosecution procedures and the lengthy and complex discovery, development and life cycle of pharmaceutical products all affect competition.25 8.18 By way of example, it is useful to be aware that it is rare for a new pharmaceutical product to be covered by only one form of exclusivity. Looking only at patents (as opposed to SPCs, regulatory data exclusivity, etc), it is common for an originator product26 to be the subject of a ‘compound’ patent covering the active ingredient (there may be several patents covering the same basic compound for different medical uses) as well as other patents which cover patentable innovations relating to, for example, different methods of manufacturing the medicine; different dosage regimes; different ways of delivering the medicine (by injection, orally, slow-release variations etc); and varying compositions of the product (e.g., using different salts or esters of the original compound). All such innovations qualify for patent protection as long as they satisfy the criteria for patentability. These are helpfully summarized on the website of the European Patent Office (EPO) and may be worth setting out here as an aide-mémoire – although as with competition law, apparently simple concepts can require a great deal of scrutiny (and often judicial assistance) to apply in practice. 8.19 The EPO website provides the following basic information (internal references removed):27 There are four basic requirements for patentability: (i) (ii) (iii) (iv)

there must be an ‘invention’, belonging to any field of technology; the invention must be ‘susceptible of industrial application’; the invention must be ‘new’; and the invention must involve an ‘inventive step’.

A technical character is an implicit requisite for the presence of an ‘invention’ … Furthermore, • the invention must be such that it can be carried out by a person skilled in the art (after proper instruction by the application); and

24

25

26 27

A provocative discussion of the position of patents in the pharmaceutical sector and the role of competition law (although now a little out of date) can be found in the Rt Hon Sir Robin Jacob, Patents and Pharmaceuticals – a Paper given on 29th November at the Presentation of the Directorate-General of Competition’s Preliminary Report of the Pharma-sector inquiry (https://​ec​.europa​.eu/​competition/​sectors/​pharmaceuticals/​inquiry/​jacob​.pdf – accessed 22 July 2023). See also (n 17) above. A discussion between Sir Robin and the authors of Against Intellectual Monopoly (n 8), would be extremely interesting.

A lengthy discussion describing the Commission’s understanding of the varying species of patents and of patenting strategies in the pharmaceutical industry can be found in sections B.2, C.2.1 and D of the 2009 Pharma Report (n 1). Some aspects of this report are now out of date, but it is fundamental to an understanding of what has happened over the last 15 years. Section 3.2.1 of the follow-up report from the Commission on Competition Enforcement in the Pharmaceutical sector (2009–2017) also contains some comments on this interrelationship (2019 Pharma Report (n 1)). Similar comments can be found in the 2024 Pharma Report (n 1). As defined in the Glossary to the 2009 Pharma Report (n 1).

Guidelines for Examination in the European Patent Office, March 2023 edition, Part G – Patentability, 1 Patentability Requirements (https://​new​.epo​.org/​en/​legal/​guidelines​-epc/​2023/​g​_i​_1​.html – accessed 22 July 2023).

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IPR/COMPETITION LAW ISSUES IN THE PHARMACEUTICAL SECTOR • the invention must relate to a technical field and must have technical features in terms of which the matter for which protection is sought can be defined in the claim.

In the pharmaceutical sector, patents which do not relate to the compound itself are some- 8.20 times referred to as ‘secondary patents’.28 The Commission has observed more than once that such additional patents may make it more difficult for generic competition to occur once the patent over the active ingredient (plus any relevant further protection such as an SPC) has expired.29 One feature of all forms of legislative market exclusivity is, as pointedly noted by the Commission, that ‘they are limited in time, and thus allow the entry of generic medicines at the end of the exclusivity’.30 The Commission regards this limitation in time as critical for effective competition. Quite separately from the patent regime, pharmaceuticals are highly regulated products. They 8.21 can be placed on the market only if they comply with a complex approvals process involving, for example, obtaining marketing authorizations (MAs) from relevant authorities (both central and national, with a variety of types of procedure). There is significant public interest both in ensuring that new medicines are developed and 8.22 in ensuring optimal affordability for public health budgets. This means that pharmaceutical products also encounter a degree of price regulation. Before they can be marketed it is necessary to seek approval from pricing/transparency authorities in each jurisdiction (e.g., NICE in England & Wales; CEPS in France; AIFA in Italy). Within the EU, each Member State retains exclusive competence for pricing and reimbursement policies for pharmaceutical products, and a variety of different regimes operates throughout the EU. Pricing regulation is affected by complex considerations and can be influenced by the existence of mechanisms (such as reference pricing) which result in indirect pricing effects between countries, depending on the prices set in a particular State or basket of States. The intertwined reality of national markets and national price regulation leads to significantly varied prices around the EU, giving rise to scope for parallel trade which pharmaceutical companies may meet by efforts to prevent arbitrage.31

28

29

30 31

The use of this term by the Commission in the 2009 Pharma Report (n 1), was criticized by some market participants. See fn 710, where the Commission’s comment was: This term is being used by the report, as it constitutes part of the terminology employed by stakeholders in this sector and thus is key to understanding the stakeholders’ behaviour and practices. It is important to underline that from a patent law perspective each patent has to fulfil the criteria: (1) novelty, (2) inventive step and (3) industrial application. The underlying interventions of the applicant are irrelevant under patent law. For further details see also Chapter A, explaining the use of terminology. It is notable, however, that the case law of the CJEU has established that such patents do not constitute absolute barriers to entry and that pharmaceutical markets may be regarded as open to competition once the compound patent has expired. This is discussed in the context of the existence of potential competition between originator and generics suppliers below at paras 8.145 ff and 8.168 ff. 2019 Pharma Report (n 1), p 20.

See, e.g., Case T-41/96 Bayer AG v Commission of the European Communities [2000] ECR II-3383 (ECLI:EU:T:2000:242) (Bayer (Adalat)); Joined Cases C-468/06 to C-478/06 Lélos kai Sia EE and Others v GlaxoSmithKline AEVE Farmakeftikon Proïonton [2008] ECR I‑07139, 65–66 (ECLI:EU:C:2008:504) (Glaxo Greece); and Glaxo (Spain) (n 14), on the topic of parallel trade discussed below at para 8.110.

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8.23 A further complexity is that often the party making the purchasing decision for a particular medicine in an individual case is not the end-consumer (patient), but rather the health service (or insurer), except for non-prescription (over the counter or OTC), medicines. In addition, distribution is through a variety of channels including pharmacists, primary care, OTC, hospitals, generic and homecare providers while products may be supplied upstream by wholesalers and find their way to market directly through a channel supplied and supported by the manufacturer/supplier or via parallel traders. 8.24 These factors lead to specific market dynamics, to which it is necessary to add the particular dynamic that exists between new products, usually covered by a patent covering the compound (supplied by ‘originator’ companies) and generic products. Today it is increasingly difficult to draw a clear distinction between undertakings which are ‘pure originators’ and ‘pure generics’. Many pharmaceutical undertakings supply both types of product although some undertakings use different subsidiaries to address these different sectors.32 The distinctions can be more difficult to draw in practice than might be thought and it now probably makes most sense to think about originator and generic products rather than originator and generic companies. 8.25 The Glossary contained in the 2009 Pharma Report33 distinguished the two categories of product as follows (internal references omitted): ‘Generic’ is defined as a medicinal product which has the same qualitative and quantitative composition in active substances and the same pharmaceutical form as a reference (originator) medicinal product and whose bioequivalence with the reference medicinal product has been demonstrated. … The term ‘generic’ also includes biosimilars, unless otherwise specified. ‘Originator’ is defined as a novel drug that was under patent protection when launched onto the market.

8.26 No definition of ‘novel drug’ is provided by the 2009 Pharma Report Glossary (although it does contain many useful definitions which are well worth reading), but a product which is based on or contains as its active ingredient a New Chemical Entity (NCE)34 or a New Molecular Entity (NME)35 is very likely to be a novel drug and therefore an originator product. 8.27 A discussion of the overall competitive relationship between originator and generic products goes beyond the scope of this chapter, but it is significantly affected by the fundamental economics of the pharmaceutical industry, including the very substantial cost and time involved in bringing an originator product to market versus the relatively minor cost of launching a generic.36 For so long as the originator product has patent protection, prices can be kept at a level

32 33

34 35 36

In many instances the same undertaking may have established separate originator and generic companies, with different names and branding, sometimes selling different products for the same therapeutic use. See (n 1).

Glossary, 2009 Pharma Report (n 1): ‘“New Chemical Entity” (NCE) refers to a new chemical substance, duly authorised by the competent authority, that has not been previously available for therapeutic use in human beings’.

Ibid., ‘“New Molecular Entity” (NME) refers to a new chemical or biological substance, duly authorised by the competent authority, that has not been previously available for therapeutic use in human beings’.

At least for traditional, as opposed to biological or bio-engineered products where the costs and difficulties of entry with a biosimilar are likely to be significantly higher. This distinction was discussed at paras 1519 and 1520 of the 2009 Pharma Report, ibid. However, the Commission concluded that ‘… biosimilar medicines, like generic versions of

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reflecting to some degree37 the underlying economics of innovation, development, regulatory involvement, and supply. Once a generic is launched substantial price drops tend to follow. This is encouraged by regulation, such as obligations on doctors to prescribe generically where possible and other incentives for switching, together with the low marginal cost of manufacturing traditional pharma products. Generic products are an important part of the EU pharmaceutical landscape: ‘The Community 8.28 institutions regard access to generic medicines as one of the objectives of Community pharmaceutical legislation and policy’.38 However, from a policy perspective, the need to achieve a balance between rewarding and incentivizing innovations while ensuring a reduction in the price of medicines to some optimum level is extremely difficult. In 1998, Commission noted that, despite the single market imperative: … establishing an appropriate level of price across the Community would prove extremely difficult: low levels would benefit immediate health care expenditure objectives (at least in the Member States where prices are currently high) but would provoke a steady diminution of Europe’s contribution to global pharmaceutical R&D investment, leading ultimately to disinvestment from the European economy. High levels would reduce access to consumers and payers in those countries where economic and social conditions mean that such prices cannot be afforded.39

The 2009 Pharma Report40 reviewed the operation of the sector and investigated many of 8.29 the practices which have subsequently been the subject of competition law enforcement (by National Competition Authorities (NCAs) as well as DG Comp). When it was published, it

37

38

molecule-based medicines, are lower-priced versions of an originator medicine and their market entry can be affected by the deployment of the tool-box-instruments’.

The economics of the pharmaceutical sector are complex and much disputed (in detail at least). The description in this chapter is vastly simplified to give a flavour of the underlying incentives and the competitive tensions. A useful overview on many of the issues relevant to understanding the sector is Huseyin Naci and Robin Forrest, A Primer on Pharmaceutical Policy and Economics (London School of Economics/The Health Foundation, March 2023) (https://​www​.health​.org​ .uk/​sites/​default/​files/​2023​-03/​report​_1​_a​_primer​_on​_pharmaceutical​_policy​_and​_economics​_final​.pdf – accessed 22 November 2023). Chapter 2 considers research and development issues and the role played by the patent system.

Case COMP/A.37.507/F3 – AstraZeneca, Commission Decision of 15 June 2005 (AstraZeneca Commission Decision), para 113 (https://​ec​.europa​.eu/​competition/​antitrust/​cases/​dec​_docs/​37507/​37507​_193​_6​.pdf – accessed 29 November 2023), referring to the Commission Communication on the single market in pharmaceuticals, COM (98) 588 final, 25 November 1998, particularly p 15 (https://​eur​-lex​.europa​.eu/​legal​-content/​EN/​TXT/​PDF/​?uri​=​CELEX:​ 51998DC0588 – accessed 15 November 2023) and the Council Conclusions of 29 June 2000 on Medicinal Products and Public Health, OJ [2000] C 218/10, para 8 (https://​eur​-lex​.europa​.eu/​LexUriServ/​LexUriServ​.do​?uri​=​OJ:​C:​2000:​218:​ 0010:​0011:​EN:​PDF – accessed 15 November 2023).

39 Communication from the Commission on the single market in pharmaceuticals, ibid. This issue has continued to exercise policy makers in the EU. At the end of 2020, the Commission published a Pharmaceutical Strategy for Europe – see Commission Press Release IP/20/2173, Affordable, accessible and safe medicines for all: The Commission presents a Pharmaceutical Strategy for Europe, 25 November 2020 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​ip​_20​ _2173 – accessed 22 November 2023). In April 2023 this was followed by a proposed overhaul of existing pharmaceutical legislation (https://​health​.ec​.europa​.eu/​medicinal​-products/​pharmaceutical​-strategy​-europe/​reform​-eu​-pharmaceutical​ -legislation​_en – accessed 22 November 2023) which aims, among other things to create a single market for medicines. A brief description of its purpose and structure can be found in the Commission Press Release IP/23/1843, European Health Union: Commission proposes pharmaceuticals reform for more accessible, affordable and innovative medicines, 26 April 2023, launching the package (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​IP​_23​_1843 – accessed 22 November 2023). 40

See (n 1).

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was both criticized and praised.41 However, even though it is now somewhat dated, the report continues to have considerable impact on the way in which the sector is viewed. For anyone with a real interest in this sector, familiarity with the report42 is crucial. 8.30 By way of brief introductory overview, the Pharma Sector Enquiry had its genesis in the Commission’s wish to have a better understanding of the specific features of the industry and how those influenced behaviour. It arose from two principal underlying concerns: (i) delays to generic entry; and (ii) an apparent diminution in innovation at originator level (this involved consideration of the ‘patent cliff’, which at that time was said to be facing many companies with significant innovation arms and the reduced numbers of new drugs being brought to market). The inquiry was billed as considering both originator-generic issues and originator-originator considerations. Subsequent competition law developments have focused almost entirely on originator-generic issues.43 8.31 The report identified a number of types of behaviour which the Commission regarded as problematic, many of which have subsequently been translated into competition investigation or enforcement. These included the identification of a ‘toolbox of instruments’ which could be used by originators to delay generic entry. The box included several ‘tools’ relating to the acquisition and enforcement of IPRs, including: ● the creation of ‘patent clusters’; ● the proliferation of second-generation patents and the opportunities those provided for originator companies to maintain market position; ● the way in which patent infringement litigation and settlements were pursued; ● how interventions before regulatory and pricing/reimbursement authorities took place and their impact; and ● references to ‘defensive’ patenting and patent strategies more generally. 8.32 The 2009 Pharma Report contained a competition law annex which noted, among other things, that the ‘E[U] competition rules do not call the existence of intellectual property rights into question’. As we shall see below, the Commission’s activities in the pharmaceutical sector since 2009 have frequently involved a review of the acquisition and use of IPR, albeit the existence of such rights as such has not been questioned. 8.33 The views expressed in the competition law annex to the 2009 Pharma Report led to action by the competition authorities within the EU, as summarized in the 2019 Pharma Report.44 This report to the Parliament and the Council re-emphasized that competition law enforcement and

41

42

43 44

More information, and a flavour of the debate can be found in articles published at the time, of which there are many. See, e.g., André den Exter, ‘The Pharmaceutical Sector Inquiry: “Hamlet” in a Nutshell’ (2010) 17 European Journal of Health Law 125–138; Dominik Schnichels and Satish Sule (both officials in DG Comp), ‘The Pharmaceutical Sector Inquiry and its Impact on Competition Law Enforcement’ (2010) 1(2) Journal of European Competition Law & Practice 93–111. As with the 2019 and 2024 Pharma Reports (n 1).

Although other EU initiatives have arisen from other aspects of the concerns identified in the 2009 Pharma Report (n 1) – see, e.g., Commission Communication COM(2020) 761 final, Pharmaceutical Strategy for Europe, 25 November 2020, and the subsequent proposed new legislative package discussed above at (n 39). See (n 1).

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market monitoring in the pharmaceutical sector had been a high priority across the EU since the 2009 Pharma Report and provided an overview of the activities of the Commission and the Member State NCAs in the sector. It also provided a useful overview of the features of the pharmaceutical sector relevant to competition law considerations.45 The 2019 Pharma Report reiterated the Commission’s view that, notwithstanding its activities 8.34 over the previous ten years, the pharmaceutical sector continued to require scrutiny under the competition rules (including the mergers regime) so as to facilitate the achievement of the same two main goals as identified in 2009, namely: ● improving access to cheaper medicines (primarily by focusing on removing practices that inhibited generic entry, but also by directly examining allegations of excessive pricing46); and ● improving access to new (innovative) medicines (through merger control interventions and by reviewing conduct relating to the use of patents or other attempts to raise barriers to entry). The 2019 Pharma Report concluded that in the ten years since the 2009 Pharma Report com- 8.35 petition authorities across the EU had investigated around 130 alleged infringements in the pharmaceutical sector and had adopted 29 competition law infringement decisions.47 As at that date, more than 20 cases remained under investigation (some of which continue at the date of writing). In the field of merger control, the Commission explained that it had reviewed around 80 proposed transactions and had identified competition concerns in about a quarter of those which had required some modification of the deal in return for clearance.48 By 2019, it was clear that a sector unused before the mid-2000s to any significant compe- 8.36 tition law intervention had been subject to much increased competition law enforcement in the previous decade. Some of the cases involved (as acknowledged by the Commission), ‘anti-competitive practices that had previously not been addressed under EU competition law’.49 The pace of intervention and change shows little prospect of slowing down soon, given the Commission’s closing comment in its executive summary: ‘Effective enforcement of EU competition rules in the pharmaceutical sector remains a matter of high priority and the 45 46

47 48

49

2019 Pharma Report, ibid., 3.1–3.2.2 contains an overview of the Commission’s perceptions of the particularities of the sector. The 2024 Pharma Report contains a very similar commentary.

As it is not a practice related to the use of IPRs, those cases are not addressed in this chapter, but are discussed in e.g., James Killick, Assimakis Komninos and Aqeel Kadri, ‘CMA v Flynn Pharma and Pfizer: Intel’s Influence Evident as Court of Appeal Clarifies ‘Excessive Pricing’ Test (UK)’ (2020) 11(7) Journal of European Competition Law & Practice 367–371 (https://​doi​.org/​10​.1093/​jeclap/​lpaa043 – accessed 22 July 2023), dealing with a case in the UK. See also the Commission Press Release IP/21/524, Antitrust: Commission accepts commitments by Aspen to reduce prices for six off-patent cancer medicines by 73% addressing excessive pricing concerns, 10 February 2021, following its settlement with Aspen Pharma (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​ip​_21​_524 – accessed 22 November 2023).

Information relating to the cases discussed in the 2019 Pharma Report (n 1), can be accessed at https://​competition​ -policy​.ec​.europa​.eu/​sectors/​pharmaceuticals​-health​-services/​cases​_en – accessed 29 November 2023. 2019 Pharma Report, ibid., section 2.2.3, p 14.

2019 Pharma Report, Executive Summary, ibid., p 1. Equivalent figures in the 2024 Pharma Report since 2018 are: 26 decisions under the competition rules and 70 other investigations of which 30 remain active; and 30 mergers reviewed, with significant concerns in five transactions, one of which was abandoned and four of which were cleared subject to remedies.

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competition authorities will continue to monitor and be pro-active in investigating potential anticompetitive situations.’ 8.37 The following sections consider the ways in which Articles 101 and 102 TFEU have been applied to the acquisition and exercise of IPRs in the pharmaceutical sector through a review of (mainly) EU case law to date.50

II. ARTICLE 101 AND IPR IN THE PHARMACEUTICAL SECTOR 8.38 Companies operating in the pharmaceutical sector enter into agreements which in most cases reflect those concluded in other industries. Chapters 2 to 5 discuss the application of competition law to common types of IPR agreements. Article 101 TFEU considerations of specific relevance to the pharmaceutical sector are dealt with below. For ease of reference the discussion begins early in the product life cycle and proceeds to discuss the agreements likely to be concluded as the original pharmaceutical product is launched, marketed, loses its exclusivity, and is ultimately faced by competition from generics.51 8.39 The pharmaceutical product life cycle was summarized in the 2019 report using Figure 8.1 below.52 8.40 This chart is a stylized representation of the various stages of the life of a medicine which follows a straightforward path. It is useful to have in mind when assessing any agreement in the sector. A. R&D/Product Development 8.41 The product life cycle begins with research. R&D accounts for a substantial percentage of most innovative companies’ budget. Developing a successful pharmaceutical product involves many stages. Basic research is the foundation. With the advent of therapies based on biotechnology such research has become increasingly specialized and initial research is often conducted by researchers independent of pharmaceutical companies53 (e.g., in universities or specialist research entities), as well as by the pharmaceutical companies themselves. The increasingly

50

51 52

2019 Pharma Report, ibid., at 2.3, p 14, also explains the other market monitoring and advocacy activities undertaken by the competition authorities. This included, e.g., more than 30 sector inquiries or other monitoring activities. A list of these activities which also includes related information can be found at https://​competition​-policy​.ec​.europa​.eu/​system/​ files/​2022​-05/​2019​_pharmaceuticals​_report​_monitoring​_advocacy​_actions​_2009​-2017​.pdf – accessed 29 November 2023. Similar information is provided at 2.3 of the 2024 Pharma Report. A general description of agreements in the sector can be found in the 2009 Pharma Report (n 1), paras 1246–1288. 2019 Pharma Report, Executive Summary (n 1), p 16.

53 Deloittes 2019 report on pharma innovation (https://​www2​.deloitte​.com/​content/​dam/​Deloitte/​uk/​Documents/​life​ -sciences​-health​-care/​deloitte​-uk​-ten​-years​-on​-measuring​-return​-on​-pharma​-innovation​-report​-2019​.pdf – accessed 28 July 2023) noted that the ratio of small molecules to biologics in the drug development pipeline was changing rapidly with biologics making rapid advances. Deloitte also noted that, notwithstanding the more challenging regulatory pathway which faces biosimilars, they have made considerable headway leading pharmaceutical companies to focus on so-called ‘next gen’ therapies which pave the way to personalized medicine.

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Source: EU Commission, 2019 Pharma Report, Executive Summary, p 16, Figure 5.

Figure 8.1

Pharmaceutical life-cycle (1)

specialized nature of pharmaceutical research has led to more collaboration as those involved seek to pool their knowledge.54 The business models of pharmaceutical companies vary, with some carrying out very substantial 8.42 basic research, while others prefer to outsource a considerable proportion, either through partnerships with independent entities or by acquiring the results of independent research. Most pharmaceutical companies now focus on a few specific therapeutic areas. Discoveries which have potential in other fields may be sold or licensed to others to develop and, if successful, commercialize (see below). Once a new chemical compound with therapeutic properties is identified it must be tested for 8.43 safety and efficacy. This testing involves pre-clinical trials, followed by three rounds of clinical trials. In the unusual case that a product is successful in moving through the R&D phase, it is then placed on the market (which requires time and further regulatory steps including the acquisition of an MA and a pricing/reimbursement decision from the relevant national authorities).

54 Examples of such collaborations became well known during the Covid pandemic, with partnerships between, e.g., AstraZeneca and the University of Oxford and between Pfizer and BioNtech at the forefront of the effort to develop vaccines.

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8.44 During the R&D phase, joint research and/or development agreements may be concluded. This may involve true joint working or the outsourcing of some phases of the research and development life cycle. In addition, large pharmaceutical companies may at any stage purchase or in-license the knowhow, data and IP developed by others. In some cases they purchase the company itself. Such acquisitions may be reviewed under the EU or national merger control regime. Increasingly, concern about the potential effect on innovation of acquisitions in the biopharma sector has been expressed as discussed in Chapter 7. 8.45 Where collaboration takes place, the rules in the Research and Development Block Exemption (R&DBE),55 the Specialisation Block Exemption (SBE)56 and the Commission’s Horizontal Guidelines57 may be relevant. The general application of those regimes is discussed in Chapter 5. 8.46 As explained in Chapter 5, collaboration which involves only basic research or is early stage/ blue sky may not be of any concern under the competition rules. In addition, arrangements between non-competitors are either likely to be outside the scope of the prohibition in Article 101(1) TFEU or usually capable of exemption. As the current R&DBE covers paid-for R&D as well as true collaborative working, it is capable of applying to most collaborations in the pharmaceutical sector which require an exemption. Specific rules apply to arrangements with academic institutes, research undertakings or undertakings whose focus is to provide research and development services as a business. These are often helpful in the context of pharmaceutical arrangements between pharmaceutical companies and specialist researchers as they reduce the barriers to collaboration by making the potential for exemption more easily available to such collaborations. 8.47 Before the new R&DBE was adopted in June 2023 there had been some concern that the Commission intended to limit its ‘safe harbour’ to circumstances in which parties who competed in innovation could establish that three or more competing R&D efforts existed. That proposal was criticized and ultimately removed from the regulation as adopted.58

55 Commission Regulation No 2023/1066 of 1 June 2023 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements, OJ [2023] l 143/9. 56 Commission Regulation 2023/1067 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of specialisation agreements, OJ [2023] L 143/20. 57 58

Commission Communication, Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements, C(2023) 3445 final, 1 June 2023 (https://​competition​-policy​.ec​.europa​.eu/​ system/​files/​2023​-07/​2023​_revised​_horizontal​_guidelines​_en​.pdf – accessed 25 October 2023). In the UK, however, the UK block exemption order for R&D requires that parties that compete in innovation can benefit only if they can show the existence of either: three or more comparable competing R&D efforts; or three or more third parties able to independently engage in equivalent R&D (https://​www​.legislation​.gov​.uk/​uksi/​2022/​1271/​contents/​ made – accessed 22 November 2023).

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B. Licensing Following the Research Phase The TTBER59 and related Technology Transfer Guidelines60 are the first stop when reviewing 8.48 pharmaceutical licensing agreements. If a licence contains potential restrictions on competition, concepts which are core to the application of the TTBER and the Technology Transfer Guidelines, such as the definition of markets; the assessment of market power; whether companies are actual or potential competitors; and when potential competition may be said to exist can be particularly difficult to apply in the pharmaceutical sector. Recent cases such as Lundbeck61 and Servier62 highlight some of these issues, albeit in the context of so-called ‘pay for delay’ arrangements. They are discussed in more detail below. Enforcement by competition authorities in relation to license agreements (outside the realm of 8.49 licences following settlements, which are discussed below) is rare in the pharmaceutical sector, as elsewhere. The Commission’s 2019 Pharma Report did not mention any licensing cases in its survey of the intervention decisions taken by European competition authorities.63 The only vertical restrictions mentioned related to issues such as provisions preventing distributors from selling the products of competing manufacturers. Despite the relative lack of attention by competition authorities, licensing agreements in the 8.50 pharmaceutical sector are, of course, subject to competition law considerations. The principal practical consideration for parties is the possibility that competition law may give rise to questions about the enforceability of licence provisions. As many licensing agreements in the pharmaceutical sector contain arbitration clauses, the way in which such disputes are resolved, and the issues which arise, are often not public. An exception is if an arbitral award is appealed,

59 60 61

Commission Regulation No 316/2014 of 21 March 2014 on the application of Article 101(3) of the TFEU to categories of technology transfer agreements, OJ [2014] L 93/17.

Commission Notice, Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union (TFEU) to technology transfer agreements, OJ [2014] C 89/3.

Case T-472/13 H. Lundbeck A/S and Lundbeck Ltd v European Commission (ECLI:EU:T:2016:449) (Lundbeck GC). Case C-591/16 P H. Lundbeck A/S and Lundbeck Ltd v European Commission (ECLI:EU:C:2021:243) (Lundbeck CJEU)/ (ECLI:EU:C:2020:428) (Lundbeck AG Opinion).

62 Case COMP/39.612 – Perindopril (Servier), Commission Decision of 9 July 2014 (Servier Commission Decision); Case T-691/14 Servier SAS and Others v European Commission OJ [2014] C 462/25 (ECLI:EU:T:2018:922) (Servier GC); Case T-684/14 KRKA v Commission (ECLI:EU:T:2018:918) (KRKA GC); Case C-201/19 P Servier and Others v Commission (ECLI:EU:C:2022:577) (Servier AG Opinion); and Case C-176/19 P Commission v Servier and Others and C-151/19P Commission v KRKA (Commission/Servier/KRKA CJEU) and Opinion of AG Kokott (ECLI:EU:C:2022:576) (Commission/Servier/Krka AG Opinion).

63 Those interested in licensing may wish to take a look at the periodic reports published by the Commission on its annual monitoring of patent settlements. The last such report (to date) concerned the period from January to December 2016, and was published on 9 March 2018 (Eighth Report on the Monitoring of Patent Settlements) and can be found at https://​competition​-policy​.ec​.europa​.eu/​system/​files/​2022​-05/​pharmaceutical​_sector​_inquiry​_patent​ _settlements​_report8​_en​.pdf). A list of all the Commission’s competition activities in the pharma sector can be found at https://​competition​-policy​.ec​.europa​.eu/​system/​files/​2022​-05/​2019​_pharmaceuticals​_report​_monitoring​_advocacy​ _actions​_2009​-2017​.pdf. The last page of this document lists the various patent settlement monitoring reports, but the links appear not to be working properly (access attempted 29 November 2023).

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as was the case in the Genentech v Hoechst64 licence arbitration, where the question of the enforceability of post-expiry royalty payments ultimately made its way to the CJEU. 8.51 Issues which are particularly likely to arise in licences of IP following the research phase include obligations to continue paying royalties for a period after expiry of licensed patents, or on products which make only indirect use of the licensed technology; obligations on the licensee to grant back improvements to the licensor; field of use limitations; the grant of exclusivity in particular territories; and the use of no challenge clauses. Each of these is discussed below. It will also be useful to refer back to the more general discussion in Chapters 2 to 5, particularly Chapters 3 and 4. 1. Post-expiry royalties

8.52 The lengthy pre-commercialization period required for new pharmaceutical products can mean that even products which benefit from an SPC (or other additional exclusivity such as a paediatric extension or orphan drug designation) as well as a patent may have only a fairly brief period during which the product is on the market and subject to exclusivity on the compound. Some patents, particularly those in-licensed early in the development phase, may expire shortly after commercialization – potentially a particular concern in the context of biotech. a. The early decisions

8.53 As explained in paragraphs 2.259 and following, before the adoption of the 2014 TTBER and Technology Transfer Guidelines, several Commission decisions held that an obligation to pay royalties beyond the expiry of licensed patents was, in most cases, regarded as anticompetitive. AOIP/Beyrard (1976)65 is a particularly interesting early decision. The agreement contained a provision obliging the licensee to continue paying the full royalty provided for in the licence even if (i) all the patents in force when the agreement was made had expired and (ii) the licensee was not making use of patents obtained after that date. The licensee had neither a right to terminate the agreement nor to challenge the validity of any patents, and the agreement was to last for the life of the most recent patent owned by the licensor, whether or not it was in force at the date of conclusion of the licence. 8.54 The licensor’s ability unilaterally to extend the life of the agreement by continuing to add patents with no ability for the licensee to object, to challenge those patents or to terminate the arrangement was held to infringe Article 101 TFEU. The Commission held that it would be unobjectionable for the parties to agree to extend the original term, but it was not acceptable to provide for extension by the unilateral act of one party. 8.55 The obligation to pay royalties after expiry of some of the licensed patents was also found to infringe Article 101(1) TFEU because: the licensee did not have the right to terminate the agreement; and because ‘maintenance of such an obligation for products or processes which have been manufactured or used under an expired patent … has the effect of burdening man-

64 Case C-567/14 Genentech Inc v Hoechst GmbH and Sanofi-Aventis Deutschland GmbH (ECLI:EU:C:2016:526) (Genentech v Hoechst).

65

76/29/EEC: Commission Decision of 2 December 1975 relating to a proceeding under Article 85 of the Treaty establishing the EEC (IV/26.949 – AOIP/Beyrard), OJ [1976] L 6/8 (AOIP/Beyrard (1976)).

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ufacturing cost without any economic justification and thereby weakening the competitive position of the licensee’. The question whether some of the later granted patents were being exploited by the licensee 8.56 was the subject of litigation before the French courts. The Commission considered that this was not a matter on which it could make a finding.66 However, the Commission decision also notes that if the licensee were found in fact to have exploited later patents after expiry of the originally licensed patents the French courts would be able to allow the licensor to claim a royalty under national law which corresponded to the ‘economic value of the patents’. This suggests that the Commission has in the past held the view that seeking to conclude an agreement which obliges licensees to pay more for licences than is justified by the ‘economic value of the patents’ may infringe Article 101(1) TFEU. The Commission’s decision implied that requiring a licensee to continue paying the same royalty when the number of patents (or possibly the type of licensed patent) had changed was not necessarily justified. This perhaps reflected a concern prevalent at the time about the potential undesirable effects of allowing the extension of any aspect of patent rights beyond their statutory limit. b. Ottung v Klee – the first Court case

The question of post-expiry royalties was first considered by the EU Courts in Ottung v Klee67 8.57 following a reference from the Danish Courts.68 The licence required the licensee to continue paying royalties after patent expiry, with no right to terminate the agreement, which lasted for an indeterminate period. The licensee was also subject to contractual restrictions on its freedom of action after termination. The Commission argued before the Court of Justice that there were only limited circumstances 8.58 in which royalties could extend beyond expiry, submitting that their payment after the patent has expired does not fall within Article 101(1) when that form of payment is adopted in order to facilitate payment or constitutes a means of calculating royalties. AG Tesauro considered the issue in some detail stating that ‘the obligation to pay the royalty is, as a rule, connected with the period of validity of the patent’.69 The AG also acknowledged that in licence arrangements the ‘detailed arrangements for making the payment may nevertheless differ considerably’ and, for example, that the: … total sum payable to the inventor might be divided into a large number of periodic instalments, some of which might therefore fall due after the expiry of the patent, or that rather than receiving a high percentage of the sale price of the product an inventor might prefer a lower percentage over a longer period of years.70

66 67 68 69

An early instance of the unwillingness of the EU competition authorities to consider issue of patent infringement or validity which comes to the fore in the pay for delay litigation discussed below at para 8.171.

Case 320/87 Kai Ottung v Klee & Weilbach A/S and Thomas Schmidt A/S [1989] ECR 1177 (ECLI:EU:C:1989:195) (Ottung v Klee CJEU). See discussion at para 2.263 et seq.

Ottung v Klee CJEU (n 67, Opinion of the Advocate General (AG) Tesauro (ECLI:EU:C:1989:34) (Ottung v Klee AG Opinion), para 11.

70 Ibid.

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8.59 As discussed above in paragraph 2.266, the AG envisaged that there would be two distinct steps in such an arrangement: deciding on the ‘value’ of the patent(s) or the ‘appropriate award’ for the licensor; and then an agreement as to how that value would be paid to the licensor. The AG stated that where these steps had not been taken (so that the parties’ view of the value of the patent and the royalty attributable to it was not established at the outset) an obligation to pay royalties beyond the expiry of the licensed patent constituted: … a supplementary payment to which the inventor is not entitled after the entry of the patent into the public domain … It is clear, however, that where the extension of the obligation to pay the royalty is for an indeterminate period … it will be difficult to rebut the strong presumption that the clause is unlawfully restrictive and that the exemption does not therefore apply.71

8.60 The judgment of the CJEU followed the opinion of the AG in substance although, as is usually the case (particularly when dealing with references from a national court), it was less detailed in its discussion of the underlying reasoning. The Court held: An obligation to continue to pay royalty after the expiry of a patent can result only from a licensing agreement which either does not grant the licensee the right to terminate the agreement by giving reasonable notice or seeks to restrict the licensee’s freedom of action after termination. If that were the case, the agreement might, having regard to its economic and legal context, restrict competition within the meaning of Article [101(1) TFEU]. Where, however, the licensee may freely terminate the agreement by giving reasonable notice, an obligation to pay royalty throughout the validity of the agreement cannot come within the scope of the prohibition contained in Article [101(1) TFEU].72

8.61 In other words, the Court’s view was that if the licensee can terminate the agreement freely and is under no onerous post-termination restrictions, an obligation to continue paying royalties after the expiry of a patent will not fall within the scope of the prohibition in Article 101(1) TFEU at all as the restriction and any potential anticompetitive effects can easily be avoided. However, post-expiry royalties might be anticompetitive if the licensee has no realistic prospect of escaping that obligation. It is possible to infer from this (although it is not explicit), that the CJEU considered that the licensee is likely to be receiving some value from the agreement if it continues to comply with it even though it could terminate it.73 The judgment states that an obligation in a licence to continue paying royalties after patent expiry without freedom to terminate may infringe Article 101(1) TFEU74 depending on the economic and legal context (including the presence of an effect on trade between member states).75 71

Ibid., para 14.

73

This chimes with the reasoning in AOIP/Beyrard (1976) (n 65), discussed above at para 8.53 ff, which linked the question of value to the legitimacy of continued obligations.

72

74 75

Ottung v Klee CJEU (n 67), para 13.

Note that the wording used by the CJEU in the operative part of the judgment is very similar to that it usually uses when ruling on ‘object’ restrictions, particularly those in a reference, when the factual context is a matter for the referring court.

It is worth noting that the Court also held explicitly that a contractual obligation on a licensee to stop manufacturing the licensed products after termination would infringe Art 101(1) TFEU if it stopped the licensee from doing something which its competitors were free to do once the patent had expired, subject again only to the legal and economic context in which the agreement was concluded. The Court presumed that such a provision would weaken the competitive position of the licensee. Ottung v Klee CJEU (n 67), para 18. There is some scope for an interesting discussion as to whether any licence containing post-expiry royalties which is not freely terminable without post-termination restrictions would also be presumed to infringe (subject to the legal and economic context in which it operates) unless it complied with the sort of approach envisaged by the AG in Ottung v Klee AG Opinion (n 69), i.e., a genuine attempt by the parties to assess the value of the patented technology in advance, that is then payable over an extended period. This would fit with

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Ottung v Klee remains good law and has subsequently been applied by the CJEU (see below). 8.62 However, some have questioned whether a provision requiring the payment of royalties for products which are beyond the scope of the licensed patents would now necessarily so readily be held to be anticompetitive. This view gained favour following the adoption of the 2014 TTBER and Technology Transfer Guidelines. These suggest that the parties are normally free to determine the royalty term under a technology licence without infringing Article 101(1) TFEU.76 Paragraph 187 of the Technology Transfer Guidelines explains that: Notwithstanding the fact that the block exemption only applies as long as the technology rights are valid and in force, the parties can normally agree to extend royalty obligations beyond the period of validity of the licensed intellectual property rights without falling foul of Article 101(1) of the Treaty. Once these rights expire, third parties can legally exploit the technology in question and compete with the parties to the agreement. Such actual and potential competition will normally be sufficient to ensure that the obligation in question does not have appreciable anti-competitive effects.

While this wording gives some comfort to those seeking to conclude licences providing for the 8.63 payment of royalties after patent expiry, some questions and difficulties remain. For example, the guidelines refer to the parties ‘normally’ being able to agree post-expiry royalties but does not on its face reflect the views of the CJEU in Ottung v Klee about the need for the licence to be freely terminable, unless it is to be inferred that ‘normally’ such an agreement allows for free termination. Given the comments of the AG in Ottung v Klee and of the Commission in earlier cases such as AOIP v Bernard, it may be that to avoid the risk of liability under Article 101(1) royalties to be paid over a period extending beyond the life of the patent royalties should also have some connection with ‘a commercial assessment of the value to be attributed to the possibilities of exploitation granted by the licensing agreement’77 so that they are a means of facilitating payment of the value so assessed.78 c. Ottung v Klee confirmed

The judgment in the Genentech v Hoechst79 licence dispute was the next consideration of this 8.64 issue by the CJEU. This dispute and the terms of the underlying licence became public only because the original arbitral award was appealed to the national court, which then sent a question to the CJEU by way of reference. The key issue was whether obligations to pay royalties would be anticompetitive when a product is not within the scope of a valid patent (e.g., after patent expiry or revocation/annulment of a patent; or if a product were found not to infringe licensed patents). The licensed technology in Genentech v Hoechst, related to the use of a human cytomegalovi- 8.65 rus enhancer (used to enable or facilitate the production of biological products). The licence

76 77

78 79

the language used by the Court in Ottung v Klee CJEU and would also reflect the concern which often pops up in EU competition law to ensure that patentees do not ‘extend’ their monopolies by seeking more than is justified by the actual scope of their legal monopoly, whether in time or amount. Technology Transfer Guidelines (n 60), para 184. Ibid., para 11.

See also Art 3(4) of the 1984 patent licensing block exemption and Art 2(1)(7) of the 1996 TTBER, both of which made specific reference to post-expiry royalties being acceptable where the obligation was imposed ‘in order to facilitate payment’. Genentech v Hoechst (n 64).

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covered two US patents and one EU patent. The licensee agreed to pay a one-off fee plus an annual research fee for the use of the licensed technology. It also agreed to pay a running royalty of 0.5 per cent on net sales of finished product. A royalty structure along these lines is not uncommon in the pharmaceutical sector. The licence provided that the licensee could terminate the agreement on notice of two months. Finally, the agreement did not contain any restrictions on what the licensee could do once the licence was terminated, nor did it prevent the licensee from challenging the validity and/or scope of the licensed patents. 8.66 The CJEU held that an obligation to pay royalties after expiry of a licensed patent could be acceptable under competition law at least as long the licensee can terminate the agreement on reasonable notice and the licensee is not limited in its commercial activities after the licence is terminated. 8.67 The CJEU also noted (as had been the case in Ottung v Klee, and in precisely the same words) that ‘the obligation to pay a royalty, even after the expiry of the period of validity of the licensed patent, may reflect a commercial assessment of the value to be attributed to the possibilities of exploitation granted by the licence agreement’.80 In Genentech v Hoechst, the commercial value was the licensee’s freedom to use the licensed technology without incurring the risk of a costly infringement action being brought by Hoechst (at the time of entering into the agreement, the licensed patents were expected to be in force for the entire period of the agreement, although they were later revoked). This had commercial value to Genentech and the royalty and other payments under the licence agreement were compensation for that freedom. d. The implications of the case law

8.68 The judgments in both Ottung v Klee and Genentech v Hoechst suggest that an obligation to continue to pay royalties after the expiry of patents will not fall within the scope of the prohibition in Article 101(1) TFEU provided the licensee: (i) is able freely to terminate the licence by giving reasonable notice, and (ii) that no post-termination restrictions are imposed. This is on the basis that if the licensee can freely terminate it will do so if it is no longer receiving the value for which it contracted. 8.69 It follows that post-expiry royalties in a licence which is of indeterminate length and does not permit the licensee freely to terminate (e.g., by imposing onerous post-termination restrictions) risk falling within the scope of the prohibition in Article 101(1) TFEU. 8.70 However, it is also reasonably clear that the prohibition can be escaped (even if such clauses in non-terminable licences might be argued to be ‘by object’ restrictions) if the obligation to pay royalties after the expiry of the licensed patent has a sufficiently procompetitive justification, such as enabling the licensor to receive the ‘value’ of the technology in circumstances where this would otherwise be very difficult owing to the nature of the sector. In other words, as with all potentially anticompetitive provisions (including those which are presumptively anticompetitive (‘by object’) provisions), the legal and economic context and any plausible procompetitive justifications will be relevant.81 In the pharma/biotech sector where patent licences may need

80 81

Ibid., para 39.

See the discussion of ‘by object’ infringements above at para 2.32.

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to be concluded far in advance of commercialization of any resulting product the surrounding circumstances are likely to be very relevant to any analysis. If the purpose of the royalties is to facilitate payment; and the payment provisions are a means 8.71 of metering payment; and the licence is freely terminable an obligation to continue paying those royalties for a period after patent expiry is unlikely to give rise to serious competition law risk. This view is supported by the various references in earlier Commission decisions and guidance to post-expiry royalties being acceptable where their purpose is to facilitate payment. However, a careful reading of the two judgments discussed above and of the respective AGs’ 8.72 Opinions in those cases suggests that some other considerations may be relevant: first, that the agreement does not contain a no challenge provision; and secondly, that the anticipated commercial value of the licence is reflected in the royalty but payment can be avoided if that value turns out not to exist: for example, if the patent is invalidated or contract products turn out not to infringe it so that the paying party is disadvantaged by continuing to pay royalties. If the licence turned out to have no value or the fees payable were not connected to the subject matter of the agreement, Windsurfing82 and Genentech v Hoechst83 suggest that Article 101(1) TFEU might (depending on all the circumstances) be infringed and Article 101(3) TFEU would then need to be considered. This does not mean that up-front payments are problematic, only that running royalties which 8.73 can continue to be charged once it is clear that the anticipated value has not materialized may be of concern. In Genentech v Hoechst,84 for example, there was no criticism of the up-front fee or of the annual research fee provided for in the licence. Milestone payments, which are payable only on achievement of particular outcomes, should also be acceptable if they are payable only as long as the patent remains in force/reads on the contract products. If they go beyond that, it might be arguable that the obligation should be freely terminable. If such an argument were to be made, its impact under Article 101(1) TFEU would depend on the facts and whether it could be demonstrated that the milestone payments represented the parties’ commercial assessment at the time of entering into the licence of the likely value to the licensee of timely access to the technology in enabling it to reach the milestones in question. Similar considerations would apply to ‘reach through’ licences, where payments for licences 8.74 to patents covering early-stage technology are metered on sales of final products in which the licensed technology is not present, and which are not covered by the licensed patents, or where it may be unclear whether this is the case.85 Again, licences with this characteristic are common in the pharmaceutical sector. As discussed above, there are good grounds to argue that such licences will be acceptable under Article 101 TFEU as long as they have a procompetitive justification, there is a link between the licensed technology and the final product, and the payments are linked to the value of the technology.86 82 Case 1983/83 Windsurfing International Inc v Commission of the European Communities [1986] ECR 611 (ECLI:EU:C:1986:75), AG Opinion (ECLI:EU:C:1985:231), paras 95, 104. 83

Genentech v Hoechst (n 64).

85

See discussion at para 2.245 et seq above.

84 Ibid. 86

See the discussion in paras 2.253–2.254.

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8.75 There is also some scope for potential concerned about the competition law analysis of situations in which the royalties payable remain unchanged even as the scope of the technology covered by licensed IPRs reduces – unless those payments are simply the scheduled payment of a pre-determined value. This was one of the issues that was considered in AOIP/Beyrard (1976) and has come up in a different sector when considering the competition law implications of package licences of SEPs (whether by a pool licensor or by individual licensors).87 Again, risks can be mitigated by making clear the link between the parties’ assessment of the value of the technology and how that value is to be transferred. 8.76 If advising on a licence of this sort, the least risky approach is to ensure that the requirements identified by the CJEU in both Ottung v Klee and Genentech v Hoechst are dealt with explicitly in the agreement: that is, that the licensee can freely terminate the agreement and retains freedom of commercial action after termination; that the licence does not contain a no challenge provision; and that the royalties payable are related to a commercial value received by the licensee which is connected to the IPR being licensed. e. What if a simple right to terminate is not commercially feasible?

8.77 The guidance above may appear simple, but commercially difficult to follow, for reasons which may be particularly acute in the biopharma sector (or in other sectors) where IP is licensed at a time when the success or failure of any potential product is far in the future and their value uncertain. Given those considerations, some licences in the pharmaceutical sector may be open to competition law uncertainty, particularly arising from the termination provisions. A right for the licensee simply to terminate a patent licence on short notice with limited or no commercial consequences is not commonplace. Some licences may contain no effective right to terminate at all. This is more likely to be the case where the agreement is a combined patent and knowhow agreement, and the licensor is concerned about the difficulty of enforcing its contractual rights over its confidential information/knowhow. 8.78 If it is commercially not feasible to permit simple early termination, as may be the case in a licence where royalty payment will take place only many years after the licence has been concluded and after the value of the licence has transferred to the licensee, the parties can reduce the risk under Article 101(1) TFEU by clearly linking the agreed payments to their assessment of the value of the licensed technology in enabling the licensed products to be developed and commercialized. Ideally, the parties would make it clear in the licence that the question of value has been considered by the parties and is reflected in the payment obligations, including how termination will be dealt with. The commercial and economic context of each agreement may differ, and it may be important to record explicitly in the agreement or elsewhere the rationale for the royalty structure that has been chosen and how it relates to the licensed technology. 8.79 From a competition law perspective, it will be important to think carefully about the drafting of any termination clause and when a licensee’s right to terminate is sufficiently ‘free’ to reflect the requirements of the case law. This is likely to be the subject of commercial negotiation and the scope of termination provision agreed may well be reflected in the commercial royalty terms. For example, a request from the licensee for freedom to terminate on short notice with limited

87

See the discussion of pool licensing above at para 4.10 and of the approach to FRAND royalties in Chapter 9.

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consequences may see the licensor seek higher up-front payments for the initial licence; higher annual fees; higher and more frequent ‘milestone payments’; and higher running royalties for a shorter period. Negotiating the termination provisions will require the parties to consider the potential conse- 8.80 quences of early termination, such as whether the licensee should be obliged to pay some form of up-front termination fee. It will be a question of fact whether in all the circumstances the specific consequences of termination would undermine the licensee’s ‘freedom’ to terminate. Such a consideration would apply to a very lengthy notice period, or to an obligation which requires the licensee to terminate the whole agreement, including any knowhow licence, if it terminates the patent licence. In some circumstances, the knowhow may remain of real value to the licensee, and the loss of a licence to use it might expose the licensee to litigation to such an extent that its ‘choice’ to terminate is illusory. Knowhow is subject to particular considerations. From the licensors’ perspective, these include 8.81 the difficulty of showing misuse or unlicensed use. From the licensee’s perspective, as previously mentioned, there is the possibility that the knowhow will continue to be valuable even if patents fall away (as well as the opposite possibility that the knowhow will cease over time to be secret, substantial or valuable). These considerations suggest that from a competition law viewpoint it would be preferable to structure licences which have lengthy royalty provisions as separate but linked licences to patents and to knowhow respectively each with its own royalty provisions and termination provisions. The parties to a patent licence may wish to set out the royalty consequences of expiry or of 8.82 a finding of invalidity or non-infringement. If the licence covers a single patent, a licensee might seek to provide that any obligation to pay royalties will cease if the patent expires or is held to be invalid or not to be infringed. If the licence is more complex, as is often the case, the licensee may try to negotiate more complex ‘step down’ provisions with the royalty reducing to reflect expiry, invalidity or non-infringement findings which suggest that the value of the licence has reduced (or was less than the parties expected). Such obligations will be demanding to negotiate as it may require the parties to take a view on the value and strength of several licensed patents at a very early stage in the development of any products. Perhaps for this reason, parties often treat licensed patents as a package and it is common for 8.83 licences in the pharmaceutical industry to provide that royalties are payable at a given rate on the identified final products until final expiry of all licensed patents (or, indeed, until a particular period after the final expiry of the final licensed patent). This sort of formulation may reflect the parties’ assessment of how important overall licensed technology is likely to be to the commercial success of any contract product. Such an approach is not explicitly an assessment of the actual monetary value of each patented 8.84 element of the overall technology package, which is then simply paid out over the lifetime of the patents and beyond (as arguably envisaged by AG Tesauro in Ottung v Klee).88 However, it might be argued to represent the parties’ best efforts to assess the proportionate value of the 88

Ottung v Klee AG Opinion (n 69), para 11. The AG referred to percentages when discussing the issue of pre-determined royalties in this paragraph.

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licensed technology – that is, an acknowledgement by the parties that if a product is developed and commercialized based in part on technology covered by the licensed patents then x per cent of that success is as far as they can assess likely to be owing to the use of the licensed technology package. In such a case, the parties might then agree that once a patent expires, is annulled or is found not to read on the products ultimately commercialized, the overall royalty rate would reduce by a given proportionate amount. While not maintaining a direct link between each patented invention and the royalty payable, such a scheme might be argued to be a reasonable and proportionate attempt to balance the rights and interests of reward for the patentee and burden for the licensee. Doubtless there are many other ways in which parties could seek to demonstrate a link between a continued obligation to pay royalties and the value delivered to the licensee. 8.85 If no patent coverage remains, but valuable knowhow is licensed, an obligation to continue paying royalties for the use of the knowhow would not in principle infringe Article 101(1) TFEU, but again a reduction in royalties might be negotiated to reflect the expiry of the patents. As explained above, this solution to long-running royalty obligations in mixed licences was envisaged in the US Supreme Court case of Brulotte v Thys.89 f. Summary

8.86 Where successful commercialization of a contract product may not begin until well into the life of IPR, and significant turnover attributable to the contract product may not become available until the IPR is nearing expiry, it can be difficult to structure royalties payable in respect of the licensed IPR in a way that will: ● ● ● ● ●

reflect the parties’ assessment of its value; encourage the licensee to do its utmost to exploit it successfully; enable the licensor to receive appropriate rewards for its underlying innovations; recognize the value which the licensee receives from the licence; avoid the risk that the licensee will be obliged to bear costs not borne by its competitors without having received the corresponding value; ● ensure that the licensee is not locked-in to payments which reflect the power of the patentee at the time the licence was concluded, rather than the value the licensee has received through the licence; while ● avoiding the risk of opportunistic attempts by the licensee to avoid making payments for value which it has derived from the licensed technology. 8.87 Providing for continuing royalty payment obligations after the expiry of licensed IPR and once revenue begins to flow may seem like a good route to balance at least some of those objectives. If this option is chosen, the key to reducing the competition law risk lies in the termination provisions. The case law clearly indicates that preventing a licensee from freely terminating a licence containing post-expiry obligations is likely to increase risk significantly. 8.88 A good negotiation process and careful drafting should enable the parties to reduce the risks of competition law infringement and arguments about enforceability, for example by engaging with these issues and making clear their efforts to provide for royalties that reflect the ‘value’ 89

Brulotte v Thys Co, 379 US 29 (1964). See discussion at paras 2.280 et seq.

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for which the parties have negotiated and contracted, having regard to the economic context of the agreement. It will be easier to defend any post-expiry obligations if the structure chosen allows the parties 8.89 to argue that neither will be burdened in a way affecting future competitiveness.90 In the case of licensors, it might be argued that they would be disadvantaged and disincentivized if they cannot enter into licences that will ensure appropriate compensation for innovation, even if the agreement is terminated early. In the case of licensees, they may be argued to be disadvantaged if forced to pay royalties that do not reflect appropriately the value received from the patent licence over its lifetime, affecting their competitive position against those who have not borne such costs.91 In each case, the likely success of such arguments will depend in large part on the particular facts and circumstances surrounding the specific negotiation and the position of each party. Whatever the rationale for post-expiry obligations and royalty provisions in a licence, any risks 8.90 can be significantly reduced by providing the licensee with termination options which will enable it to escape the obligation to pay royalties where no value is being received. It will require careful thought to design a termination provision which will balance a licensee’s freedom to exit an arrangement which no longer offers value with the need to protect licensors from opportunistic behaviour by licensees. If value has previously passed under the licence (e.g., freedom from fear of litigation when 8.91 using the technology during development) which has not been fully compensated at the date of termination, an obligation to pay a lump sum intended to reflect that value and other value previously received (e.g., an ability to obtain an early market advantage) may not, in objective terms, hinder the licensee’s ability ‘freely to terminate’ and thus be acceptable. An obligation to pay on termination which equates to a penalty or has no objective relationship to the value received by the licensee will be considerably riskier. An attempt to control the licensee’s market conduct contractually after termination will give 8.92 rise to significant risks. In respect of post-termination royalties there is a risk that in those circumstances the continuing royalty obligations will be presumed to be anticompetitive and will need to be justified. As always, the actual circumstances will be an important factor, but post-termination non-compete, non-manufacture or equivalent obligations will require careful consideration and will need to be justified, particularly when linked to post-expiry royalty obligations.

90 91

As discussed above this factor is referred to repeatedly by both the Commission and the Courts when considering how to deal with provisions of this nature.

As discussed above, some of the underlying concern about post-expiry royalties in the EU stems from an unease about situations where a licensor may be in a position ex ante to extract terms which extend the reach of the patent beyond its legitimate scope and may result in undue burdens on the licensee ex post. If this were to be the case, the impact of patents might exceed that envisaged by both patent and competition policy. The Court’s reasoning in both Ottung v Klee CJEU (n 67), and Genentech v Hoechst (n 64), is brief. The focus on the ability to terminate, suggests that the Court takes the view that a decision not to terminate where it is possible to do so indicates that value is passing. This may be an attempt, in the circumstances of two fairly straightforward references, to avoid some of the difficult economic and incentive issues that might otherwise arise.

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2. Grant back obligations

8.93 EU competition law has always been concerned to scrutinize, and to prohibit in appropriate circumstances, licence provisions which would prevent licensees from benefitting from their own developments or discourage them from making (and benefitting from) improvements to licensed technology.92 This concern has become more acute as the authorities’ understanding of the potential value of follow on innovation has evolved. Where technology is licensed at an early stage in product development, as is often the case in biopharma licences, the treatment of improvements may be a significant area for negotiation and many licences contain some form of ‘grant back’ provision where one or other or both parties agree to license the other with any future improvements to the licensed technologies. 8.94 The TTBER and Technology Transfer Guidelines deal in some detail with grant back obligations. Owing to the way in which potential competition is dealt with in the context of pharmaceuticals,93 and given the narrowness of many pharmaceutical markets (at least in the eyes of the competition authorities), it is possible that the TTBER may not be available to many agreements in the pharmaceutical sector – or that there is at least a risk of falling outside its scope. This means that the potential of any agreement to restrict competition in its specific factual context should be considered carefully, as should any procompetitive justifications. When drafting grant back obligations, the commercial context will always be important, and depending on the circumstances, there are a range of options which involve greater or lesser competition law risk. 8.95 An obligation merely to negotiate, or to negotiate in good faith, as to the treatment of future improvements gives rise to no competition law risk. 8.96 Obligations on either or both parties to license improvements to the other on a non-exclusive basis are unlikely to give rise to competition law concerns in most cases. It is possible that in some circumstances an obligation on the licensee to license its improvements to the licensor on the basis that the head licensor has the right to sub-license those improvements to competitors of the head licensee might give rise to concerns94 by undermining the incentives of the licensee to innovate. A relevant consideration in assessing the potential anticompetitive impact of such a grant back obligation might be whether the ability to sub-license applied to all improvements, or only to those which were non-severable (in other words had no application that would not involve the infringement of the underlying licensed technology). If the improvements could not be used without infringing the original licensed technology, the licensee would be unable to sub-license them in any event (as long as the sub-licences granted by the original head licensor of the improvements ended at the same time as the head licence or on expiry of the patent, as was the case in Rich Products95). Even in those circumstances, a licensee might be

92

See paras 2.219 et seq.

94

75/494/EEC: Commission Decision of 18 July 1975 relating to a proceeding under Article 85 of the EEC Treaty (IV/21.353 – Kabelmetal-Luchaire), OJ [1975] L 222/34. See discussion at para 2.232 ff.

93

95

See the discussion below in the context of the ‘pay for delay’ cases.

88/143/EEC: Commission Decision of 22 December 1987 relating to proceedings under Article 85 of the EEC Treaty (IV/31.206 – Rich Products/Jus-rol), OJ [1988] L 69/21. See discussion at para 2.234 ff.

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disincentivized if it were concerned that its competitors would benefit from its innovations.96 Such a concern could be reduced if the licensee were assured that it would also have access to improvements owned by other licensees.97 Grant back obligations which require the assignment or exclusive licensing of improvements 8.97 from the licensee to the licensor are likely to be regarded as falling within the scope of the prohibition in Article 101(1) TFEU. Such obligations do not benefit from the TTBER. They may benefit from the exception in Article 101(3) TFEU depending on the context. The extent of any compensation payable will be important. If the compensation payable is likely to be sufficient to protect or maintain the licensee’s incentives to innovate, the competition law risks will be reduced. In addition, an obligation to assign which preserves the licensee’s ability to use its own developments (e.g., through a non-exclusive license back) will be less risky than one which deprives a licensee of access to its own improvements. A sole licence, which entitles the licensee to continue using its own improvements, will be less risky than a fully exclusive licence. Other options to reduce the risks that could arise from grant back obligations would include giving the licensor only a right of first refusal to an assignment or exclusive licence (subject to the agreement of reasonable compensation) or to provide that the compensation will be settled by an independent third party if not agreed. C. Co-marketing, Co-promotion and Authorized Generics Co-marketing and co-promotion agreements are common in the pharmaceutical sector. They 8.98 enable companies to share the costs and risks of bringing products to market. These agreements often involve the licensing of IPR. It is rare for that to be the focal point of such arrangements. The IPR licensing aspects are often ancillary to the distribution arrangement. This chapter does not deal with arrangements of this sort in any detail, beyond briefly describing them and identifying some of the competition law considerations that may arise. As always, it is important to bear in mind the fundamental insight from Consten and Grundig98 that the use of IP to support or bolster agreements which are anticompetitive will itself be prohibited under Article 101(1) TFEU.99

96 In Commission/Servier/Krka AG Opinion (n 62), para 36, two patent applications relating to the manufacture of Perindopril were transferred by Krka to Servier. Krka agreed not to challenge those patents and in return received €30 million plus ‘a non-exclusive, irrevocable, non-assignable, royalty-free licence, with no right to sub-license (other than to its subsidiaries) the applications or resulting patents, that licence being unrestricted in time, territory or scope of use’. AG Kokott agreed with the Commission that the assignment was part of a disguised value transfer and a market sharing arrangement: … by preventing Krka from assigning its rival technology for the production of perindopril to other generic companies. Since the payment of the sum of EUR 30 million under that agreement was unconnected with Servier’s expected or actual earnings from the commercial exploitation of the technology transferred by Krka, that payment was viewed by the Commission as a sharing of the revenues generated by the allocation of the markets between Servier and Krka. (para 242) The Commission’s comments imply that the technology in question was capable of use without infringing Servier’s IPR. The views of the CJEU on the assignments will be interesting. Of course, these patents did not follow an initial licence from Servier to Krka, so are different from ‘improvements’ in the sense used in this discussion. 97

See Technology Transfer Guidelines (n 60), para 131.

99

Agreements focusing on commercialization were only briefly discussed in the 2009 Pharma Report (n 1), para 1249.

98

Joined Cases 56/64 and 58/64 Consten SaRL and Grundig GmbH v Commission of the EEC Case [1966] ECR 299.

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8.99 Co-marketing arrangements involve one company appointing another to distribute its product under a different brand name from that under which it distributes directly. As with distribution agreements more generally, such arrangements may be concluded to help commercialize a product in territories in which the product owner does not have a strong presence or a large sales team. Sometimes co-marketing agreements are concluded to enable the ‘secondary’ brand to be marketed in the same territory as the original brand. Such agreements may be intended to benefit from and reflect the strengths of the two parties in different distribution channels. Co-marketing involves significant commercial freedom of action for the company appointed as co-marketer. Such agreements may be entered into at any stage in a product’s life cycle – sometimes following an earlier R&D arrangement between the parties; sometimes around launch or even later. 8.100 A co-promotion arrangement involves more limited commercial freedom for the co‑promoter and significant commercial control for the originator. Co-promotion does not involve the use of a secondary brand. Some co-promotion agreements share common features with outsourcing arrangements, or with arrangements under which specific services (e.g., warehousing, distribution, logistics) are provided. They may be concluded at any time in the product life cycle and may form part of a larger R&D alliance. Co-promotion usually involves only one brand and IP licences are limited to what is necessary to allow the arrangement to function. 8.101 Authorized generic products also play a part in the pharmaceutical market. As explained above, generic medicines are therapeutically equivalent to an originator drug. It is not feasible to discuss all the various types of generic launch and marketing strategy in this chapter, but the landscape is briefly described below. 8.102 Non-authorized (‘true’) generics are launched once the company launching that generic product believes that it can do so without being held to have infringed a valid patent. This may be when all patents that might potentially affect the proposed generic have expired, but often generic manufacturers will assess the patent landscape and launch once they assess that the risks of being held to infringe are sufficiently low.100 True generics may be branded or unbranded. Any brand used will necessarily be different from that used by the originator (whether on the original product or any authorized generic products). Some companies which supply ranges of generic products have invested in building generic brands and may also invest significantly in ancillary (but still valuable) innovations such as, for example, in dosage or delivery regimes or manufacturing/process technology. 8.103 Generic products may also be supplied by the originator itself (‘own generic’) or by another company authorized by the originator to manufacture and supply a generic version of the original product (‘authorized generic’). Authorized generics may be unbranded (using only the name of the main chemical ingredient) or (more often) supplied under a brand name which is different from that of the original. They differ from co-marketing and co‑promotion agree-

100 See US FTC, Authorized Generic Drugs: Short-Term Effects and Long-Term Impact (August 2011) (https://​www​.ftc​.gov/​ reports/​authorized​-generic​-drugs​-short​-term​-effects​-long​-term​-impact​-report​-federal​-trade​-commission – accessed 29 November 2023) which considered the effect of authorized generics on pharmaceutical competition in the specific context of the US market and particularly in the light of concerns about ‘pay for delay’ arrangements.

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ments because the product being supplied by the authorized generic is a generic version of an originator drug, rather than a different distribution channel for the originator drug. While ‘own generics’ involve no licences of IP (or at least none that engage the competition 8.104 rules as they are intracompany arrangements), agreements with third parties to manufacture and sell a generic version of an originator product will involve licences to any relevant patents. Those licences are subject to the same rules as other technology transfer agreements and may involve a degree of territorial exclusivity. Given the many flavours of commercialization arrangements that exist, any of the major 8.105 block exemptions (R&DBE;101 SBE;102 TTBER;103 and VABE104) and their accompanying guidelines may be relevant. The fact that such arrangements may also be entered into between companies who might, at least at first glance, appear to be actual or potential competitors, adds complexity when advising. Competition cases about such arrangements are rare, although there have been a few. Briefly, 8.106 in J&J/Novartis – Fentanyl105 the Commission held that a co-promotion agreement between Johnson & Johnson (Janssen-Cilag) and Novartis (Sandoz) was in fact a market sharing arrangement, involving a ‘by object’ restriction. The agreement did not involve any IP issues as Johnson & Johnson’s patent protection on the relevant product had expired at the time of the agreement was entered into. J&J/Novartis – Fentanyl does not indicate that co-promotion, co‑marketing or the grant of 8.107 licences for authorized generic manufacture is necessarily anticompetitive. The facts of the case as found by the Commission suggested that the agreement was not a true co-promotion agreement, not least because it found that: ● Sandoz was on the point of launching a true generic when the agreement was concluded; ● significant monthly payments were made to Sandoz (in excess of its expected profits for its own generic if it had entered); ● no other potential co-promotion partners were considered by Janssen-Cilag before concluding the agreement with Sandoz; ● Sandoz engaged in very little (or no) co-promotion activity; and ● Sandoz did not in fact launch its own generic. In the circumstances, the Commission held that the agreement infringed Article 101(1) TFEU 8.108 by object and the parties did not appeal. The overall message is that arrangements of this sort should be analysed in the normal way 8.109 making use, where appropriate, of the relevant block exemptions and guidelines. Little has been written about the detailed analysis of such pharmaceutical commercialization agreements under 101 R&DBE (n 55). 102 SBE (n 56).

103 TTBER (n 59).

104 Commission Regulation No 2022/720 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, OJ [2022] L 134/4. 105 Case AT.39685 – Fentanyl, Commission Decision of 10 December 2013 (notified under document C(2013) 8870).

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EU competition law. If this area is of further interest, a useful article providing a summary of the starting point for analysis is footnoted below.106 D. Parallel Trade 8.110 Pricing of medicines is a matter reserved to the individual Member States of the EU. Consequently, prices of individual drugs can vary significantly between Member States, often owing to different government priorities or specific aspects of the national regulatory environment. These differences create incentives for parallel trade.107 The potential consequences of uncontrolled parallel trade in pharmaceutical products are not all positive, in part as supply shortages may be caused in the originator territory by substantial arbitrage. Various methods to mitigate these adverse effects have been developed. Those which involve unilateral conduct are discussed briefly below at paragraph 8.113. The enforcement of IPRs in national courts to prevent parallel trade is subject to the rules relating to the free movement of goods (as discussed at paragraph 1.88 ff). 8.111 Parallel trade is rarely the subject of agreements in which IPR are central. As might be expected, agreements intended to reduce parallel trade have been found to be unlawful (e.g., naked attempts to restrict resales, such as in Sandoz,108 where the pharmaceutical company stamped the words ‘export prohibited’ on invoices). Other types of agreement limiting distribution may work effectively, if appropriately implemented, but give rise to potential concerns under both Article 101(1) TFEU and Article 102 TFEU. As these involve limited or no interplay between competition law and IPRs, they are described only briefly below. 8.112 Stock Management Programmes (SMPs) reduce the amount of stock placed on a given national market, affecting the quantity available for parallel trade. Article 81 of Directive 2001/83/EC (as amended the ‘Medicinal Code’)109 obliges MA holders and distributors within a national market to ensure sufficient supplies for that market. This means that distributors cannot simply supply all the product that they receive into parallel trade channels. 8.113 In the Bayer (Adalat) case,110 the General Court (GC) held that the imposition by Bayer of stock limitations on its distributors did not infringe Article 101(1) TFEU because there was no genuine ‘concurrence of wills’ between the parties. The GC found that Bayer’s distributors had objected to Bayer’s policy and did not share its interest in reducing parallel trade. There was therefore no agreement falling within the scope of Article 101 TFEU. Nevertheless, the

106 Jacob Westin, Melissa Healy and Bill Batchelor, ‘Pharmaceutical Co-promotion, Co-marketing and Antitrust’ (2014) 35(8) ECLR 402–412. 107 As pointed out by the CJEU in Glaxo Greece (n 31), paras 56–67.

108 Case C-277/87 Sandoz Prodotti Farmaceutici SpA v Commission of the European Communities [1990] ECR I-45 (ECLI:EU:C:1990:6).

109 Directive 2001/83/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to medicinal products for human use, OJ [2001] L311/67. 110 Bayer (Adalat) (n 31).

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design and implementation of SMPs requires careful thought if Article 101(1) TFEU is not to apply.111 Alternatively, a supplier might stipulate that it will supply products for sale by distributors in 8.114 a particular Member State at a local price, but other prices will be applicable to products which are sold elsewhere in the EU/EEA. This practice was the subject of a long-running case concerning GlaxoSmithKline’s (GSK) 8.115 Spanish distribution practices. The saga involved many twists and turns,112 but in essence the EU Courts held that while such arrangements might fall within the scope of the prohibition in Article 101(1) TFEU (indeed the Commission held that they were anticompetitive by object), they were capable of exemption under Article 101(3) TFEU.113 The scheme which had originally been notified by GSK was withdrawn, meaning that the 8.116 Commission had limited incentive to conduct an Article 101(3) TFEU analysis which would be hypothetical. It therefore closed the file without considering the efficiencies identified by GSK. Although efforts were made to get the Commission to change its mind, these failed, and the GC upheld the Commission’s decision not to continue with the proceeding. Despite the end of EU proceedings, similar cases continued in Spain where it is understood that the Spanish National Competition Authority concluded that on the facts those schemes did not infringe competition law, a position upheld in April 2023 by the Spanish courts. E. Agreements at the Time of Generic Entry When pharmaceutical manufacturers face generic entry, a sharp downturn in originator product 8.117 sales and in product prices is likely. This prospect may be met (or slightly anticipated) by the launch of an originator own generic, either alone or by agreement with a third party around the time of generic entry. Depending on the circumstances, such arrangements may give rise to competition risks where either the originator is dominant or where the parties to the agreement are actual or potential competitors. The 2009 Pharma Report noted that settlement agreements between originator and generic 8.118 companies have a potentially anticompetitive effect. The inquiry identified more than 200 settlement agreements between originator and generic companies. The Commission expressed concern that approximately half of these agreements restricted the generic company’s ability to enter the market. The Commission commented adversely on agreements which also contained

111 The recent Vertical Guidelines include guidance about situations in which the Commission may infer acquiescence to an apparently unilateral distribution policy: Commission Notice, Guidelines on Vertical Restraints, 2022/C248/01 of 30 June 2022, paras 54 ff.

112 Summarized briefly here: https://​www​.bristows​.com/​news/​request​-to​-re​-open​-glaxo​-dual​-pricing​-case​-rejected​-by​ -general​-court​-the​-end​-of​-the​-road​-for​-challenges​-to​-dual​-pricing/​ – accessed 29 July 2023, with an update on the position in Spain here: https://​www​.uria​.com/​en/​publicaciones/​newsletter/​1660​-banking​-financial​-law – accessed 29 July 2023. 113 Glaxo (Spain) (n 14); Case T-168/01 GlaxoSmithKline Services Unlimited v Commission of the European Communities [2006] ECR II-2969 (ECLI:EU:T:2006:265); Case T-574/14 European Association of Euro-Pharmaceutical Companies (EAEPC) v European Commission (ECLI:EU:T:2018:605).

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a ‘reverse’ payment (i.e., from the originator company to the generic company) and noted that such agreements had attracted antitrust scrutiny in the US. 8.119 Following the inquiry, the Commission began regular monitoring of patent settlements: beginning in January 2010 and repeated annually, the Commission sent requests for information to pharmaceutical companies (both innovators and generics) asking them to submit copies of settlement agreements. After each round of monitoring, the Commission produced a report. These reports identify three categories of settlement agreements: ● Category A, in which there is no restriction on generic entry – these are viewed as unproblematic from a competition perspective; ● Category B, in which there is a restriction on generic entry – these are further broken down into: ● Category B1, where there is no ‘value transfer’ to the generic company – such agreements are also said not to raise competition concerns; ● Category B2, where there is a ‘value transfer’ – such agreements are ‘likely to attract the highest degree of antitrust scrutiny’.114 8.120 The most recent report (covering the period 1 January to 31 December 2016) found that the number of potentially problematic settlements had remained stable, having previously decreased by comparison with the position observed during the Pharmaceutical Sector Inquiry. The report noted the Commission’s intention to continue the monitoring exercise, although no new reports have subsequently been published.115 Such issues will be discussed further in the context of the discussion around originator-generic litigation and settlements below. F. Agreements to Coordinate Higher Prices 8.121 In the pharmaceutical sector, as elsewhere, collusion to achieve higher prices is likely to be regarded as a serious infringement of competition law. IPRs are rarely involved in such cases, but on occasion both IPR and the particular regulatory characteristics of the pharmaceutical sector may play a part. While not directly fixing prices, a particularly interesting example of an arrangement affecting prices relating to the ‘off-label’ use of Avastin is worth mentioning.116 This case followed an investigation by the Italian National Competition Authority.117 The factual and regulatory background is complex but is summarized below.

114 Eighth Report on the Monitoring of Patent Settlements (n 63). 115 Ibid., p 51.

116 Case C-179/16 F. Hoffmann-La Roche and Others v Autorità Garante della Concorrenza e del Mercato (AGCM) (ECLI:EU:C:2018:25) (Roche/Novartis).

117 Other National Competition Authorities have also investigated the conduct of the parties to the Avastin/Lucentis saga. For example, in 2020 the French competition authority held the three parties to be collectively dominant and to have engaged in a campaign of ‘disparagement’ and ‘misleading’ information: Autorité de la concurrence decision of 9 September 2020 (https://​www​.aut​oritedelac​oncurrence​.fr/​en/​press​-release/​treatment​-amd​-autorite​-fines​-3​-laboratories​ -abusive​-practices – accessed 29 July 2023), appealed in Novartis Pharma SAS and Roche Holding AG v Autorité de la concurrence and overturned in February 2023 by the Cour d’Appel de Paris on the question of joint dominance as well as abuse (https://​www​.cours​-appel​.justice​.fr/​sites/​default/​files/​2023​-02/​Arr​%C3​%AAt​%20RG​%20n​%C2​%B0​ %2020​-14632​.pdf – accessed 29 July 2023). See also the decision of the Belgian competition authority in Affaire n° CONC-P/K-14/0026 Test-Achats contre Novartis et Roche Décision n° ABC-2023-P/K-02 du 23 janvier 2023 en appli-

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Genentech had developed a product which could be used (in different formats and dosages) 8.122 either for the treatment of cancers (authorized for that purpose and branded ‘Avastin’) or in the field of ophthalmology (authorized for that purpose and branded ‘Lucentis’). Genentech did not operate in the EU and licensed its parent company, Roche, to commercialize Avastin outside the US. As Roche was not active in ophthalmology, Genentech also licensed Novartis to exploit Lucentis outside the US. There was about a two-year gap between Avastin being placed on the market in the EU and Lucentis following. During that hiatus, doctors began to prescribe Avastin for eye diseases ‘off-label’ (in other words, for a purpose other than that for which it was formally authorized). Under Italian law, pricing reimbursement for off label prescription was permitted in some circumstances and Avastin was listed by the relevant Italian authority as reimbursable for certain ophthalmic diseases (as well as for the treatment of the cancers for which it held an MA). Even once Lucentis was authorized, the practice of prescribing Avastin off label continued 8.123 as it was more cost-effective owing to the different dosage sizes and per dose pricing of the two products. This affected the pricing and profitability of Lucentis. Following much debate about the risks of off label prescribing of Avastin, the Italian pricing and reimbursement authority excluded the use of Avastin off label for opthalmic conditions. This resulted in a shift in demand from Avastin to Lucentis and in a significant increase in the costs of the Italian national health service. The Italian competition authority found that Roche and Novartis had entered into a market 8.124 sharing agreement on the basis that: … the purpose of the arrangement put in place between Roche and Novartis was to create an artificial differentiation between those two medicinal products by manipulating the perception of the risks associated with the use of Avastin for the treatment of those diseases through the production and dissemination of opinions which, based on an ‘alarmist’ interpretation of available data, could give rise to public concern regarding the safety of certain uses of Avastin and influence the therapeutic choices of doctors, and by downplaying any scientific knowledge to the contrary.118

On the substance of the case, the CJEU upheld the Italian authority’s finding that the agree- 8.125 ment between Novartis and Roche to seek to influence the views of the relevant authorities about the safety of Avastin when used in ophthalmology was capable of infringing Article 101(1) TFEU. The CJEU held that, given the context, the agreement gave rise to an ‘object’ infringement of Article 101(1) TFEU. Relevant factors included that the obligations on MA holders under pharmaceutical regulatory 8.126 law to update authorities and medical professionals on pharmacovigilance concerns are on individual MA holders. The CJEU found that this meant that agreements between undertakings to cooperate on disseminating information in respect of a product sold by only one of them might ‘constitute evidence that the dissemination of information pursues objectives unrelated to pharmacovigilance’.119 cation des articles 52, §1, 2° et 79 du Code de droit économique (https://​www​.belgiancompetition​.be/​sites/​default/​files/​ content/​download/​files/​ABC​-2023​-PK​-02​_PUB​.pdf – accessed 15 November 2023).

118 Roche/Novartis (n 116), para 89. 119 Ibid., para 91.

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8.127 The CJEU also noted that providing misleading information constitutes an infringement of the relevant regulations and that it was likely to influence demand in the light of the characteristics of the market. This meant that an agreement of the type identified constituted a restriction of competition by object:120 … an arrangement put in place between two undertakings marketing two competing products, which concerns the dissemination, in a context of scientific uncertainty, to the EMA, healthcare professionals and the general public of misleading information relating to adverse reactions resulting from the use of one of those products for the treatment of diseases not covered by the MA for that product, with a view to reducing the competitive pressure resulting from such use on the use of the other medicinal product, constitutes a restriction of competition ‘by object’ …

8.128 The underlying IPR licensing arrangements between Genentech, Roche and Novartis were also reviewed as the parties had argued: first, that the agreement between Roche and Novartis should be regarded as ancillary to the underlying licensing arrangement between Novartis and Genentech; and secondly, that without the agreement between Novartis and Genentech, Novartis would not have been able to enter the market. They submitted that in those circumstances Roche and Novartis could not be regarded as competitors. The national court which had referred the issue also asked whether the agreement was exempt. 8.129 On the first issue, the CJEU had no hesitation in holding that the agreement between Roche and Novartis did not fall outside the scope of the prohibition in Article 101(1) TFEU under the ancillary restraints doctrine. Paragraphs 68–75 of the judgment set out the Court’s view on the application of that concept in licences. The CJEU held that an allegedly ‘ancillary’ restriction must be objectively necessary to achieving the aims of the main agreement and that, on the facts (including that the Roche/Novartis agreement was not mentioned in the Genentech licence and that it was concluded several years after the original licence arrangements), this was not the case here. In addition, the CJEU held that the nature of the agreement between Roche and Novartis (to decrease the use of Avastin and increase the use of Lucentis by reducing the competitive pressure on Lucentis from Avastin so as to increase Novartis’ profitability on sales of Lucentis) could not mean that such conduct was objectively necessary within the meaning of the law on ancillary restraints. 8.130 On the second question, the CJEU held that the four conditions in Article 101(3) TFEU could not be satisfied by the Novartis/Roche agreement because ‘the dissemination of misleading information in respect of a medicinal product cannot be regarded as ‘indispensable’ within the meaning of the third requirement for the purpose of being exempt under Article 101(3) TFEU’.121 Moreover, to the extent that the national court was asking whether the TTBER might apply, the Court again referred to the ‘by object’ nature of the restriction and held that the block exemption provided by Article 2 of the TTBER could not apply to such a restriction.122

120 Ibid., para 95. 121 Ibid., para 98.

122 The AG’s Opinion contains a more detailed discussion of the various licensing defences raised by the parties. The CJEU appears not to have regarded such a detailed consideration to be necessary to the disposal of the reference. The AG’s Opinion also contains interesting discussions on topics such as the relevance of MAs to market definition in the

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III. LITIGATION AND SETTLEMENTS Litigation and settlement agreements were among the principal topics reviewed during the 8.131 Commission’s Pharmaceutical Sector Inquiry. The Commission was acting on concerns similar to those that had at the time been raised for some years in the US about the effect on competition of so called ‘pay for delay’ arrangements.123 There are significant differences between the regulatory frameworks that apply in the US and the EU, leading some to argue that the competition concerns arising from litigation settlements in Europe would be less acute than in the US as the commercial drivers, incentives and effects of such settlements would be different. While not reaching a conclusion on the application of the competition rules, the Commission 8.132 stated in the 2009 Pharma Report that some agreements between originators and generics effected a delay in generic entry in return for benefits passing from the originator to the generic. It has subsequently described agreements with those features as meaning that ‘the originator company pays its competitor, the generic company, to stay out of the market for a shorter or longer period of time’.124 Such agreements intersect with IPRs because they are often concluded in the context of a dispute about potential patent infringement by the generic entrant and are concluded in the form of a licence of one sort or another.125 Many of the arguments about their characterization under competition law turn on the relevance or otherwise of patent coverage to the analysis – harking back to issues around the relevance of the scope of patents and their specific subject matter discussed in Chapter 1. Following the publication of the 2009 Pharma Report, the Commission adopted a series of 8.133 decisions on agreements between originators and generics at or around the time of potential entry.126 One of those decisions (J&J/Novartis – Fentanyl) has already been discussed above.127 It did not involve the settlement of litigation and was not appealed. Two other Commission decisions (Lundbeck128 and Servier129) have been appealed, along with a reference from the UK’s National Competition Authority (the Competition and Markets Authority (CMA)) in

pharmaceutical sector. Roche/Novartis, ibid., Opinion of AG Saugmandsgaard Øe (ECLI:EU:C:2017:714), particularly paras 91–133.

123 For a discussion of US issues as things stood in the mid-2000s, which also provides context for much of what followed in Europe, see Alden Abbott and Suzanne Michel, ‘The Right Balance of Competition Policy and Intellectual Property Law: A Perspective on Settlements of Pharmaceutical Patent Litigation’ (2005) 46(1) IDEA – The Intellectual Property Law Review (https://​ipmall​.law​.unh​.edu/​sites/​default/​files/​hosted​_resources/​IDEA/​idea​-vol46​-no1​-abbott​-michel​.pdf – accessed 29 July 2023). 124 2019 Pharma Report (n 1), p 25.

125 For an overview of the issues see Maro Stief, ‘No-challenge and Pay-for-delay Agreements in Patent Licence and Settlement Agreements Under European Competition Law’ (2023) 18(2) Journal of Intellectual Property Law & Practice 135–145. 126 Some of those investigations had already been under way while the Pharmaceutical Sector Enquiry was still in progress. 127 See (n 105).

128 Case AT.39226 – Lundbeck, Commission Decision of 19 June 2013 (Lundbeck Commission Decision) (https://​ec​.europa​ .eu/​competition/​antitrust/​cases/​dec​_docs/​39226/​39226​_8310​_11​.pdf – accessed 29 November 2023); Lundbeck GC (n 61). 129 Servier Commission Decision (n 62).

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Paroxetine.130 Judgments at CJEU level are available in Lundbeck131 and Paroxetine.132 The GC judgments133 and the AG’s Opinion134 in the subsequent CJEU appeal135 are available in Servier (and the related appeals brought by the various generics). A further Commission decision in Cephalon/Teva136 is also currently subject to appeal at the GC.137 8.134 Given the length and complexity of the Commission and CMA decisions (several thousand pages in all) this section focuses on the outcomes at court level to date, primarily the most recent CJEU judgment (Lundbeck). That judgment relates to the appeal of a Commission decision (already upheld by the GC). It confirms the CJEU’s earlier judgment in Paroxetine (which resulted from a national court reference). 8.135 In summary, the Commission’s position (also that of the CMA in Paroxetine) is that ‘pay for delay’ agreements, whether or not part of a litigation settlement arrangement,138 are ‘by object’ restrictions of competition. These include agreements involving transfers of value other than cash payments, including the grant of a limited licence, the conclusion of a distribution arrangement, or the conclusion of an agreement to permit a generic to sell authorized generics, which result in delayed or limited generic entry. A package of agreements or ‘side deals’ may need to be reviewed to identify the value which is changing hands and its capability to act as an inducement to abandon or delay market entry (and normal competition) in favour of cooperation and market sharing. How this position has fared at Court level is discussed below. A. Lundbeck 8.136 The Commission found that Lundbeck had concluded a series of six agreements with four generic companies. It held that these had delayed generic entry into the market for Citalopram (an anti-depressant).139 It imposed fines of around €145 million (of which Lundbeck was liable for just under €94 million). The Commission’s core factual findings were that Citalopram was a ‘blockbuster’ and Lundbeck’s bestselling product at the time and that the generic companies

130 Case CE/9531-11 – Paroxetine (Paroxetine CMA Decision) (https://​assets​.publishing​.service​.gov​.uk/​media/​57aaf​ 65be5274a0​f6c000054/​ce9531​-11​-paroxetine​-decision​_​-​.pdf – accessed 29 July 2023). 131 Lundbeck CJEU (n 61).

132 Case C-307/18 Generics (UK) and others v Competition and Markets Authority (ECLI:EU:C:2020:52) (Paroxetine CJEU).

133 Servier GC (n 62) and, separately the Krka appeal against the Commission’s decision on the agreements between it and Servier (also n 62). That judgment contains a detailed description of the main aspects of the transactions entered into by Krka and Servier and a lengthy discussion of the interrelationship between IPR and competition, particularly in the context of patent settlement agreements which may involve licences (paras 125–200). 134 Servier AG Opinion and Commission/Servier/Krka AG Opinion (n 62). 135 Commission/Servier/KRKA CJEU and Servier CJEU (n 62).

136 Case AT.39686 – Cephalon, Commission Decision of 26 November 2020 (Cephalon/Teva Commission Decision) (https://​ec​.europa​.eu/​competition/​antitrust/​cases/​dec​_docs/​39686/​39686​_4072​_5​.pdf – accessed 29 July 2023). 137 Case T-74/21 Teva Pharmaceutical Industries and Cephalon Inc v European Commission OJ [2021] C 98 – proceedings continue.

138 Following the sector enquiry, the Commission instituted an annual patent settlement monitoring exercise, under which settlements between originators and generics had to be provided to the Commission for review. The Commission stated in its 2019 Pharma Report (n 1), that of the settlements provided to it, around 90 per cent did not raise any need for competition scrutiny. An example can be found in the Eighth Report on the Monitoring of Patent Settlements (n 63).

139 Lundbeck CJEU (n 61), paras 5–7, incorporates the summary of the facts from Lundbeck GC (n 61), paras 1–5.

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agreed not to compete with Lundbeck, who paid them significant sums, purchasing their stocks of generic product and offering them guaranteed profits through distribution arrangements. As is often the case, the Commission decision incorporated some choice quotes from internal documents to demonstrate the companies’ internal view of the arrangements. The Commission concluded that such agreements were akin to market sharing agreements and 8.137 were restrictive of competition ‘by object’ on the basis that: ● ● ● ●

Lundbeck and the generics manufacturers were at least potential competitors; each agreement constrained the relevant generic’s commercial conduct; each agreement involved a ‘value transfer’ to the generic; and that value transfer induced the generic to delay or abandon entry as an independent supplier.

The Commission did not carry out a ‘by effects’ analysis but relied on establishing a restriction 8.138 of competition by object. The Commission found that the ‘basic’ (molecule or compound) patent for Citalopram had 8.139 expired but that Lundbeck still owned patents which provided more limited protection, such as process patents relating to the manufacture of Citalopram. It considered that the expiry of the compound patent meant that generic suppliers could consider market entry and might, depending on the circumstances, be potential competitors of Lundbeck. Unsurprisingly, the companies disagreed with the Commission’s characterization of the 8.140 arrangements and with its legal conclusion. Their initial appeal to the GC was unsuccessful, leaving the stage set for the CJEU. Owing to the greater speed with which references to the CJEU move, the judgment in 8.141 Paroxetine (a reference from English court following appeal of a CMA decision) was given before that in Lundbeck. Specific issues arising from Paroxetine are discussed separately below. As the AG in Lundbeck noted, both her Opinion and the CJEU’s judgment were given: ‘… in the context of the case culminating in the judgment of 30 January 2020, Generics (UK) and Others, in which the Court set out the criteria for determining whether an agreement in settlement of a dispute between the holder of a pharmaceutical patent and a manufacturer of generic medicinal products is contrary to EU competition law’,140 Lundbeck thus reflects and confirms the analysis in Paroxetine. The first paragraphs of the AG’s opinion in Lundbeck are worth setting out in full as they 8.142 summarize the key legal and policy issues at the intersection of IP and competition which arise in the ‘pay for delay’ cases. The AG summarized the issues as follows: 1. May an agreement to settle a medicinal products patent dispute constitute a restriction of competition by object or by effect and may the conclusion of that agreement, possibly combined with entry into other agreements, constitute an abuse of a dominant position? 2. This, in a nutshell, is the essence of the ten questions put by the Competition Appeal Tribunal (United Kingdom) (‘the CAT’) to the Court in this reference for a preliminary ruling. Those questions were raised in proceedings before the CAT between, on the one

140 Lundbeck AG Opinion (n 61), para 6.

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS hand, Generics (UK) Ltd (‘GUK’) and other medicinal products manufacturers (2) and, on the other, the Competition and Markets Authority, United Kingdom (‘the CMA’) concerning three agreements entered into by GlaxoSmithKline plc (‘GSK’) with the generic manufacturers IVAX Pharmaceuticals UK (‘IVAX’), GUK and Alpharma. 3. The agreements in question were entered into as agreements in settlement of patent disputes which had, in the case of GUK and Alpharma, already given rise to patent litigation. Under the GUK and Alpharma Agreements, the generic manufacturers concerned undertook, inter alia, not to enter the market with their products for an agreed period, while GSK undertook to make significant transfers of value in their favour. 4. According to the CMA, the purpose of those agreements was to induce those generic manufacturers to abandon their efforts to enter the market independently during the agreed period and those agreements were therefore akin to market exclusion agreements prohibited by Article 101 TFEU, while their conclusion by GSK constituted an abuse of a dominant position within the meaning of Article 102 TFEU. GSK and the generic manufacturers maintain, on the contrary, that the agreements in question cannot be seen as constituting infringements of EU competition law.

8.143 AG Kokott also gave the opinions in Paroxetine and in Servier. There can be no doubt that the AG and the CJEU were clear as to the underlying policy issues and concerns in all three cases. 8.144 The CJEU adopted the findings of fact of the GC (which reflected those in the Commission decision).141 The two key substantive points were: ● whether the Commission (upheld by the GC) had been correct to find that Lundbeck and the generic companies were at least potential competitors at the time the agreements were concluded; and ● whether it was correct to characterize the agreements as giving rise to ‘restrictions by object’. 1. Potential competition

8.145 The Commission had analysed the application of Article 101(1) TFEU to the patent settlement agreements and related arrangements on the basis that there was a competitive relationship between the parties. Lundbeck argued that because its patents were to be presumed to be valid as granted (pending revocation or amendment by the relevant courts or authorities), the Commission could not merely point to the possibility of challenging the patents as sufficient basis to find that the generics were (at least) potential competitors of Lundbeck. Lundbeck argued that the Commission needed to show that the generics did not infringe the patents. 8.146 The CJEU dismissed Lundbeck’s arguments. Citing its judgment in Paroxetine on the test to establish potential competition, it held that to assess: … whether an undertaking that is not present in a market is a potential competitor of one or more other undertakings that are already present in that market, it must be determined whether there are real and concrete possibilities of the former joining that market and competing with one or more of the latter.142

141 Appeals to the CJEU are on points of law only. This meant that some of the pleas put forward by the parties were held to be inadmissible. For example, Lundbeck’s attack on the GC’s finding that Lundbeck had doubts about the validity of one of its process patents (see Lundbeck CJEU (n 61), para 48). 142 Ibid., para 54.

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The CJEU reiterated that substantive factual considerations are relevant when assessing the 8.147 ‘real and concrete possibilities’ of market entry. It stated that where agreements temporarily keep undertakings off the market the key question is whether, in the legal and economic context of that market, entry would have been a concrete prospect in the absence of the agreements in question. The CJEU found that where the patent for the compound (or Active Pharmaceutical Ingredient (API)) has expired, this amounted to an ‘opening of the market … to the manufacturers of generic medicines’. It would then be necessary to consider whether each generic company has ‘a firm intention and an inherent ability to enter the market, and does not meet barriers to entry that are insurmountable’ in the light of the regulatory constraints in the sector and the patent landscape ‘in particular, the patents held by the manufacturers of originator medicines relating to one or more processes for the manufacture of an active ingredient that is in the public domain’.143 Any preparatory steps towards entry taken by the potential entrant and whether those steps 8.148 were such as to allow it to impose competitive pressure on the originator would be relevant to the assessment of its ‘firm intention and an inherent ability’ to enter the market. When considering the existence, or otherwise, of insurmountable barriers to entry the CJEU 8.149 repeated its ruling in Paroxetine that the existence of a process patent did not amount to an insurmountable barrier to entry. It reiterated that the statutory presumption of patent validity did not prejudge the actual position on validity for the purposes of competition law and, moreover, that it shed no light on the question of infringement. The Court then stated that it is not for a competition authority to review the strength or otherwise of a patent or to take a view on the likely outcome of patent litigation. Once it had established that process patents were not in themselves insurmountable barriers to entry, the relevant factual considerations identified by the Court are whether each generic: 1. is inherently capable of entry; and 2. has taken sufficient concrete steps to do so; thus 3. showing a readiness to challenge the validity of the patent and/or to enter at risk of a finding of validity and infringement. If all three questions are answered in the affirmative, that generic is capable of being regarded 8.150 as a potential competitor on the market in question.144 The CJEU upheld the General Court’s rulings that:

8.151

1. it was not for the Commission to show that the proposed generic products would not infringe Lundbeck’s process patents; and 2. the existence of those patents did not preclude a finding of potential competition. In addition, the CJEU held that when identifying potential (as opposed to actual) competitors 8.152 ‘it is not necessary to demonstrate with certainty that the manufacturers of generic medicines would have entered the market and that that entry would inevitably have been successful, but

143 Ibid., para 56.

144 Ibid., paras 57–59.

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only that those manufacturers had real and concrete possibilities in that respect’ as otherwise the distinction between actual and potential competition would become irrelevant. 8.153 The CJEU affirmed that the existence of potential competition must be assessed as at the time the agreements under consideration were concluded. Relevant evidence could include: … any evidence prior to, contemporaneous with or even subsequent to the conclusion of the agreement at issue … if it is of such a nature as to throw light on the existence or absence of a competitive relationship between the undertakings concerned at the time when that agreement was concluded.145

8.154 Still on the topic of evidence relevant to the question of potential competition, the CJEU also held that contemporaneous subjective factors could be relevant to establishing the nature of the competitive relationship between the parties – as long as subjective considerations were not the only basis for the conclusion reached. Such subjective factors might include the originator’s perception of the risks posed by the generics.146 The mere fact that the originator sought to enter into agreements with generics could shed light on its subjective assessment of the competitive context. However, because evidence unknown to the parties at the time the agreement was concluded could not have influenced their mindset or conduct at that time, such evidence147 could not rebut a finding that a competitive relationship existed between them at the time at which they entered into the agreement. 8.155 A final issue on potential competition raised by the appellants and dismissed by the CJEU was the fact that at least some of the generics did not hold the MA necessary to place the generic products on the market when the agreements were concluded. Unsurprisingly, in the light of its previous approach, the CJEU held that a generic holding an MA could be either an actual or a potential competitor of the incumbent. While not an actual competitor, a generic without an MA could be a potential competitor of the incumbent. The Court explained that a key requirement in establishing a relationship of potential competition between two undertakings is the completion by the potential entrant of ‘sufficient preparatory steps to enable it to enter the market concerned within a period of time capable of putting competitive pressure on the manufacturer of originator medicines, it being of no relevance whether those steps will in fact be finalised in due time or will be successful’.148 Going further, the Court took the opportunity to reiterate a point already made in Paroxetine, specifically in the context of the pharmaceutical sector, that ‘potential competition may be exerted before the expiry of a compound patent protecting an originator medicine, since the manufacturers of generic medicines want to be ready to enter the market as soon as that patent expires’.149 In that context, the CJEU noted that relevant evidence of intention to enter would include steps preparatory to obtaining necessary MAs or other authorizations.

145 Ibid., para 67. 146 Ibid., para 76.

147 For example, a subsequent finding of non-infringement. 148 Lundbeck CJEU (n 61), para 84.

149 Ibid., para 85, citing Paroxetine CJEU (n 132), para 51. The point also arose in AstraZeneca.

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2. By object

Lundbeck argued that the patent settlements were not restrictions of competition by object.150 8.156 Its principal arguments were that: 1. the patent settlements went no further than Lundbeck could have achieved through enforcement of its patents (they were within the scope of the patent); and 2. the GC and the Commission had been wrong to hold that the payments to the generics and their ‘disproportionate nature’ were decisive in reaching a conclusion that the agreements were restrictive by object. In addition, Lundbeck argued that the fact that the agreements did not contain ‘patent no 8.157 challenge’ clauses meant that should not be classed as ‘by object’ infringements and that the Commission (and the GC) had erred by not carrying out a counterfactual analysis of the effect of the agreements. The CJEU stated, as it had in Paroxetine, that not all agreements between originators and 8.158 generics which result in delayed entry and by which value is transferred to the generic are to be characterized as by object infringements of competition under Article 101(1) TFEU. It then held that such an agreement must be regarded as a ‘by object’ infringement where: … it is plain from the examination of the settlement agreement concerned that the transfers of value provided for by it cannot have any explanation other than the commercial interest of both the holder of the patent at issue and the party allegedly infringing the patent not to engage in competition on the merits, since agreements whereby competitors deliberately substitute practical cooperation between them for the risks of competition can clearly be characterised as ‘restrictions by object’.151

The CJEU was clear that, when assessing whether competition on the merits is being aban- 8.159 doned, it is appropriate to analyse whether the financial payment to the generic resulted in a net gain to the payee sufficient to incentivize it to delay entry, and therefore not to compete on the merits with the incumbent. Having said that, the CJEU went on to say that there is no bright line requiring that the net gain should exceed the likely generic profits had the generic manufacturer continued with, and succeeded in, the patent litigation. On the evidence available, the CJEU concluded that the GC was entitled to uphold the Commission’s decision, not least because that evidence showed that, in the period leading up to the conclusion of the agreements, the generic manufacturers had continued to prepare for entry, notwithstanding Lundbeck’s process patents. That indicated that it was ‘principally the size of the reverse payments to the manufacturers of generic medicines which had induced them to accept the limitations governing their behaviour’.152 The CJEU dismissed Lundbeck’s arguments that the agreements were limited to the scope of 8.160 its process patents and were not therefore anticompetitive, agreeing with the GC that: … even if the agreements at issue also contained restrictions potentially falling within the scope of Lundbeck’s new process patents, those agreements went beyond the specific subject matter of their 150 There was no argument about competition by effect as this had not been the basis of the original decision. If Lundbeck had won on ‘by object’ the decision would not have stood. 151 Lundbeck CJEU (n 61), para, 114. 152 Ibid., para 117.

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS intellectual property rights, which indeed included the right to oppose infringements, but not the right to conclude agreements by which actual or potential competitors were paid not to enter the market.

8.161 The CJEU also noted that Lundbeck’s arguments were based on two assumptions, neither of which was established at the time the agreements were concluded: first, that the new process patents were valid; and secondly, that they were infringed. 8.162 Lundbeck had also argued that the agreements were justified (and therefore had legitimate objectives) because they sought to mitigate the asymmetry of risk in litigation between originators and generics. This asymmetry was said to arise from the fact that compensation payable by generics to originators who succeed in patent litigation is often substantially lower than the commercial damage suffered by the originator through the generic’s infringement.153 The Court dismissed this argument on the grounds that private undertakings are not permitted to enter into anticompetitive agreements to seek to mitigate the impact of legal rules. It held that such considerations could not justify any infringement of Article 101(1) TFEU, much less an object infringement. 8.163 The CJEU also gave short shrift to Lundbeck’s further arguments that: ● the agreements could not be regarded as infringements ‘by object’ because, at the time they were concluded, there was some doubt as to the competition law status of such agreements: the CJEU held that this was irrelevant as the requirement for a ‘by object’ characterization is an assessment of the specific characteristics of the agreement or practice which allow its impact on competition to be inferred; ● the absence of no challenge clauses changed the nature of the agreement: the CJEU found that the generic manufacturers had no incentive to challenge Lundbeck’s patents once they had entered into the economically favourable agreements – the formal absence of a no challenge clause thus was irrelevant;154 ● the GC had not considered the procompetitive effect of the agreements: the CJEU held that Lundbeck had not identified any procompetitive effects in its appeal and had not therefore satisfied the required standard of proof155 nor had it specifically appealed against the relevant portions of the GC judgment; and ● the GC had been wrong to hold that it was not necessary to consider the counterfactual before characterizing a practice or agreement as anticompetitive by object: the CJEU held that counterfactual examination is only relevant in situations where a consideration of the practice does not itself reveal a sufficient degree of harm to allow it to be characterised as ‘by object’ anticompetitive. If that were not the case, the distinction between ‘by effects’ and ‘by object’ restrictions would be nugatory.156

153 This damage flows not only from sales lost to the generic with which the originator is in dispute, but also from the collapse in prices which follows generic entry, and which is impossible to reverse.

154 This focus on the economic reality of the market circumstances and the substance of the agreement rather than its form reflects a similar approach in Paroxetine CJEU (n 132).

155 Lundbeck CJEU (n 61), para 137: ‘A mere unsubstantiated assertion concerning the pro‑competitive effects of the agreements at issue is insufficient to rebut their characterisation as “restrictions by object” (see, to that effect, judgment of 30 January 2020, Generics (UK) and Others, C‑307/18, EU:C:2020:52, paragraph 110).’ 156 Lundbeck CJEU, ibid., paras 139–144.

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In summary, Lundbeck confirmed at CJEU level much of the analysis and approach that had 8.164 underpinned the Commission’s activities in pay for delay cases since the early part of the century. Servier and Paroxetine raised a few additional issues, which are dealt with below. B. Paroxetine This case related to settlement agreements between GSK and various generic suppliers. The 8.165 product at issue was Paroxetine (marketed in the UK as Seroxat and, like Citalopram, an anti-depressant). GSK had, before the expiry of its original compound patent (and of regulatory data exclusivity), obtained patents relating to other forms of Paroxetine and related processes. After expiry of the original compound patent, GSK became aware that three generic suppliers were considering entering the UK market with generic Paroxetine. It concluded agreements with each of those three companies. Each arrangement settled existing or expected patent litigation and contained an agreement not to market generic Paroxetine. The CMA had held that the agreements infringed Article 101(1) TFEU and the equivalent 8.166 provision under UK national law. It also held that GSK had abused a dominant position by concluding the three agreements. During the subsequent appeal the UK’s CAT157 made a reference to the CJEU seeking a preliminary ruling on the interpretation of Articles 101 and 102 TFEU. The specific issues on which guidance was sought were broadly the same as those in Lundbeck, namely: (i) how to identify potential competitors in the context of originator/ generic competition where regulatory or patent barriers to entry are identified; and (ii) the circumstances in which a restriction of competition by object can be established.158 The CAT also asked questions about market definition relevant to the Article 102 TFEU issue as well as questions about abuse. That aspect of the case is considered further below in the discussion of the application of Article 102 TFEU in the pharmaceutical sector. The preliminary points made by the CJEU on the application of Article 101(1) TFEU and the 8.167 substantive findings are the same as those already discussed above in the context of Lundbeck. Some additional issues are discussed below. 1. Potential competition a. Relevance of the market context

The CJEU briefly summarized some of the particularities of the pharmaceutical sector. It also 8.168 expressly referred to the need to take full account of process patents, referring to both Article 17(2) of the charter of fundamental rights and the IP Enforcement Directive.159

157 Case nos: 1251-1255/1/12/16, Supplementary judgment of the Tribunal in relation to five appeals brought by six entities: GlaxoSmithKline PLC (‘GSK’), Generics (UK) Ltd (‘GUK’), Xellia Pharmaceuticals ApS and Alpharma LLC (‘Xellia/ALLC’), Actavis UK Ltd (‘Actavis’) and Merck KGaA (‘Merck’), [2021] CAT 9 (Paroxetine CAT).

158 Although the ten precise questions asked by the CAT were more detailed and complex (Paroxetine CJEU (n 132), para 21). 159 Ibid., paras 40 and 41.

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b. Factual considerations

8.169 The CJEU described some of the factors that might lead to the conclusion that a generic had a firm intention and inherent ability to enter a market. Those could include: ● taking steps to obtain an MA; ● seeking a source of supply of adequate stock (whether through own manufacture or through supply contracts); ● taking steps to challenge the process patents held by the originator;160 and ● taking steps to initiate marketing initiatives for the generic products. 8.170 Having confirmed that the perception of the incumbent as to the competitive threat posed by other operators is relevant to the question of the competitive relationship between them, additional relevant factors included: ● the conclusion of the agreements themselves; ● the fact that those agreements contained value transfers in return for a delay to market entry; and ● the size of the value transfers: ‘The greater the transfer of value, the stronger the indication’.161 2. Patent issues

8.171 As well as reiterating that the existence of a process patent is not an insurmountable barrier to entry, the CJEU remarked on the following patent related factors relevant to the assessment of potential competition in the pharma sector: … that the uncertainty as to the validity of patents is a fundamental characteristic of the pharmaceutical sector; that the presumption of validity of a patent for an originator medicine does not amount to a presumption that a generic version of that medicine properly placed on the market is illegal; that a patent does not guarantee protection against actions seeking to contest its validity; that such actions, and, in particular, the ‘at risk’ launch of a generic medicine, and the consequent court proceedings, commonly take place in the period before or immediately after the market entry of such a generic medicine; that, to obtain an MA for a generic medicine, there is no requirement to prove that that marketing does not infringe any originator medicine patent rights; and that, in the pharmaceutical sector, potential competition may be exerted before the expiry of a compound patent protecting an originator medicine, since the manufacturers of generic medicines want to be ready to enter the market as soon as that patent expires.162

8.172 The CJEU also dealt with an argument that the existence of a genuine patent dispute precluded the parties from being potential competitors as that demonstrated very real uncertainty whether competition between them would ultimately follow. The CJEU remarked: As regards, in the first place, the argument that the validity of the patent concerned should be presumed, it is common ground that such a presumption is the automatic consequence of the registration of a patent and its subsequent issue to its holder. That factor therefore sheds no light, for the purposes

160 It is notable that throughout the judgment the CJEU deals with the concrete patent position in the case (process patents only, compound patent expired) and expressly ties all its comments on the patent position to the situation where the compound patent has expired. See, e.g., Paroxetine CJEU, ibid., paras 40 and 44. 161 Ibid., paras 55–57. 162 Ibid., para 51.

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IPR/COMPETITION LAW ISSUES IN THE PHARMACEUTICAL SECTOR of applying Articles 101 and 102 TFEU, on the outcome of any dispute in relation to the validity of that patent, something which, moreover, cannot ever be known as a result of the very conclusion of the agreement between the holder of the process patent and the manufacturer concerned of generic medicines.163

Rather than agreeing that such an argument aided the parties, the CJEU observed that ‘far from 8.173 precluding the existence of any competition between them, [it] rather constitutes evidence of the existence of a potential competitive relationship between them’.164 The CJEU took a similarly robust line towards an argument that the granting of a preliminary 8.174 injunction supported the suggestion that the parties had a proper basis for their uncertainty that competition might ever take place. The CJEU noted that the grant of a preliminary injunction was only a preliminary step and did not pre-judge the merits of the validity/infringement action. It commented that this was particularly the case where, as in English patent litigation proceedings, interim injunctions are granted against a cross-undertaking by the patentee to compensate the other party if the injunction is not upheld after full trial. 3. By object

Having held that the parties were potential competitors, the CJEU turned to the second 8.175 main issue, whether an agreement of the sort identified was to be categorized as a ‘by object’ infringement. Given the discussion of Lundbeck above, it will come as no surprise to learn that the CJEU answered in the affirmative. A few points not dealt with explicitly in Lundbeck arose including some arising from specific questions posed by the referring court. a. Market features

The CJEU again referred to the specific features of the pharmaceutical sector which made 8.176 agreements reducing the possibility of market entry problematic as the sector would be particularly sensitive to delays in market entry. These included: ● strong regulatory barriers to entry; ● the existence of statutory pricing mechanisms sensitive to the entry of generic competitors; ● the monopoly nature of pricing on pharmaceutical markets without generic competition; and ● the rapid decline in prices which follows generic entry (which has significant financial consequences for all those affected: originator, generics and purchasers). The CJEU observed that these were factors of which ‘the manufacturers of originator medi- 8.177 cines and the manufacturers of generic medicines cannot be unaware’.165

163 Ibid., para 48.

164 Ibid., para 52; and see also the Opinion of the AG Kokott, paras 71–77 (ECLI:EU:C:2020:28) (Paroxetine AG Opinion). AG Kokott was also noticeably clear in paras 78–88 that it is not for the competition authorities to assess the compliance with IP/patent law of the activities of the generics. 165 Paroxetine CJEU, ibid., paras 68–70.

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b. Patent/settlement specific issues

8.178 The CAT had asked the CJEU to explain the relevance to the ‘by object’ assessment of various litigation/patent related issues including: ● the existence of a genuine dispute relating to pending court proceedings in which the likelihood of success of one or other party cannot be determined; and ● the fact that the restriction of competition does not exceed the scope of the disputed patent. 8.179 The CJEU judgment contains a series of paragraphs summarizing the relationship between IPRs and competition law and the EU approach to settlement agreements.166 These are well worth reviewing in detail if this issue is of particular interest. In summary, the position is that the existence of genuine uncertainty about the patent position does not preclude a settlement agreement from constituting a ‘by object’ infringement, this will depend on the nature of the agreement and its concrete provisions. Moreover, the mere fact that the restriction involved (e.g. to agree not to infringe or challenge a patent) does not exceed the scope of the disputed patent also does not preclude it from giving rise to a ‘by object’ infringement of competition law. 8.180 Having first set out the basic premise of Article 101(1) TFEU, that ‘each economic operator must determine independently the policy which he intends to adopt on the internal market’,167 the CJEU recited various established principles from case law, reiterating that the exercise of an IPR might infringe competition law if it resulted from or was the means of implementing an anticompetitive agreement, even though the particular action taken might in itself: … constitute the legitimate expression of the intellectual property right attached to the patent which empowers the holder of that patent, inter alia, to oppose any infringement … or also the fact, raised by the Commission, that settlement agreements are encouraged by the public authorities in that they make possible savings in terms of resources and are thus beneficial for the public at large.168 (internal references omitted)

8.181 The CJEU then noted that Article 101(1) TFEU does not distinguish between types of agreement and makes no distinction between settlement agreements and other agreements.169 It remarked that challenges to the scope and validity of patents are part of ‘normal competition’ so that agreeing not to challenge a patent may restrict competition, depending on the context. c. Agreement/factual specific issues

8.182 Having dealt with the IP specific issues, the CJEU then discussed the factual considerations which are relevant when assessing whether a settlement agreement may be a restriction of competition by object. It held that while agreements which substitute cooperation for the risks of competition may be restrictive by object, settlement agreements between originators and generics in the pharmaceutical sector (and implicitly elsewhere) do not necessarily fall into that

166 Ibid., paras 73–89 and the equivalent paras 108–120 in Paroxetine AG Opinion (n 164).

167 Case C‑286/13 P Dole Food Company, Inc and Dole Fresh Fruit Europe v European Commission (ECLI:EU:C:2015:184), para 119. 168 Paroxetine CJEU (n 132), para 79.

169 This reflects the position it took in Case 65/86 Bayer AG and Maschinenfabrik Hennecke GmbH v Heinz Süllhöfer [1988] ECR 5249 (ECLI:EU:C:1988:448), discussed above at para 2.284 ff.

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category and, moreover, that that remains the case even if the agreement contains some transfer of value from the originator to the generic. In assessing whether a transfer of value is sufficient to render an agreement restrictive by object 8.183 the CJEU asked whether the transfer (whether of money or other value) is ‘appropriate and strictly necessary having regard to the legitimate objectives of the parties to the agreement’.170 This test is similar to the criteria applied when assessing whether a restriction is ancillary.171 The CJEU then held that an agreement will be restrictive by object when transfers of value ‘cannot have any explanation other than the commercial interest of both the holder of the patent and the party allegedly infringing the patent not to engage in competition on the merits’.172 The CJEU gives some examples of legitimate value transfers in settlement agreements includ- 8.184 ing: payment of costs of litigation or disruption; payment for actual goods or services supplied by the generic to the originator; or if the generic agrees to discharge undertakings given by the originator, such as a cross-undertaking in damages following the grant of an interim injunction.173 When considering whether value transfers are appropriate and necessary, it is important to take all value transfers into account, whether for money or otherwise. This may include assessing the value of indirect benefits, such as those obtained through profits on distribution contracts.174 When assessing whether a value transfer is sufficiently large to render the agreement anticom- 8.185 petitive by object the CJEU’s guidance is that it is necessary to consider whether any net gain to the generic ‘is sufficiently large actually to act as an incentive to the manufacturer concerned of generic medicines to refrain from entering the market concerned’.175 In making that assessment, the question is whether, taking everything into consideration, the transfers of value in question ‘are shown to be sufficiently beneficial to encourage the manufacturer of generic medicines to refrain from entering the market concerned and not to compete on the merits with the manufacturer of originator medicines concerned’.176 If so, then the agreement must be characterized, at least in principle, as restricting competition by object.

170 Paroxetine CJEU (n 132), para 85.

171 See above at para 2.53. However the issue is not formally the same. Just because particular provisions are not ancillary to a procompetitive outcome does not mean that they are automatically anticompetitive by object. If there is an argument about whether a provision is ancillary, this should be considered independently. The anticompetitive nature of the provision itself is a separate analysis. A provision may be capable of having an impact on competition but still be ancillary and escape the prohibition in Art 101(1) TFEU; a provision may be ancillary but not anticompetitive; a provision may be neither anticompetitive nor ancillary. The analyses are distinct. See Case C-331/21 EDP – Energias de Portugal and Others (ECLI:EU:C:2023:812), paras 87–106. This issue is discussed in https://​chillingcompetition​.com/​2023/​ 11/​08/​developments​-on​-restrictions​-by​-object​-and​-ancillary​-restraints​-edp​-and​-fifa​-agent​-regulations/​ – accessed 13 November 2023. 172 Paroxetine CJEU (n 132), para 87. 173 Ibid., para 86.

174 For those interested in the nature of the contracts between GSK and the generics and how they were analysed, the CMA decision (n 130), and the assessment by the CAT (n 157), are important, as the CJEU accepted the facts as found by the national court. The agreements are also summarized in the Paroxetine AG Opinion (n 164), paras 14–20. 175 Paroxetine CJEU (n 132), para 93. 176 Ibid., para 94.

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d. Potential counter-arguments/scope of the patent

8.186 The CJEU then considered the parties’ defences. These included arguments that the restrictions did not exceed the technical scope and remaining temporal validity of the patent (thus not extending its reach) and that there was genuine uncertainty as to the validity or infringement of the patent in respect of which the dispute was settled. 8.187 The CJEU found that if such arguments could take agreements otherwise capable of causing a sufficient degree of harm to competition to be characterized as a by object restriction of competition out of the by object category, it would be an excessive limitation on the scope of the category of ‘by object’ infringements. 8.188 The CJEU also found that it was precisely the uncertainty as to the outcome of the dispute which meant that the parties were, for as long as the uncertainty lasted, potential competitors. By concluding an agreement, the parties were removing the prospect that the uncertainty could ever be resolved and ensuring a significant degree of harm to competition by excluding potential competitors definitively from the marketplace, thus substituting cooperation for that uncertainty. e. Relevance and assessment of procompetitive effects in ‘by-object’ analysis

8.189 The parties had argued that the agreements had sufficient procompetitive effects that they could not be ‘by object’ restrictive of competition but should be analysed using an ‘effects’ analysis. The CAT asked how such arguments should be dealt with. The CJEU confirmed the view of the AG that alleged procompetitive effects are to be considered at the stage of assessing whether an agreement reveals a ‘sufficient degree of harm to competition and, consequently, of whether it should be characterised as a “restriction by object”’.177 However, the CJEU also pointed out that the purpose of doing so is, in the first instance to ‘appreciate the objective seriousness of the practice concerned and, consequently, to determine the means of proving it’.178 In other words, any consideration of procompetitive benefits at this stage goes to categorization: is the agreement to be treated as a by object restriction, with any related presumptions of harm to competition; or is it to be treated as requiring a ‘by effects’ analysis? There is no substantive conclusion as to the merits. 8.190 The Court held that procompetitive effects are to be considered at all only if the effects proffered by the parties are demonstrated, relevant and relate specifically to the agreement at issue, so as to call into question whether the agreement caused a sufficient degree of harm to competition to be treated as ‘by object’ anticompetitive. In Paroxetine, the CJEU noted that the circumstances suggested that any procompetitive effects ‘were not only minimal but probably uncertain’179 meaning that they were not sufficient to give rise to a reasonable doubt that a settlement agreement of the type in question gave rise to a ‘by object’ restriction. 177 Ibid., para 103, quoting Paroxetine AG Opinion (n 164), para 158.

178 Paroxetine CJEU, ibid., para 104. The CJEU is keen to be clear that this does not give rise to a ‘rule of reason’ analysis. To the extent that a weighing of the procompetitive benefits of an agreement is relevant, that takes place within the context of Art 101(3) TFEU, not Art 101(1) TFEU, where the anticompetitive effects are assessed. In a by object case, those effects are assumed, in a by effects case they must be established to the relevant extent. In both cases, exemption under Art 101(3) TFEU is possible if any procompetitive benefits satisfy the relevant tests. 179 Paroxetine CJEU, ibid., para 108.

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4. By effects – effect of uncertainty – counterfactual

The CJEU then turned briefly to the CAT’s question about ‘effects’. This goes beyond the 8.191 discussion in Lundbeck, which was a ‘by object’ case only. The question went to the issue of the ‘counterfactual’ and whether a Court considering the likely effect on competition of settlement agreements had to be satisfied that there was more than a 50 per cent chance that the generic challenge to the patent would have succeeded or that the parties would have concluded a less restrictive agreement. The CJEU held that the correct approach was to consider the actual context in which the 8.192 restrictive practice occurred including all relevant factors, noting that the effect on competition necessary to engage the prohibition in Article 101(1) TFEU may be actual or potential, but must be appreciable. This does not require a definitive finding as to the relative chances of success in litigation or as to the probability of a less restrictive agreement being concluded. In summary: The sole purpose of the counter-factual is to establish the realistic possibilities with respect to that manufacturer’s conduct in the absence of the agreement at issue. Accordingly, while that counter-factual cannot be unaffected by the chances of success of the manufacturer of generic medicines in the patent proceedings or again in relation to the probability of conclusion of a less restrictive agreement, those factors constitute, however, only some factors among many to be taken into consideration in order to determine how the market will probably operate and be structured if the agreement concerned is not concluded.180

This may be regarded as less than clear but the overall message from the CJEU is that the 8.193 analysis of such agreements will vary significantly: rather than providing a straitjacket of rules for national courts and competition authorities to follow, it wishes to leave flexibility to analyse the circumstances and consider what the impact of the agreement in question is likely to be, given all the possible alternatives. C. Servier The third of the triumvirate of cases on pay for delay/patent settlements is Servier.181 At the 8.194 end of 2018, the GC gave judgment in a series of parallel cases relating to patent settlements and other agreements concluded with generics by French pharmaceutical company, Servier, and one of its subsidiaries. The appeal followed the Commission’s 2014 decision182 that Servier had ‘induced’ each of the generics to enter into the agreements, all of which involved some limitation on the relevant generic’s ability to enter the market for Servier’s hypertension drug Perindopril. The GC’s judgment was appealed to the CJEU by Servier,183 and, to the extent that it deals with questions like the assessment of object restrictions in the context of settlement agreements, it would be surprising if it were not to be upheld in substance as much of the GC’s

180 Ibid., para 120.

181 Servier GC (n 62).

182 Servier Commission Decision (n 62).

183 Servier CJEU (n 62). (There are also separate appeals by the Commission against Servier and KRKA on one aspect of the GC Judgment, which are dealt with at paras 8.195–8.205 below.)

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analysis reflects the approach in Lundbeck. AG Kokott has already given an opinion advising the CJEU to uphold the Commission’s decision in its entirety.184 8.195 The GC overturned the Commission on two issues. One relates to the definition of the relevant market for the purposes of Article 102 TFEU and is dealt with below. The other related to the assessment of arrangements between Servier and Krka185 which included licences and assignments of patents. 8.196 Servier had: (i) granted a licence to Krka to continue selling in certain Eastern European markets in which it had launched ‘at risk’ in return for a 3 per cent royalty; and (ii) agreed to settle patent litigation in England on terms (in summary) that Krka would stay off the UK market; not sell its product in the UK (‘non-marketing’ clause); and not challenge the relevant Servier patents. No payment was made by either party under the settlement agreement. Krka also assigned to Servier certain patent applications for a Perindopril product that could not be marketed without infringing one of Servier’s patents. 8.197 The Commission had found the licence to be an inducement to Krka to settle, and that the overall arrangement was a market sharing agreement and an infringement of competition by object. One of the arguments put forward by the Commission was the ‘asymmetric’ geographic scope of the licence granted by Servier to Krka. 8.198 The appellants argued before the GC that there was no restriction of competition by either object or effect. The GC agreed, holding that while a ‘side deal’ to a settlement agreement could act as an unlawful inducement, the licence in question involved royalty payments at a fair market value, meaning that there was no inducement, and that competition was not restricted by object or by effect. The GC considered it to be relevant that the Commission had not established that 3 per cent was an abnormally low royalty, nor had it established any grounds to conclude that the licence had not been concluded on an arm’s length basis. The asymmetry in territorial scope was held to be insufficient reason to conclude that the licence grant was an inducement noting that such a priori reasoning would: … lead to a paradoxical outcome because, in that case, the wider the scope of a licence agreement, the greater the inducement and thus the easier it would be to find a restriction by object, unless the scope of the licence agreement were exactly identical to that of the settlement agreement.186

8.199 The GC held that the Commission had not established that Krka’s decision to choose to protect its entry to Eastern European markets by accepting a limited licence in those markets while settling patent litigation elsewhere amounted to market sharing or infringed competition by object. 8.200 The GC spent a few paragraphs on how to assess whether a payment from the originator to the generic ‘covered the costs inherent in the amicable settlement of the dispute’ and held that the payment of such costs ‘could not in principle be considered as an incentive’.187 Inherent costs 184 Servier AG Opinion (n 62).

185 This is the subject of a separate judgment – KRKA GC (n 62). 186 Ibid., para 230.

187 Servier GC (n 62), para 278.

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would include the litigation costs of the generic, which the GC considered to be directly linked to the settlement itself. It also held that such costs might be an unacceptable inducement if it were established that the costs were disproportionate. Costs incurred (and reimbursed): … which have not been proved, on the basis of specific and detailed documents, to be objectively indispensable for the conduct of the litigation – having regard inter alia to the legal and factual complexity of the issues dealt with and the generic company’s financial interest in the dispute – must be regarded as disproportionate.

The GC then considered other categories of costs which might be reimbursed by the originator. 8.201 It concluded that some of these were ‘… a priori, too external to the dispute and its settlement to be considered as inherent in the settlement of a patent dispute’. It identified costs which were likely to be regarded as possibly amounting to a value transfer/inducement as including: … the costs of manufacturing infringing products, corresponding to the value of the stock of those products, and research and development expenses incurred in developing those products … The same is true of sums which must be paid by the generic company to third parties as a result of contractual commitments which were not undertaken in the context of the dispute (for example supply contracts).188

The GC held that costs of that nature, which were not directly linked to the settlement and 8.202 might not result in losses, might amount to a value transfer depending on the circumstances (e.g., because the stocks or R&D in respect of which ‘compensation’ was paid could be redeployed elsewhere). It would be for the parties to establish that such costs and their quantum could not be qualified as an inducement having regard to their links to the settlement and to the amount in question. On effects, the GC concluded that the evidence was that, even without the agreements 8.203 concluded with Servier, Krka would not have entered Western European markets because it believed that the relevant Servier patent was valid (the patent had been upheld by the Opposition Division of the EPO); it was the subject of an interim injunction; and it was reluctant to enter at risk in further markets. The GC held that in assessing the effects of the arrangements, following their implementation, the Commission should look at their actual effects on competition, and not rely on establishing that the agreements had potential effects on competition. The GC also held that the patent assignment from Krka to Servier was not a relevant ‘side deal’ 8.204 to the settlement agreement as there was neither a contractual nor a temporal link between them, and they were not a single and continuous by object infringement of Article 101(1) TFEU.189 188 Ibid., para 280.

189 Other interesting points discussed by the GC included: (i) whether the Commission should have applied the doctrine of ancillary restraints (Servier GC, ibid., paras 282–291) – it held not, as that doctrine must be applied on the facts of each case and, in this instance, could not have applied; (ii) whether the Commission should have had regard to US law (and, in particular, the judgment of the USSC in FTC v Actavis, Inc, 570 US 136 (2013) (paras 292–295) – it held not given: first, that EU law is separate from, and need not respect, even the national legal practice of the Member States when applying Arts 101 and 102 TFEU; and secondly, the fundamental difference in approach between EU competition law and the rule of reason/per se approach under US antitrust law. This had resulted in the application of the ‘rule of reason’ being ruled out in previous cases. Moreover, the differences between the US pharmaceutical regulatory regime and the situation

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8.205 Unsurprisingly, the Commission contests the GC’s approach to both the by object and by effect restrictive nature of the agreements. The Commission brought separate appeals against Servier and KRKA. The AG’s Opinion190 was given on 14 July 2022. AG Kokott advised the CJEU to overturn the GC’s judgment and to reinstate the Commission decision. At the time of writing the CJEU judgment is awaited. D. Cephalon/Teva191 8.206 Weighing in at over 350 pages, the Commission’s Cephalon decision is consistent, in terms of length at least, with the other pay for delay/settlement cases. The appeal is currently before the GC and, in substance, many of the arguments mirror those discussed above. It is, however, worth mentioning a few interesting aspects. 8.207 One difference is the fact that the value transfer identified by the Commission arose principally from what is described as a ‘package of commercial side deals’, as well as some cash payments. The side deals mentioned by the Commission in its decision included: ● ● ● ●

a distribution agreement; the acquisition by Cephalon of a licence to some Teva patents; Cephalon’s agreement to purchase raw materials from Teva; and Cephalon’s grant to Teva of access to clinical data relating to a different medicine.

8.208 The Commission held that Teva settled the litigation between the companies, paused or cancelled its own market entry, and agreed not to challenge Cephalon’s patents in return for the value represented by those deals; and that Teva would not have been able to conclude the deals in question without giving a commitment to stay off the market. The Commissioner for competition, Maragrethe Vestager, described the value transfer as more ‘sophisticated’ as it combined some cash payments with what she described as ‘seemingly standard commercial deals’.192 8.209 Section 6 of the Commission decision contains a lengthy assessment of each deal as part of the analysis of whether the settlement arrangement represented an inducement and a restriction by object. That section contains a wealth of interesting detail about the deals and the Commission’s approach. Assuming that it is delivered first, the outcome of the CJEU appeal in Servier/Krka will be crucial to the GC’s analysis of those deals and the extent to which they represent sufficient unjustified value transfers to give rise to either a by object or a by effect infringement. Given the AG’s lengthy review of the evidence relating to the Servier/Krka transactions in her Opinion, and her trenchant criticisms of the GC’s approach to those transactions, a win for the Commission against Servier and Krka in the CJEU will not be good news in the pharmaceutical sector in the EU meant that it would even more difficult to transpose the Actavis approach into an EU context.

190 The Commission’s appeals against Servier and KRKA are cases C-176/19P and C-151/19P respectively and are dealt with together in Commission/Servier/Krka AG Opinion (n 62). 191 Cephalon/Teva Commission Decision (n 136).

192 Commission Press Release IP/20/2220, Antitrust: Commission fines Teva and Cephalon €60.5 million for delaying entry of cheaper generic medicine, 26 November 2020 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​ip​_20​_2220 – accessed 29 July 2023).

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for Teva and Cephalon – although of course the underlying facts will be critical in assessing the value of the transactions as a whole. E. Pay For Delay – Summary In the last 15 years or so, the treatment of litigation settlements in the pharmaceutical sector 8.210 under EU competition law (specifically Art 101(1) TFEU) has developed significantly. Alongside enforcement actions, this has included the periodic monitoring of patent settlement agreements by the Commission. Some issues, such as the appropriate way to assess and calibrate value transfers across a series of 8.211 arrangements where money is only part of the deal, will continue to be clarified in cases such as Servier/Krka before the CJEU and Cephalon/Teva before the GC. Other issues that remain open include the approach that may be taken to compound patents, rather than process or other so-called secondary patents. The series of judgments summarized above have clarified how the CJEU approaches the inter- 8.212 relationship between competition law and IP in the pharmaceutical sector. These cases have also contributed more broadly to understanding how potential competition may be assessed in the light of IPR and the categorization of agreements as ‘by object’ infringements.193 For those advising in a commercial context within the pharmaceutical sector, a few things to 8.213 bear in mind, based on what has happened to date, are set out below. As always, the approach will be fact and context sensitive and risks will rise or fall depending on the overall situation. ● Settlement and licensing agreements involve possible competition law risk which should be borne in mind when considering settlement of an existing or pending patent dispute. ● The simpler a settlement agreement is, the less likely it is to give rise to competition law concerns. A pure walk away will not be problematic. ● Although licences, or other transactions concluded in the context of litigation settlement, are not necessarily a problem, they may increase risk and will complicate the legal analysis. ● Parties to patent litigation may be regarded as potential competitors even if the outcome of that litigation is uncertain and may result in a blocking position. ● If only process or so-called secondary patents are in force, the market is likely to be regarded as essentially open to potential competition. ● A factual assessment of the position of each individual generic competitor at the time the arrangement is negotiated and concluded is necessary to determine whether it is a potential competitor. The subjective views of the parties (which may not be known to each other) will be relevant. ● Contemporaneous evidence of the parties’ reasons for concluding transactions will be relevant to the question of potential competition and how any arrangement is characterized.

193 The cases also comment on interesting procedural issues such as how various sources of evidence are to be approached and ranked. See, e.g., the AG’s criticism of the approach of the GC to the evidence in the Servier/Krka CJEU appeal (Servier AG Opinion (n 62), paras 92–96 and 102–129).

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● Contemporaneous evidence is given greater weight than later explanations. When preparing materials relating to settlement proposals, remember the potential for even innocuous statements to be misinterpreted. ● If compound patents remain in force, a finding of potential competition from generics will be less likely. ● A compound patent may not always preclude a finding of potential competition – for example a finding of potential competition is more likely if generic undertakings believe the patent to be invalid and challenge it, or towards the end of the patent’s life, and if significant concrete steps towards entry have been taken.194 ● Payments to a generic entrant which have a legitimate rationale, such as reimbursement for litigation costs, are unlikely to give rise to significant risk – if they are proportionate. ● Value transfers in agreements around the time of potential generic entry will be scrutinized carefully – any arrangement which significantly benefits the generic may give rise to concern if the generic subsequently decides not to enter or enters only to a limited extent.195 ● Whether a value transfer can act as an inducement to a generic to delay, limit or cease market entry will depend on an assessment of all the ‘value’ transferred through any overall arrangement. A value transfer can arise from all sorts of transactions. ● Even if agreements or transactions do not have any formal links to each other or to any settlement, and may be separated in time, the competition authorities may treat them as part of an overall arrangement.196 ● The net gain to the generic is likely to be scrutinized.197 The profit foregone by the originator will also be relevant to the assessment of whether the originator’s conduct can be explained by anything other than an expectation that the generic will not ‘compete on the merits’.198

194 As mentioned above at (n 160), the Courts have held that potential competition may exist even before the expiry of a compound patent.

195 KRKA GC (n 62) contains significant details about the agreements entered into between Krka and Servier and how they were analysed by the Commission and the GC (at paras 125–155) The potential risks involved in such agreements are clear from the approach of Advocate General Kokott Commission/Servier/Krka AG Opinion (n 62), and the Commission’s detailed analysis in Cephalon/Teva (n 136), give some insight to the approach that is likely to be taken to assessing transactions, as do the CMA and CAT analyses in Paroxetine (nn 130 and 157). 196 In order to determine whether an agreement has an anticompetitive object, regard must be had to the content of its provisions, its objectives and the economic and legal context of which it forms part (Commission/Servier/Krka AG Opinion (n 62), para 144).

197 As the Court has found: … settlement agreements such as that in question in the present case constitute restrictions of competition by object if it is clear from all the information available that the net gain from the transfers of value, whether monetary or not, by the manufacturer of originator medicines in favour of the generic company can have no other explanation than the commercial interest of those parties not to engage in competition on the merits. In order to examine whether that is the case, it is necessary to assess whether the net gain arising from the transfers of value by the manufacturer of originator medicines in favour of the generic company may be justified by the existence of any quid pro quo other than refraining from engaging in competition. If that is not the case, it has to be determined whether the net gain is sufficiently large actually to act as an incentive for the generic company concerned to refrain from entering or attempting to enter the market concerned. Commission/Servier/Krka AG Opinion, ibid., para 141, internal references excluded. 198 The AG commented (ibid., paras 161–163): It should be recalled that Krka estimated the commercial value of the licence, that is to say, the value of its presence on the duopolistic markets covered by the licence, at more than EUR 10 million in three years (recitals 1738 and 3162

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● The actual, rather than pretextual, commercial justification for any arrangement will be critical – does it have a sensible commercial rationale (other than market exclusion)? ● If avoiding competition by transferring disproportionate value to the other party for goods or services looks like the only or the most plausible explanation for the arrangement, the risks involved in any competition investigation will be significant. ● ‘No challenge’ clauses are important to most settlements but the broader they are the more likely that a competition concern may arise – it is much less risky to link them clearly to the precise scope of the dispute that is being settled. ● Even an agreement without an explicit no challenge clause may be held to have the effect of a no challenge agreement if there is no incentive for the generic to challenge the patent. ● Licensing agreements which involve some delay but permit entry earlier than patent expiry are not necessarily anticompetitive but will need to be carefully analysed.199

IV. ARTICLE 102 TFEU AND IPR IN THE PHARMACEUTICAL SECTOR A. Some Concepts As explained in Chapter 6, Article 102 TFEU regulates the behaviour of dominant companies. 8.214 There are some ways in which the particular attributes of the pharmaceutical sector affect the enforcement of Article 102 TFEU. The way in which dominance is assessed in practice is influenced by the nature of pharmaceuticals and of pharmaceutical markets. In addition, certain forms of abusive conduct have been identified primarily in the pharmaceutical sector or have particular relevance in that context.

of, and footnote 4112 to, the decision at issue). The Commission estimated that the operating margin that Servier sacrificed for Krka’s benefit under the licence was higher (recital 1739 of the decision at issue).   The level of the royalty payable by Krka to Servier to use the licence was fixed at 3% of Krka’s net sales on the markets covered by the licence (recital 910 of the decision at issue). The royalties came to approximately EUR 1.1 million over a period of four years for a turnover of around EUR 30 million (recital 1739 of, and footnote 2350 to, the decision at issue).   It is clear from those figures that the net gain from the value transferred by Servier to Krka under the Krka licence agreement came to approximately almost EUR 9 million at least in terms of the value of the licence for Krka, assuming that the EUR 10 million in profits estimated excluded the cost of the royalties. As for the margin sacrificed by Servier, a margin higher than Krka’s profits on account of Servier’s higher prices (recital 1739 of the decision at issue), the amount of the net gain from the value transferred by Servier to Krka under the licence would be even higher.

199 This is clear from the periodic reports published by the Commission following its annual monitoring of patent settlements. The last such report (to date) concerned the period from January to December 2016, and was published on 9 March 2018. These reports break patent settlement arrangements into three categories: A (those which do not restrict generic entry); B.I (those which do involve some limit on generic entry but involve no value transfer); and B.II (those which foresee a limit to generic entry and some value transfer from the originator to the generic. The Commission notes that: B.II settlements are likely to attract the highest degree of antitrust scrutiny since they limit access to the market and contain a value transfer from the originator to the generic. Nonetheless, this is not to suggest that agreements falling into this category would necessarily be incompatible with EU competition law. This needs to be assessed on the basis of the circumstances of each individual case. Eighth Report on the Monitoring of Patent Settlements (n 63), p 4, para 17.

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B. Dominance 8.215 A dominant position is ‘a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of “its consumers”’.200 The basic approach to market definition in the pharmaceutical industry is the same as elsewhere. This was confirmed by the GC in AstraZeneca.201 The GC did not accept arguments that State interventions in pharmaceutical markets (including in pricing) excluded an economic approach to market definition ‘based on the observation of the reaction of demand to relative price changes’.202 However, the GC also accepted that it is appropriate and necessary carefully to analyse the therapeutic use to which the drug is put. 1. Relevance of the Anatomic Therapeutic Classification

8.216 The Commission’s starting point for assessing the therapeutic substitutability of pharmaceutical products is usually the Anatomical Therapeutic Classification (ATC) developed by EPhRMA. According to the World Health Organization, under an ATC system active chemical substances ‘are divided into groups depending on the organ or system on which they act and their therapeutic, pharmacological and chemical properties. Drugs are classified in groups at five different levels’.203 8.217 The levels are (broadly): ● Level 1: anatomical main group (the system has 14 main groups based on anatomical or pharmacological categories e.g., Cardiovascular System or Anti-infective for systemic use); ● Level 2 Pharmacological or Therapeutic subgroup; ● Level 3: Chemical, Pharmacological or Therapeutic subgroup; ● Level 4: Chemical, Pharmacological or Therapeutic subgroup; ● Level 5: chemical substance. 8.218 To illustrate how this works, the WHO has provided a table (Table 8.1) showing the complete classification of the anti-diabetic drug, Metformin: Table 8.1

ATC classification of Metformin

A

Alimentary tract and metabolism (1st level, anatomical main group)

A10B

Blood glucose lowering drugs, excl. insulins (3rd level, pharmacological subgroup)

A10

A10BA

A10BA02

Drugs used in diabetes (2nd level, therapeutic subgroup) Biguanides (4th level, chemical subgroup)

Metformin (5th level, chemical substance)

Source: World Health Organization ATC Toolkit, https://​www​.who​.int/​tools/​atc​-ddd​-toolkit/​atc​-classification – accessed 23 March 2024.

200 Case 27/76 United Brands Company and United Brands Continentaal BV v Commission of the European Communities (ECLI:EU:C:1978:22), para 65.

201 AstraZeneca GC (n 2), paras 352–613. 202 Ibid., para 91.

203 https://​www​.who​.int/​tools/​atc​-ddd​-toolkit/​atc​-classification – accessed 29 July 2023.

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In AstraZeneca, the GC explained how this approach was utilized by the Commission in reach- 8.219 ing the conclusion that AstraZeneca was dominant: The third ATC level groups pharmaceutical products according to their therapeutic indications, the fourth ATC level normally takes into consideration the mode of action and the fifth level defines the narrowest classes, including active substances taken individually. The Commission stated in the contested decision that, concerning market definition, the analysis generally started from the third ATC level. However, it added that the other ATC levels were also taken into consideration where it appears that sufficiently strong competitive constraints operate at other ATC levels and that, consequently, the third ATC level does not seem to allow a correct market definition.204

The issues of market definition and dominance in AstraZeneca were both complex and hard 8.220 fought at all levels of the proceedings.205 The Commission had found AstraZeneca to be dominant in a market for Proton Pump Inhibitors (PPIs), a type of drug used to treat gastrointestinal issues including ulcers. It excluded from that market other classes of drug having different modes of action but used for the same therapeutic purpose. Among the drugs excluded was the class of drugs used to treat gastrointestinal ailments before PPIs came to market. That class of drugs (H2 blockers) was still used to treat gastrointestinal conditions alongside PPIs. The Commission found that H2 blockers did not ‘exercise significant competitive constraints’ on PPIs, basing its conclusion on factors including: ‘principally, the intrinsic features of the products, their therapeutic uses, the continuous increase of PPI sales at the expense of H2 blockers, price factors, and “natural” events which occurred in Germany and the United Kingdom’. The Commission had placed significant emphasis on differing modes of action between the 8.221 product owned by AstraZeneca and other competing products. During the proceedings it seems to have been common ground that not only did PPIs have a different mode of action, but PPIs were also therapeutically superior to H2 inhibitors. AstraZeneca argued that despite this, PPIs were able to displace H2 blockers only gradually meaning that H2 inhibitors exerted competitive constraints on PPIs and were part of the same market. The Commission countered this by pointing to prescription practices, suggesting that the two products ‘were part of a hierarchy of medicines’206 being used differently. The Commission further referred to the rapid penetration of PPIs in various national markets which suggested that PPIs were being used to treat gastrointestinal ailments for which H2 blockers were not prescribed and in respect of which H2 blockers would not impose any competitive constraint on PPIs. The GC agreed with the Commission. It observed that the Commission had been careful to 8.222 state that the mere fact of differences in modes of action was not sufficient to establish a separate market but had also considered the therapeutic uses of PPIs and HS2 inhibitors. The GC sounded a note of caution as to the relevance of differing modes of action, stating: ‘… the applicants are justified in observing that it is necessary to take account of differences between medicines’ modes of action where they give rise to different therapeutic uses and to disregard them where the medicines in question have a similar therapeutic use …’207 (emphasis added).

204 AstraZeneca GC (n 2), para 154. 205 See, e.g., ibid., para 28. 206 Ibid., para 52.

207 Ibid., para 153.

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8.223 The GC dismissed AstraZeneca’s arguments that the Commission had moved away from its previous practice of using ATC level 3 for market definition purposes. It found that the Commission had explained its reason for moving to another ATC level and that identifying the ATC level had been only a preliminary, rather than a definitive, step in the Commission’s analysis. 8.224 Both AstraZeneca and the intervener, the pharmaceutical trade association EFPIA,208 made detailed arguments about the Commission’s reliance on price differentials and price movements between PPIs and H2 inhibitors. This required the GC to assess how prices were set and moved in the light of the different regulatory and pricing backgrounds in various Member States. AstraZeneca argued that the price gap between PPIs and H2 inhibitors was not relevant owing to the involvement of public authorities in price setting. AstraZeneca submitted that this meant that prices did not reflect ‘normal competitive interaction’. While the GC agreed that pricing was significantly affected by the activities of the public authorities it decided that this was irrelevant for purposes of market definition: Where it is established that a group of products is not subject to a significant extent to competitive constraints from other products, so that that group may be considered to form a relevant product market, the type or nature of the factors that shield that group of products from any significant competitive constraint is of only limited relevance, since the finding of an absence of such competitive constraints leads to the conclusion that an undertaking in a dominant position on the market thus defined would be able to affect the interests of consumers on that market by preventing, through abusive behaviour, the maintenance of effective competition.209

8.225 The GC went on to hold that the Commission was wrong to find that the mere fact that AstraZeneca was able to maintain prices for PPIs above the reimbursement level was in itself evidence of the absence of significant competitive constraint. This was because such a finding would require the Commission also to examine the reimbursement prices of other, potentially substitutable, medicines. The GC found that this error did not invalidate the Commission’s overall conclusions about the relevance of the price differential between PPI and H2 blockers. The GC concluded that price related factors were relevant to market definition in the pharmaceutical sector as in other sectors, notwithstanding its heavily regulated nature but that they must be assessed in a way which has regard to the specific context, concluding: ‘In the pharmaceutical sector, competitive relationships respond to mechanisms which differ from those determining competitive interactions normally present in markets which are not so heavily regulated.’210 8.226 The AstraZeneca case contains an array of other arguments relating to market definition in pharmaceutical markets which are beyond the scope of this chapter. In summary, however, the GCs found that the overall approach to market definition in the pharmaceutical sector was not substantively different from that in other sectors and that, as always, it is important to have regard to the specific context when assessing the evidence. The Commission was held to have

208 The European Federation of Pharmaceutical Industries and Associations which represents the biopharmaceutical industry operating in Europe (https://​www​.efpia​.eu/​about​-us/​who​-we​-are/​– accessed 31 July 2023). 209 AstraZeneca GC (n 2), para 175. 210 Ibid., para 183.

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relied on sufficient evidence of different indicators ‘to establish to the requisite legal standard the conclusion that the Commission reached’.211 The indicators relied on included: ● the greater efficacy of PPIs; ● the differentiated therapeutic use of PPIs and H2 blockers; ● a trend of asymmetrical substitution between the products, as the sale of PPIs increased and those of H2 blockers decreased or stalled; ● price indicators; and ● indications from ‘natural events’ in various geographic markets. AstraZeneca appealed to the CJEU which upheld the judgment of the GC.212 Market definition was an important aspect of the Commission’s decision and of the subsequent 8.227 appeals in Servier.213 The Commission considered several aspects of the context in which Perindopril (the Servier product) was supplied before reaching its conclusion on market definition.214 The key issues are discussed below. Perindopril is one of a class of ACE inhibitors, used in the treatment of hypertension. The 8.228 Commission decided that ACE inhibitors were heterogeneous products. It found that different ACE inhibitors could be linked to differences in efficacy and in individual patient tolerance and, finally, that Perindopril was recognized to have characteristics which differentiated it from other ACE inhibitors. The Commission concluded that Perindopril was in a separate market from other drugs in the same class. Unsurprisingly, Servier and EFPIA disagreed.215 They argued that ACE inhibitors formed a homogenous class and that there was no principled basis for the Commission to have singled out Perindopril based on efficacy or side effects, nor were there any other significant differences which meant that it should be placed in its own separate market. The GC held that it was necessary to examine all the relevant factors and evidence to deter- 8.229 mine whether those responsible for deciding on the use of Perindopril (prescribing physicians) regarded it as being therapeutically substitutable by other ACE inhibitors. The GC noted that while the Commission had, in effect, defined the market at the fifth level of the ATC classification, this could not be criticized if it were supported by relevant and sufficient evidence as to differences in therapeutic efficacy and side effects. Having reviewed the evidence relied on by the Commission and evidence submitted by Servier during the Commission investigation, the GC held that Servier’s argument as to the substitutability of its product and other ACE inhibitors had to be upheld because: There is in the file no objective scientific evidence of the therapeutic superiority of perindopril over other ACE inhibitors. ACE inhibitors are widely perceived as substitutable by prescribers and there

211 Ibid., para 220.

212 AstraZeneca CJEU (n 2), paras 27–60. 213 Servier Commission Decision (n 62).

214 As is often the case in Art 102 TFEU cases, the market definition reached made the conclusion on dominance very clear. This is one reason why this question is often so contentious, frequently involving expert economic evidence from all parties. 215 Both appealed on this point.

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS are numerous medicinal products regarded by doctors as therapeutic equivalents to perindopril. Accordingly, the Commission erred in considering that the ACE inhibitor class was heterogeneous and that perindopril exhibited particular therapeutic characteristics within that class of medicinal products.216

8.230 Servier also argued that the Commission had erred in finding that doctors suffered from a form of inertia in prescribing Perindopril to new patients as well as to those who were already stabilized on the drug. Servier argued that there was keen competition between those who supplied ACE inhibitors, although there was a lack of price sensitivity on the part of prescribers. 8.231 The GC noted as a preliminary point that the degree of doctor inertia is an empirical question which must be investigated on a case-by-case basis. Having reviewed the evidence, the GC held that in the case of Perindopril the Commission had not established a degree of prescribing inertia sufficient to significantly restrict the competitive pressure on Perindopril from other ACE inhibitors when being prescribed to new patients. The GC also held that the Commission had underestimated the propensity of prescribers to change even when prescribing for existing patients, having (wrongly) assumed heterogeneity within the class of ACE inhibitors. 8.232 The GC also held that the Commission had wrongly assessed the competitive impact of promotional expenditure on Perindopril. 8.233 The significant factual and economic battle between Servier and the Commission on the relevance of ‘natural events’ and the merits of various econometric studies also went the way of the appellant. The GC found that the Commission had attached undue importance to its analysis of the impact of various natural events without fully accounting for the specific nature of the pharmaceutical sector. 8.234 Overall, on market definition, the message from the GC in Servier was that the approach established by the GC in AstraZeneca (upholding the Commission), as endorsed by the CJEU in that case, provided the correct framework for market definition in Article 102 TFEU cases in the pharmaceutical sector. It emphasized the fact specific nature of the assessment and the need for the Commission to demonstrate a lack of therapeutic substitutability if it seeks to place a pharmaceutical product in a single molecule market. 8.235 The GC concluded that the evidence was insufficient to support the Commission’s findings that Perindopril was part of a heterogeneous class of products (ACE inhibitors) which showed specific characteristics; or that competitive pressure on Perindopril was significantly restricted by prescriber inertia. It also held that the Commission had failed to take sufficient account of evidence about Servier’s competitive promotional spending on Perindopril or of the particular characteristics of the pharmaceutical sector. Consequently, the GC held that the Commission had wrongly defined the relevant market as being limited to brand-name and generic Perindopril. 8.236 That is not the end of the market definition story in Servier. The GC had overturned the Commission’s findings on the basis that, even though the Commission has a margin of discre-

216 Servier GC (n 62), para 1481.

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tion in economic matters, the GC may carry out an in-depth review of Commission decisions as to both the law and the facts. This being so, it held that it must verify the accuracy of the evidence relied on by the Commission as well as checking that they are all the relevant data and assessing whether they are sufficient to support the Commission’s conclusions while also assessing all the arguments put forward by the appellant. The Commission disagreed with both the outcome and the GC’s approach. It appealed to the CJEU against the GC’s decision on market definition, and judgment on that appeal is awaited. At the time of writing, the AG had advised that the CJEU should annul the GC’s judgment on Article 102 TFEU as it was insufficiently reasoned and that those aspects of the appeal should be referred back to the GC. 2. Market definition in generics/Paroxetine – the relevance of patents

In Paroxetine,217 the CJEU was required to consider the question of market definition only in 8.237 a very narrow context. The referring court had asked only a specific question about whether generic products should be considered as part of the same market as the originator product, notwithstanding uncertainty about the legality of entry before patent expiry/revocation or a finding of non-infringement.218 The CJEU noted specifically that it was not required to consider the relevance of other drugs in the same class, but only the position of generic versions of Paroxetine.219 The relevant patents were ‘process patents’. The CJEU reiterated that traditional criteria used when defining markets should be applied in 8.238 the pharmaceutical context: it is necessary to consider the degree of interchangeability in the light of the conditions of competition and the structure of supply and demand. The CJEU also noted with approval the AG’s comment that, as substitutability and inter- 8.239 changeability are naturally dynamic, the availability of new products may justify a new market definition.220 It accepted that in the context of generic/originator interchangeability this ‘could lead to a situation where the originator medicine is considered, in the professional circles concerned, to be interchangeable only with those generic medicines and, consequently, to belong to a specific market, limited exclusively to medicines which contain that active ingredient’.221 This would apply only if generics were in a position to enter ‘with sufficient strength to constitute a serious counterbalance’. If the evidence demonstrates that a generic would be able to enter soon after expiry of the relevant compound patent or period of data exclusivity relating to that compound (e.g., because an effective strategy for market entry is in place, and steps to implement that strategy have been taken – such as applying for or obtaining an MA or concluding supply contracts for the API), the fact that the manufacturer of the originator product argues that it has a process patent capable of impeding generic entry does not preclude the generic from forming part of the same product market.222 The Court concludes by summing up its position on the question asked by the CAT as follows: 8.240

217 Paroxetine CJEU (n 132). 218 Ibid., paras 123–140. 219 Ibid., para 125.

220 Paroxetine AG Opinion (n 164), para 222. 221 Paroxetine CJEU (n 132), para 131. 222 Ibid., para 136.

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS … Article 102 TFEU must be interpreted as meaning that, in a situation where a manufacturer of originator medicines containing an active ingredient which is in the public domain, but the process of manufacturing which is covered by a process patent, the validity of which is disputed, impedes, on the basis of that process patent, the market entry of generic versions of that medicine, there must be taken into consideration, for the purposes of definition of the product market concerned, not only the originator version of that medicine but also its generic versions, even if the latter would not be able to enter legally the market before the expiry of that process patent, if the manufacturers concerned of generic medicines are in a position to present themselves within a short period on the market concerned with sufficient strength to constitute a serious counterbalance to the manufacturer of originator medicines already on that market, which it is for the referring court to determine.223

8.241 In the national litigation, the CAT applied this criterion to hold that the market in which Paroxetine competed had changed once potential generic competition emerged.224 It held that there were two distinct markets: ● before generic competition emerged, the qualitative evidence suggested that Paroxetine competed with other products in the same class of SSRI anti-depressants and the CMA had been wrong to regard that evidence as ‘of only theoretical value and inconclusive’; ● once generic competition emerged and began to exert competitive pressure on Paroxetine, driving down the price of Paroxetine, a new market developed, being limited to Paroxetine and its generic substitutes, with other SSRIs no longer competing with Paroxetine. 8.242 In taking this approach, the CAT gave greater weight to price competition once generic competitors having the same functionality as Paroxetine appeared. It held that the CMA had been wrong to find that lack of price competition between Paroxetine and other SSRIs before generic entry was definitive in ruling other SSRIs out of a broader SSRI market including Paroxetine and the others in that class at that time. The CAT found that demand for prescription medicines in the absence of generic competition is not price sensitive and so that lack of switching and price effects was not determinative in that context. 8.243 Overall, the message is that market definition in the pharmaceutical sector requires some care. The exercise is fact and context specific. It is based on the same theoretical framework of interchangeability and substitutability as in other sectors, having regard to all the relevant contextual considerations such as the regulatory environment, the behaviour of prescribers, the competitive constraints in fact exercised by products on each other and the IP context. As far as the last is concerned, it is now clear that the existence of secondary patents does not preclude potential generic entrants from being included in the same market as originator companies. This will be a matter of fact based on their ability to exercise competitive pressure on the originator by virtue of their willingness, preparations and ability to enter the market within a short timeframe. Once generic competitors are sufficiently close to market entry to be deemed potential competitors, there may be grounds to argue that the relevant market contains only the originator compound and its generics, rather than other compounds in the same class – although this will be a matter of fact to be assessed in all the circumstances.225

223 Ibid., para 140.

224 Paroxetine CAT (n 157), paras 79–91.

225 Commission Notice on the definition of the relevant market for the purposes of Union competition law OJ [2024] C 1645 (Market Definition Notice), para 23 (c) states:

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3. Dominance and IPRs in pharma

Given that market definition tends towards narrow markets in pharmaceutical cases, it will 8.244 come as little surprise that a finding of dominance has tended to follow, at least pending significant generic entry. In AstraZeneca,226 the CJEU reiterated that the possession of high market shares (over 50 per 8.245 cent) constitutes evidence of dominance and upheld the view of the GC that the Commission had appropriately considered AstraZeneca’s generally very large market shares as part of its overall assessment of the competitive conditions faced by AstraZeneca. Other relevant considerations identified by the Commission and upheld by the GC included, as might be expected, AstraZeneca’s first mover status, its financial strength and its IPRs. EFPIA had argued that the GC had misapplied the law, particularly the judgment in Magill227 8.246 which had established that the mere ownership of IP is not enough to establish a position of dominance. The CJEU held that EFPIA’s pleading was in part inadmissible. It went on to rule that the GC had been correct to hold that, while the mere possession of IPR could not confer a position of dominance, in some circumstances IPRs may create a dominant position by enabling the prevention of effective competition on the market. On the facts, the CJEU upheld the GC’s position that this was more likely in the context of the particularly strong patent position enjoyed by AstraZeneca’s brand name drug, as the first PPI to enter, which AstraZeneca had utilized to impose competitive constraints on its competitors. Finally on the relevance of IPRs, the CJEU said: Lastly, contrary to what the EFPIA submits, the taking into account of intellectual property rights for the purposes of finding that an undertaking has a dominant position does not mean that companies introducing innovative products on the market should refrain from acquiring a comprehensive portfolio of intellectual property rights or from enforcing those rights. It is sufficient to point out in that regard that a dominant position is not prohibited, only its abuse, and a finding that an undertaking has such a position is not in itself a criticism of the undertaking concerned (see, to that effect, Joined Cases C‑395/96 P and C‑396/96 P Compagnie maritime belge transports and Others v Commission [2000] ECR I‑1365, paragraph 37, and TeliaSonera Sverige, paragraph 24).228

Potential competition, by contrast, comprises more remote and contingent competitive constraints that do not meet the criteria of effectiveness and immediacy of substitution (48). Therefore, potential competition is not relevant for the definition of the relevant market and it is not appropriate to include in the relevant product market current sales by a potential competitor of products that are not substitutable with the product(s) of the undertaking(s) involved from the perspective of the customers (49), or to expand the geographic market to include the areas where the potential competitor is already active with its products (50). The existence of potential competition requires an analysis of additional factors, including the likelihood, timeframe and magnitude of any market entry. The assessment of the impact of potential competition requires analysing how this affects or could affect the behaviour of the undertaking(s) involved. This is analysed in the competitive assessment.

226 AstraZeneca CJEU (n 2).

227 Joined Cases C-241/91P and C-242/91P Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v Commission of the European Communities [1995] ECR I-743 (ECLI:EU:C:1995:98) (Magill).

228 AstraZeneca CJEU (n 2), para 188.

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8.248 In Servier, the Commission’s conclusions on dominance fell away once the GC held that it had erred in its product market definition.229 8.249 There was a further argument about dominance in Servier that is of some interest from an IPR perspective. The issue related to the Commission’s finding that Servier occupied a dominant position not just on the relevant market for finished products but also on the relevant technology market.230 The GC agreed with Servier that the Commission relied decisively on its findings about competitive constraints in the market for finished products (which it had held to be Perindopril only) when assessing the position on any relevant technology market. Given that the Commission was held to have erred in its approach to the product market, its conclusions on the technology market also fell by the wayside. 8.250 The CJEU was not asked a question about dominance in Paroxetine. The CMA had held that GSK should have been aware that it was dominant once the significant price decreases on generic entry became apparent. The CAT disagreed, on the basis that if significant price reductions on generic entry were the sole criterion for identifying a dominant position, then ‘almost every patent holder would be dominant’.231 The CAT focused instead on the definition of the relevant market and appeared to regard it as inevitable that once the relevant market was Paroxetine, rather than a wider market for all SSRI’s, GSK was dominant. Indeed, it held that once the impact on prices of parallel trade of Paroxetine became apparent this was unambiguous evidence as to the narrower market being the correct market, that GSK should have known this and should have been aware that it had substantial market power.232 8.251 Until relatively recently, abuse cases specifically affecting the pharmaceutical sector had been rare. During the last ten or 15 years the sector has seen more Article 102 TFEU enforcement, a trend that seems likely to continue. Key recent areas of Article 102 TFEU development in the pharmaceutical sector have been: ● ● ● ●

abuses relating to the use of patenting or regulatory procedures; abuses relating to pay for delay strategies; abuses relating to control of supply/parallel trade issues; and a range of other miscellaneous potentially abusive conduct.

8.252 Each of these areas has been widely written about and only the first two have a close relationship with the ownership and exercise of IPR.

229 Servier GC (n 62), para 1607. 230 Ibid., paras 1611–1622.

231 Paroxetine CAT (n 157), para 133.

232 Ibid., para 135. This may be why the CAT did not feel there was a real problem with GSK’s reliance on the Commission’s market definition guidance (which at the time stated, as with the revised notice adopted in 2024, that potential competition was not to be taken into consideration when defining markets (see Market Definition Notice (n 225), para 23(c), and see the comments on the revised draft notice above at (n 225))). As parallel traded Paroxetine already exerted significant constraints on Paroxetine placed directly on the market by GSK, the definition of Paroxetine as the relevant market did not arise from potential competition alone, but from the actual competition already being exerted by parallel traded Paroxetine.

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C. Abuse 1. The abuse of patent/regulatory procedures

Cases applying Article 102 TFEU to abuse of process (or, in a similar vein, vexatious litigation) 8.253 have arisen from time to time, as discussed in Chapter 6 above. Cases in the pharmaceutical sector which relate primarily to IP or some equivalent right to exclude are discussed below. a. AstraZeneca

AstraZeneca233 is the leading case on the use/misuse of regulatory or patent procedures in the 8.254 pharmaceutical sector. In addition to having interesting things to say about the obligations on dominant companies to conduct themselves with propriety when engaging with public authorities (at least in contexts where obtaining, maintaining or extending a right to exclude is concerned), it also confirms some other important aspects of Article 102 TFEU. AstraZeneca was found to have committed two separate abuses. One related to the provision 8.255 of misleading information to national patent offices when seeking to obtain SPCs and related conduct when seeking to enforce or maintain those SPCs. The other arose from the manipulation of national regulatory procedures relating to MAs. The second abuse cannot be repeated in the same precise way owing to changes to the relevant legislation, although the principles which underpin it are of general application. Both had in common the effect of making it more difficult for generic competitors to enter the market for AstraZeneca’s then blockbuster drug Losec (Omeprazole). Some key points arising from AstraZeneca are: ● Using regulatory procedures in accordance with the relevant regulatory rules may be an abuse under competition law.234 ● The fact that a particular legal or regulatory regime may have its own sanctions for misuse is irrelevant to potential breaches of competition law; they are parallel regimes.235 ● Owing to the special responsibility imposed by Article 102 TFEU,236 dominant firms are under an obligation to act transparently, at least when dealing with public authorities;237

233 AstraZeneca CJEU (n 2).

234 Ibid., paras 132–135, citing Case C‑202/07 P France Télécom SA v Commission of the European Communities [2009] ECR I‑2369 (ECLI:EU:C:2009:214) (France Télécom CJEU), para 105.

235 AstraZeneca GC ibid., para 339 (Commission position) and para 366 (GC conclusion). 236 See discussion above at paras 6.60, 6.63.

237 The subsequent judgment in the Roche/Novartis (n 116), Art 101 TFEU case (see above at paras 8.123 ff) reflects this aspect of the AstraZeneca case which was a key part of the CJEU judgment (paras 93–99). While dominant companies are subject to special obligations, which do not apply to non-dominant companies, it would be surprising if market exclusionary conduct found to be abusive when engaged in by a dominant company were not also an infringement under Art 101(1) TFEU if entered into between two significant players in related markets with the intent of excluding or limiting competition.

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the nature of this obligation may be affected by the extent of the discretion of the relevant authority and whether it has the obligation to check information provided.238 ● While evidence of intention to harm competition, or of bad faith, is not necessary to establish abuse, it can be relevant and may be taken into account by the Commission when assessing whether conduct is abusive. 8.257 Given the importance of the case, it is worth spending a little time considering some of the core aspects of the CJEU’s judgment. (i) Abuse 1 – obtaining or maintaining an exclusionary right through provision of misleading information

8.258 The first abuse consisted of two main parts, the first relating to obtaining and the second to seeking to maintain SPCs for Losec. It took place against a background of uncertainty as to the interpretation of relevant provisions of SPC legislation. 8.259 It is probably fair to say that since its adoption the legislation relating to SPCs has generated a good deal of legal uncertainty and much litigation over its scope and precise parameters. Without going into the intricacies of that regime,239 it is important to understand that SPCs last for a maximum five-year period and that the intention of the regime is (broadly speaking) to enable the owner of a ‘basic patent’ to benefit from a maximum period of 15 years exclusivity from the date of the first MA for the product concerned in the EU. There is therefore a trigger date from which eligibility for an SPC is calculated. At the time relevant to AstraZeneca’s conduct, the EU Courts were considering what was the correct SPC ‘trigger date’. 8.260 When applying for an SPC, it is for the owner of the basic patent to identify in its application the appropriate date relevant for the grant of an SPC as the patentee is in the best position to be aware of the dates on which various stages of the product’s launch and authorization took place throughout the EU. At the time (and currently, although this may change), SPC applications were dealt with by national patent offices, meaning that an applicant had to provide the information to the national patent authority in each Member State in which an SPC was sought. The approach of the national authorities varied. Some were interventionist and asked questions or sought to clarify the information received, others did not, perhaps because of different national legal responsibilities, workloads, or resources. 8.261 The Commission found that AstraZeneca had developed a strategy to delay market entry by generic manufacturers of Omeprazole by obtaining and maintaining SPCs to which it either was not entitled at all, or to which it was entitled for a shorter period than that for which it applied. The strategy adopted consisted of providing information to the national authorities that was calculated to give AstraZeneca the best opportunity of obtaining an SPC (or the longest SPC protection) in that country. The Commission found that AstraZeneca had iden-

238 AstraZeneca CJEU (n 2), para 105: … the limited discretion of public authorities or the absence of any obligation on their part to verify the accuracy or veracity of the information provided could be relevant factors to be taken into consideration for the purposes of determining whether the practice in question was liable to raise regulatory obstacles to competition. 239 Which is far outside my competence and the scope of this book but those who are interested might consider a text such as those cited in (n 1).

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tified various potential dates as from which its SPC might be argued to be available, depending on how the SPC legislation was interpreted. It then put forward the most favourable possible date to some (but not all) national patent offices. AstraZeneca did not explain to the national patent offices that there were alternative options and what the consequences would be if the courts decided against the interpretation for which AstraZeneca was arguing. The Commission held (and the GC agreed) that AstraZeneca had infringed Article 102 TFEU both by instructing its patent attorneys to apply for SPCs using AstraZeneca’s preferred date in several EU member states and subsequently by making representations about its entitlement to an SPC both to the national patent authorities and before national courts. AstraZeneca appealed, supported by EFPIA. Its appeal had several strands, each of which was 8.262 dealt with separately by the CJEU. The outcome is summarized below. AstraZeneca argued that the GC had been wrong to have disregarded the legal context in 8.263 which its representations had been made and, in particular, not to have taken into consideration AstraZeneca’s reasonableness and good faith when interpreting the relevant legislation. It also argued that the GC had been wrong to have treated a ‘lack of transparency’ as abusive because ‘the General Court wrongly promoted to the rank of an abuse the mere fact that an undertaking in a dominant position seeks a right from which it thinks it can benefit without disclosing the elements on which it bases its opinion’.240 AstraZeneca argued that while misleading a patent office might amount to an abuse in some circumstances, there were policy reasons to limit such liability to circumstances in which deliberate fraud or deceit could be established, so as not to chill patent applications (referring to the position in the US). The CJEU dismissed this aspect of the appeal. The judgment on this issue is worth reading in 8.264 full and is only a few pages long.241 The CJEU first agreed with the GC that: AZ’s consistent and linear conduct, … which was characterised by the notification to the patent offices of highly misleading representations and by a manifest lack of transparency, … and by which AZ deliberately attempted to mislead the patent offices and judicial authorities in order to keep for as long as possible its monopoly on the PPI market, fell outside the scope of competition on the merits.242

The CJEU then held that whatever the reasonableness of AstraZeneca’s belief, or its good faith 8.265 in holding that belief, the special responsibility that applies to dominant companies meant that ‘…, the onus was on AZ to disclose to the patent offices all the relevant information … in order to allow them to decide, with full knowledge of the facts, which of those authorisations they wished to accept for the purposes of issuing the SPC’.243 The CJEU’s view was that if AstraZeneca was correct in its arguments about the way in which 8.266 it could present its position to the public authorities, the consequence would be that a dominant company could, once it believed it had an arguable basis (‘legally defensible interpretation’) to

240 AstraZeneca CJEU (n 2), para 70.

241 Ibid., paras 74–100. The GC judgment contains a much fuller description of the background facts and the arguments of both AZ and the Commission (AstraZeneca GC (n 2), paras 295–613). 242 Ibid., para 93. 243 Ibid., para 95.

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claim a right, use any means available to pursue its claim, including seeking to cause public authorities to err by providing them with ‘highly misleading representations’.244 8.267 The CJEU went on to dismiss one of the concerns raised by EFPIA (the intervener), which had argued that if the EC Commission and GC were right, then dominant companies would need to be infallible when dealing with regulatory authorities. The CJEU said that there could be no assumption that if a patent application by a dominant company is rejected because the application did not satisfy the legal criteria for patentability, liability under Article 102 TFEU would automatically follow.245 Each situation had to be assessed on its own facts. The CJEU also held that it was not necessary to show fraud or deceit for liability to arise, so the question remains as to when liability will arise: if merely making misguided or hopeful applications does not appear in itself to be sufficient, but bad faith is not required, where does the border between lawful and unlawful behaviour lie? 8.268 The CJEU explains,246 citing the GC,247 that an infringement under Article 102 TFEU will arise only if misleading representations to a public authority, ‘in view of the objective context in which they are made … are actually liable to lead the public authorities to grant the exclusive right applied for’.248 In other words, the CJEU was careful to emphasize that the context and the facts are crucial to establishing liability. This suggests that the nature of the examination carried out by the relevant public authority may be relevant. For example, if they had limited discretion or no obligation to verify information, this could make it more likely that the provision of misleading or inaccurate information would lead to higher barriers to competition. 8.269 The CJEU judgment does not contain a general description or test identifying the circumstances in which conduct of this sort will fall outside the scope of ‘competition on the merits’. The CJEU confines itself to confirming that the GC was correct to hold that AstraZeneca had infringed because it had: ● ● ● ● ●

engaged in consistent and linear conduct; involving highly misleading representations; and involving a manifest lack of transparency; by which it attempted to mislead patent offices and judicial authorities; in order to keep its monopoly for as long as possible.

8.270 It appears from the CJEU judgment when read in the light of the Commission decision and the GC judgment, that when a dominant company seeks from public bodies the grant or confir-

244 Ibid., para 98. 245 Ibid., para 99.

246 Ibid., para 106.

247 AstraZeneca GC (n 2), para 377.

248 This explains the potential relevance of the degree of autonomy, or obligation to check facts, that rests with the authority in question.

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mation of a right that will raise barriers to entry, liability under Article 102 TFEU will be more likely if the following factors are present: ● knowingly, or with reasonable awareness, choosing to put contestable information before an authority which would lead it to act in a particular way likely to favour the company and exclude third parties;249 ● doing so in a way that is ‘highly misleading’: this might involve, for example, failing to give the full picture to the patent attorney or lawyer responsible for engaging with the authorities; failing to give the full picture to the authority in question; giving different information to different authorities, or giving them different information in respect of different products, without explaining the basis for doing so;250 and/or failing to correct the record once the basis on which the information had been provided was shown to be wrong or misguided (e.g., the law is clarified or the facts change);251 ● with a view to maximizing the potential to obtain the right sought; ● in pursuit of an overall strategy designed to keep competitors off the market by obtaining or maintaining rights to which there is, objectively, no entitlement or a shorter entitlement. If an exclusionary strategy involving an intention to mislead is shown to exist, Article 102 8.271 TFEU liability is more likely, but the absence of any intention to mislead or deceive does not necessarily avoid liability if the course of conduct pursued has that effect. Ways in which the risk of liability can be reduced include: ● Taking care to put all relevant facts before the authority (economy with the truth is unlikely to be helpful): this is particularly the case if the authority has limited discretion or does not investigate the veracity of the information provided to it (as was the case for several of the patent authorities involved in AstraZeneca).252 ● Making genuine efforts to correct misstatements and to update the authority on a timely basis if material facts change. ● Taking care with internal communications relating to strategic aspects of decisions as to how and when to engage with external advisers or patent authorities.253 As already mentioned, carelessly worded communications can easily be misconstrued when taken out of context, and most internal communications and communications with third parties may be reviewed during a Commission investigation. 249 AstraZeneca CJEU (n 2), paras 79, 81. 250 Ibid., paras 77, 79, 86 and 91–92. 251 Ibid., para 88.

252 Such an obligation will not be unfamiliar to those involved in seeking ex parte relief in, e.g., English courts where a duty of full and frank disclosure is imposed on the party seeking something from the court in the absence of an opposing voice. In effect, there is an obligation fully and accurately to disclose all material facts and present them to the court fairly. The obligation can only be satisfied by drawing the court’s attention to legal or factual matters which could undermine the applicant’s own application; it is not enough to simply put relevant matters in evidence before the court (UKIP v Braine & Others [2019] EWHC 3527 (QB)).

253 Note that since the judgment in December 2022, Case C-694/20 Orde van Vlaamse Balies and Others v Vlaamse Regering (ECLI:EU:C:2022:963), it appears that legal advice on any topic (and not just related to the rights of defence in a competition investigation) should be immune from Commission scrutiny. It is also now arguable that companies should be able to resist any attempt by the Commission to review (even in a cursory manner) the content of documents covered by Legal Professional Privilege, based on the argument that their very existence should remain secret.

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● Maintaining a consistent approach when dealing with the same issue across jurisdictions and across products – ‘picking and choosing’ arguments may lead to suspicion. If materially different information is provided in different circumstances, transparency about that fact and the reasons for it would avoid allegations of conduct which goes beyond the scope of competition on the merits. ● Remember that while the CJEU has held specifically that: ‘… the preparation by an undertaking, even in a dominant position, of a strategy whose object it is to minimise the erosion of its sales and to enable it to deal with competition from generic products is legitimate and is part of the normal competitive process’, this is the case only for so long as ‘the conduct envisaged does not depart from practices coming within the scope of competition on the merits’.254 ● Both the CJEU and the GC judgments hold that competition on the merits does not include misleading public authorities but requires parties to engage with them transparently. (ii) Abuse 2 – manipulating regulatory procedures to raise barriers to entry

8.273 The substance of the Commission’s finding on the second abuse is set out at paragraph 19 of the CJEU judgment and is succinctly summarized in the Commission’s 2019 Pharma Report, which describes the AstraZeneca judgments as ‘seminal’: AstraZeneca misused rules and procedures applied by the national medicines agencies by selectively deregistering the MAs for Losec capsules. At the time, generic and parallel imported products could only be marketed in a given Member State if the MA for the originator product was still in force. The strategic deregistration by AstraZeneca of its MA for Losec therefore made it impossible for generic competitors and parallel importers to compete with AstraZeneca.255

8.274 While this aspect of the case is not directly related to the acquisition or use of IPR as such, and while the exact same conduct cannot be repeated owing to legislative changes, it is of interest given the way in which some of the arguments on appeal played out, making them of relevance in a wider context. 8.275 The CJEU made four main findings in respect of the second abuse that are of wider relevance, and have been important in the later development of case law particularly, but not only, in the pharmaceutical sector: 1. Once a period of exclusivity granted by law has expired, conduct designed to prevent others from making use of the subject matter of that exclusivity (such as, e.g., in this case, toxicological results or clinical trials) does not fall within the scope of competition on the merits. It cannot be justified by an argument that it is the legitimate protection of an investment and therefore legitimate precisely because the legislative exclusivity granted to enable a return on investment has expired.256

254 AstraZeneca CJEU (n 2), para 129. 255 2019 Pharma Report (n 1), p 27.

256 AstraZeneca CJEU (n 2), paras 130–131. This is unsurprising in the light of the CJEU’s conclusion in Ottung v Klee (n 67), that under Art 101(1) TFEU an attempt to prevent competition from a licensee after the expiry of a patent is anticompetitive. This does not mean that continuing obligations arising from a prior licence might not be enforceable, but the competition law treatment of those obligations will depend on their nature and their relationship with the licensed right.

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2. The fact that a company has the right to take certain steps under a particular legal or regulatory regime does not deprive competition law of the power to intervene: ‘the illegality of abusive conduct under Article 82 EC is unrelated to its compliance or non-compliance with other legal rules and, in the majority of cases, abuses of dominant positions consist of behaviour which is otherwise lawful under branches of law other than competition law’.257 The CJEU referred to the special responsibility of dominant companies as articulated in France Télécom258 and reiterated that dominant companies may not use regulatory procedures to prevent (or raise barriers to) entry for competitors. The Court accepted that conduct relating to regulatory or equivalent rights which could raise barriers to entry might be objectively justified.259 3. The approach to compulsory licensing established in the Magill260 and IMS Health261 case law applies only in situations which involve proprietary rights. The limitation imposed by Article 102 TFEU on the ability of dominant companies to take advantage of the possibility of deregistering an MA in some circumstances is simply ‘a straightforward restriction of the options available under European Union law’ rather than any form of compulsory licence. Such a situation is not an exceptional case which justifies a special regime (‘derogation’) under Article 102 TFEU. Interestingly the CJEU went on to differentiate the situation from ‘a situation in which the unfettered exercise of an exclusive right awarded for the realisation of an investment or creation is limited’.262 The basis for the ‘exceptional circumstances’ test in Magill and the subsequent jurisprudence is here made clear – and the Magill/IMS Health test now seems unlikely to be significantly extended beyond that limited rationale. 4. Conduct does not need to deprive competitors of all means of accessing the market to be abusive. There were alternative means for generic manufacturers to obtain an MA, but these were longer and more costly. The CJEU held that if conduct objectively has the sole purpose of undermining a route to market provided by the legislator, thereby excluding competitors for as long as possible, increasing their costs to delay competitive pressure, it is capable of infringing Article 102 TFEU. Taken in the round these principles have proved fundamental to some of the subsequent inves- 8.276 tigations of the Commission and the National Competition Authorities which are discussed below. The CJEU laid down a marker as to the abusive nature of ways in which dominant companies might seek to manipulate regulatory regimes to exclude or limit competition. It also circumscribed the situations in which the application of Article 102 TFEU would require ‘exceptional circumstances’: it appears that satisfaction of the Magill/IMS Health criteria will 257 AstraZeneca CJEU, ibid., para 132.

258 France Télécom CJEU (n 234), para 105.

259 In AstraZeneca, the company had raised before the GC the argument that maintaining an MA would impose pharmacovigilance obligations. The CJEU held that ‘such obligations may in fact constitute an objective justification for the deregistration of a MA’ but that: first, it had been raised too late and secondly, that on the facts as examined by the GC, AstraZeneca had not demonstrated that the burden of maintaining those MAs would have been sufficiently significant to constitute an objective justification, meaning that the argument had insufficient factual basis. AstraZeneca CJEU (n 2), paras 135–138. 260 Magill (n 227).

261 Case C-418/01 IMS Health GmbH & Co. OHG v NDC Health GmbH & Co. KG. [2004] ECR I-5039 (ECLI:EU:C:2004:257).

262 AstraZeneca CJEU (n 2), paras 148–150.

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be required only in respect of true exclusive rights granted by law in return for investment or innovation/creation. (iii) Other interesting points

8.277 The CJEU in AstraZeneca also dealt with a few other interesting points of more general application which are mentioned here for completeness. More detailed discussion of the principles involved can be found in textbooks or articles discussing the general application of EU competition law. ● Even if at the time the conduct at issue took place the products were still protected by patents, that conduct was still liable to affect competition in two ways and therefore to infringe: first, causing a significant exclusionary effect after patent expiry; and secondly, causing an adverse effect on potential competition before expiry, liable to alter the structure of the market.263 ● Such adverse effects on potential competition before the expiry of the basic patent mean that even if an SPC which has been granted in error is annulled before the expiry of the basic patent that does not exclude the possibility of infringement.264 ● Anticompetitive conduct must be assessed at the time it occurs, even if its effects may extend to a period after the undertaking involved is no longer dominant.265 ● Even though conduct which is part of an overall abusive strategy does not succeed, that conduct may still be abusive.266 ● As reiterated in TeliaSonera,267 while a finding of abuse requires the identification of anticompetitive effects: ‘such an effect does not necessarily have to be concrete, and it is sufficient to demonstrate that there is a potential anti-competitive effect’.268 8.278 The GC also made some additional interesting findings. ● The unlawful acquisition of an exclusive right need not exclude all competition in order to abuse a dominant position, the mere fact that an IPR is involved does not justify such a requirement.269 ● If a right is obtained by misleading representations, it does not need to be enforced for an abuse to occur.270 ● Remedies available under other legal regimes, including the patent system, have different objectives and do not affect the application of competition law.271

263 Ibid., para 108. 264 Ibid., para 109. 265 Ibid., para 110. 266 Ibid., para 111.

267 Case C‑52/09 Konkurrensverket v TeliaSonera Sverige AB [2011] ECR I‑527 (ECLI:EU:C:2011:83). 268 AstraZeneca CJEU (n 2), para 112.

269 AstraZeneca GC (n 2), para 364. The following paragraph contains an interesting discussion of the judgment in Case T-51/89 Tetra Pak Rausing SA v Commission of the European Communities [1990] ECR II-309 (ECLI:EU:T:1990:41) which had been argued by AstraZeneca to establish (paras 23 and 24) certain rules that applied when an exclusive right is acquired. The GC disagreed. 270 AstraZeneca GC, ibid., para 362. 271 Ibid., para 366.

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● The presumption of innocence under the European Convention on Human Rights (ECHR) applies in competition cases and the Commission must establish the infringement alleged to the relevant legal standard. Any doubt must benefit the defendant. If the Court ‘entertains any doubts’ that the Commission has satisfied the legal burden to the relevant standard, the decision must be annulled.272 ● The position under US law may be of general comparative interest, but does not take precedence over the position in EU law.273 As the Commission made clear in its 2019 Pharma Report, the judgments upholding the 8.279 Commission’s original decision in AstraZeneca were seminal, providing significant impetus for the Pharmaceutical Sector Enquiry, which reported in 2009, and for numerous subsequent cases in the pharmaceutical industry. Some of those cases were pursued by National Competition Authorities, others are still at the investigation stage or deal only briefly with IP related issues. Some of the most interesting are discussed briefly below as they show some of the evolution in Article 102 TFEU thinking as applied in the pharmaceutical sector building on the impetus provided by AstraZeneca and the 2009 Pharma Report. b. Pfizer Italy – divisional patents274

On 11 January 2012, the Italian Competition Authority (ICA) fined Pfizer €10.7 million 8.280 under Article 102 TFEU. It held that Pfizer had pursued a ‘centralised’ strategy to delay generic entry, first by seeking to extend its patent rights (through a divisional application, SPC and paediatric extension); and secondly by pursuing an enforcement campaign against generics who wished to enter and compete with Pfizer’s Xalatan (a treatment for glaucoma) after the expiry of Pfizer’s basic patent (September 2009) rather than after the later (July 2011) expiry of the SPC for the divisional patent. On 3 September 2012, the decision was overturned by an Administrative Court. The Court 8.281 criticized the ICA’s analysis – stating that ‘clear exclusionary intent’ was needed to find that Pfizer’s strategy constituted an abuse. The Court found that Pfizer had used legitimate tools to extend its patent protection and, unlike AstraZeneca, had not presented misleading or erroneous information to the EPO when prosecuting its divisional patent.275 The Court also held that Pfizer’s enforcement conduct did not satisfy the relevant legal threshold required to find that bringing legal action is an abuse of dominant position (referring to ITT Promedia276). On appeal, the Italian Consiglio di Stato (ICS) reversed the Administrative Court decision, 8.282 upheld the ICA and reinstated the fine. The ICS cited the ruling of the CJEU in AstraZeneca, stating that acts which comply with patent law may nevertheless be anticompetitive. It 272 Ibid., paras 475–477.

273 Ibid., para 368, citing Case T-191/98 Atlantic Container Line AB and Others v Commission of the European Communities (ECLI:EU:T:2003:245), para 1407 of that judgment. AstraZeneca‘s arguments based on US law are at paras 316–318 and the Commission’s response is at paras 340–342. 274 Decision of the Autorità Garante della Concorrenza e del Mercato of 11 January 2011; judgment of the Consiglio di Stato of 12 February 2014.

275 The problem posed to competition authorities when considering the validity of IPRs as an aspect of their analysis was demonstrated by the fact that at the time when the ICA issued its decision, the EPO had revoked the divisional patent, but by the time the Administrative Court gave its judgment, the patent had been reinstated by the EPO Board of Appeal. 276 Case T-111/96 ITT Promedia NV v Commission of the European Communities (ECLI:EU:T:1998:183).

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emphasized that Pfizer’s applications for a divisional patent, an Italian SPC and the paediatric extension had not led to the launch on the market of any new drug, nor did any of those rights cover any additional innovation.277 8.283 By way of background, it appears that because Pfizer was out of time to obtain an Italian SPC on the original (parent) patent, it applied for the divisional patent to obtain additional protection in Italy, enabling it to harmonize its expiry dates across the EU countries. In the light of the late application for the divisional patent, the potential for an SPC on that Italian divisional popped up very late, at a point when generic companies were basing their preparations to enter the market on an assumed date of expiry of the original patent. While the late application for the divisional did not itself extend the period of patent protection or its scope, the preparations of the generics were frustrated, and the delay further compounded by applications for an SPC and paediatric extension. The ICS referred repeatedly to the ‘uncertainty’ that this created for generics and found that Pfizer’s actions formed part of a broader strategy, including the sending of warning letters to generic companies and bringing civil proceedings against them. Pfizer’s conduct was criticized by the ICS as ‘artificial’. 8.284 While this judgment has been criticized278 and is specific to the particular facts, it was mentioned with approval in the Commission’s 2019 Pharma Report as an example of the way in which the Commission perceives competition law to be delivering better outcomes for patients and healthcare systems.279 c. Reckitt Benckiser – UK – exclusionary strategy280

8.285 This case did not involve IPR but was more in line with the second abuse in AstraZeneca discussed above, as it involved Reckitt Benckiser’s conduct affecting the prescription/dispensing process for pharmaceuticals in the UK. The abuse related to its heartburn treatment Gaviscon. 8.286 In 2005, when the patent for Gaviscon Original Liquid expired, Reckitt Benckiser withdrew the product from the UK’s National Health Service (NHS) prescription channel, before it had been given a generic name in that channel. Consequently, doctors in the NHS who wished to prescribe Gaviscon had to write the prescription for Gaviscon Advance Liquid, which was patent protected and for which no generic version existed. 8.287 The Office of Fair Trading (OFT – the predecessor of the CMA) had argued that this conduct both hindered pharmacy choice and inhibited generic competition. Reckitt Benckiser did not contest the OFT decision, which is again mentioned approvingly by the Commission in its 2019 Pharma Report. The Commission’s summary chooses to highlight one of Reckitt

277 This observation is a little strange, as none of those ‘rights’ is intended to cover something ‘new’: a divisional patent is a way of limiting the scope of a right already applied for – by definition it cannot extend beyond the scope of the original invention; an SPC is intended to extend the duration of exclusivity afforded to an invention by an original ‘basic’ patent in limited circumstances in the pharmaceutical sector; a paediatric extension again extends protection for an existing medicine to reward time and effort expended in carrying out additional trials to establish its safety and efficacy in children. 278 Damien Geradin, When Competition Law Analysis Goes Wrong – The Italian Pfizer/Pharmacia Case (10 February 2014) (https://​ssrn​.com/​abstract​=​2393383 or http://​dx​.doi​.org/​10​.2139/​ssrn​.2393383 – both accessed 9 August 2023). 279 2019 Pharma Report (n 1), p 27.

280 Decision No. CA98/02/2011 of the Office of Fair Trading of 12 April 2011.

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Benckiser’s internal documents, setting out an ‘objective … to delay for as long as possible, the introduction of a generic name’. d. Boehringer Ingelheim – Commission – misuse of patent system

This is an example of a Commission investigation which was given renewed impetus by the 8.288 launch of the 2009 EU Pharma Sector Enquiry. It also reflected some of the concerns arising from AstraZeneca. The Commission’s press release announcing the closing of the formal investigation into Boehringer Ingelheim281 noted specifically that the focus of the Commission’s investigation: ‘… was to establish whether Boehringer had filed patent applications and had obtained patents by providing misleading information to the EPO’.282 The background to the case is complex and is only briefly described here to give a flavour of the 8.289 IP related conduct under investigation. Almirall complained that Boehringer Ingelheim had applied for patents which had no merit. The matter was complicated, as is often the case when patents are in issue, by the activities of both the EPO and the national courts responsible for revoking or upholding and enforcing patents. In the words of the Commission press release: Boehringer initially succeeded in obtaining a European patent for one of the combination products. However, in 2009 the UK High Court of Justice revoked Boehringer’s UK patent for the combination product because of obviousness (lack of inventive step) and insufficiency. In March 2010 the patent was also revoked by the European Patent Office (EPO). Boehringer appealed this decision to the next EPO instance, which would have kept the contested patent in force until the appeal had been decided. Some years ago Boehringer had also filed so called divisional patent applications that were based on the main patent application, which were dormant, but could have been reactivated and thus prolong the patent dispute even after the EPO annulled the contested patent.

Clearly these events, combined with the Commission’s reinvigorated investigation, had some 8.290 impact behind the scenes. The parties reached a settlement under which, according to the Commission press release: ‘the alleged blocking positions will be removed for Europe, a licence will be granted for two countries outside Europe and pending litigation between the parties will be ended. Almirall will therefore be able to launch its combination medicines after obtaining marketing authorisation from the competent bodies’. It is unfortunate that the Commission had not (as far as is publicly known) reached the stage of issuing a statement of objections as it would have been interesting to see how its investigation into the detailed processes of patent prosecution would have evolved. Perhaps some of the cases which are currently open will add more detail on that issue. e. Teva/Copaxone – Commission – misuse of divisional patents

In October 2022, the Commission sent a statement of objections to Teva. Only brief details 8.291 are available from the Commission’s press release.283 The alleged abuses fall into two categories:

281 This followed the settlement of the underlying dispute between Boehringer Ingelheim and Almirall in the field of chronic obstructive pulmonary disease (COPD). 282 Commission Press Release IP/11/842, Antitrust: Commission welcomes improved market entry for lung disease treatments, 6 July 2011 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​IP​_11​_842 – accessed 9 August 2023). 283 Commission Press Release IP/22/6062, Antitrust: Commission sends Statement of Objections to Teva over misuse of the patent system and disparagement of rival multiple sclerosis medicine, 10 October 2022 (https://​ec​.europa​.eu/​commission/​ presscorner/​detail/​en/​IP​_22​_6062 – accessed 9 August 2023).

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1. artificially extending patent protection; and 2. systematically spreading misleading information about a competing product. 8.292 Both practices relate to Teva’s Copaxone product, which is widely used in the treatment of multiple sclerosis. The active ingredient is glatiramer acetate, which was protected by a compound patent until 2015. 8.293 As far as patent related conduct is concerned, the Commission alleges that Teva has ‘gamed’ the patent prosecution system. The role of divisional patents and the way in which the patent prosecution system works is too complex to deal with in detail here. It has also been the subject of significant lobbying and counter-lobbying in the patent law context (not least in the pharmaceutical sector – although divisional patents are sought and obtained in all economic sectors).284 8.294 The Commission’s position is, briefly, that Teva not only sought divisional patents but did so in a way that appears to the Commission to be artificial, filing and withdrawing applications, ‘thereby forcing its competitors to file new lengthy legal challenges each time’. The Commission asserts that this artificially prolongs legal uncertainty ‘and can effectively block or delay entry of generic or generic-like medicines’. It appears that the Commission is focusing on the uncertainty caused by this conduct and on the existence of an exclusionary strategy in the same way as the Italian Consiglio di Stato did in Pfizer285 in part because one of the features of divisional patents is that they can extend neither the scope nor the subject matter of exclusivity beyond that claimed in the original patent application. 8.295 This is the first time the Commission has issued a statement of objections dealing with divisional patent filing and enforcement strategies, although the issue is not completely new. The Commission noted in 2009 that in some cases ‘divisionals seemingly serve to prevent or delay generic entry. While this, during the period of exclusivity, is generally in line with the underlying objectives of patent systems, it may in certain cases only be aimed at excluding competition and not at safeguarding a viable commercial development of own innovation’.286 Divisionals also cropped up during the Boehringer Ingelheim investigation (see above). 8.296 It will be interesting to see how this new aspect of the IP/competition law landscape evolves, particularly as a reform of divisional patent prosecution mechanisms has been mooted at the EPO for some time287 which could help resolve some of the underlying procedural issues, rather as the change in the law relating to the withdrawal of MAs and the use of the abridged procedure did after AstraZeneca. As always, much will turn on the facts of the specific case, 284 For a brief description of the issue see: Charlotte Kilpatrick, EPO: divisional filings a frustration for generic drug companies (Managing IP, 25 July 2019) (https://​www​.managingip​.com/​article/​2a​5bqtj8ume3​2ix0y1hc0/​epo​-divisional​-filings​ -a​-frustration​-for​-generic​-drug​-companies – accessed 9 August 2023). An alternative – although still anti-divisional – might be: Katarina Foss-Solbrekk, ‘The Divisional Game: Using Procedural Rights to Impede Generic/Biosimilar Market Entry’ (2022) 53 IIC 1007–1037 (https://​doi​.org/​10​.1007/​s40319​-022​-01225​-3 – accessed 26 August 2023). 285 See para 8.280 ff above. An interesting review of the possible effects of patent density and complexity of patenting can be found in a report published by the UK IPO in 2011, Patent Thickets: An Overview (https://​assets​.publishing​.service​.gov​ .uk/​media/​5a75a​a4340f0b67​f59fcea7d/​informatic​-thickets​.pdf – accessed 30 November 2023).

286 2009 Pharma Report (n 1), p 523.

287 A previous attempt to reduce the period during which divisional applications could be filed had to be reversed. This was introduced in 2010, but removed in 2014.

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in particular whether the way in which Teva has acted is within the parameters of normal commercial behaviour in the particular context and undertaken for good objective reasons, or whether it appears to the Commission to be part of a strategy whose purpose is not to enable Teva’s patent professionals to craft the correct patent protection for Teva’s innovations but rather to place obstacles, costs, difficulties and delays that are sufficient to affect competition in the way of potential competitors. f.

Denigration – Commission – Teva/Copaxone; Vifor/Pharmacosmos

The second strand of the Teva/Copaxone statement of objections relates to a so-called ‘dispar- 8.297 agement campaign’. It is said that Teva targeted healthcare professionals to cast doubts about the safety and efficacy of competing glatiramer acetate medicines and that this, together with its conduct vis-à-vis divisional patent filings, formed part of a strategy with an overall objective of hindering market entry and success of competitors. This is the first time that the Commission has formally issued a statement of objections relat- 8.298 ing to such a denigration campaign in the pharmaceutical sector under Article 102 TFEU.288 National authorities, primarily those in France, have been much more active. In essence, a denigration theory of harm is that a dominant company systematically seeks to undermine confidence in a generic entrant to hinder their penetration of the market. The Commission’s 2019 Pharma Report summarizes a number of the decisions taken by the French National Competition Authority, some of which have been upheld by the courts in France, including by the French Supreme Court289 and it is clearly something which has been on its radar for a while.290 Shortly before the statement of objections in Teva/Copaxone was announced, the Commission 8.299 also announced a further investigation into a disparagement case against Vifor Pharma.291 That investigation is worth following for two reasons if it proceeds: first, unlike the Teva investigation the alleged abuse appears to consist only of a misleading communication campaign (albeit over many years); and the campaign was not against a generic but against another originator product.

288 Although similar issues and concerns may be discerned in the Roche/Novartis (n 116), Art 101 TFEU case discussed above as identified by the Commission in its 2019 Pharma Report (n 1), p 28.

289 Court of Cassation (Cour de cassation) 1 June 2022 – 360 FS-B on appeal T 19-20.999 Abuse of Dominance by Using Administrative Procedures to Delay Entry of Generic Drugs – Janssen-Cilag and Johnson & Johnson v the President of the Competition Authority and Others (https://​www​.courdecassation​.fr/​decision/​6297​02177c2a1f​a9d4442265 – accessed 26 August 2023). However in Novartis/Roche/Genentech the Paris Cour d’Appel had overturned the FCA’s decision on denigration, holding that the parties had not unduly disparaged the use of Avastin for use off label in cancer treatment nor had they unduly interfered with the activities of the healthcare authorities in France (https://​www​.cours​-appel​.justice​ .fr/​sites/​default/​files/​2023​-02/​Arr​%C3​%AAt​%20RG​%20n​%C2​%B0​%2020​-14632​.pdf – accessed 23 November 2023). 290 In another sector, the Italian Competition Authority’s recent decision to fine Roxtec for an alleged denigration campaign against a competitor is an interesting indicator of the relevant issues (https://​www​.agcm​.it/​dotcmsdoc/​bollettini/​ 2023/​31​-23​.pdf; discussed in https://​www​.bristows​.com/​news/​sham​-litigation​-meets​-competitor​-denigration​-italian​ -competition​-authority​-fines​-roxtec​-for​-abuse​-of​-dominance/​– both accessed 23 November 2023). 291 Commission Press Release IP/22/3882, Antitrust: Commission opens investigation into possible anticompetitive disparagement by Vifor Pharma of iron medicine, 20 June 2022 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​ip​_22​_3882 – accessed 26 August 2023).

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g. Spain – CNMC – Merck Sharp and Dohme misuse of legal procedures/withholding information

8.300 Still relatively recently and showing the multiple ways in which the application of competition law is evolving in the pharma sector after AstraZeneca, in October 2022 the Spanish competition authority (CNMC) fined Merck Sharp and Dohme (MSD) just under €39 million for abusing its dominant position in the market for contraceptive rings.292 MSD owns patents protecting its product and in 2017 it sought an ex parte interim injunction from the Spanish Courts to prevent the manufacture and sale of a competing contraceptive ring developed by Insud Pharma. The CNMC found that, in applying for the interim injunction, MSD had ‘deployed a strategy of deception by withholding relevant factual and technical information from the court’, and that this lack of transparency was a ‘determining factor’ in obtaining the injunction. According to the CNMC, ‘the purpose of MSD’s legal actions was not to enforce its patent rights’, but rather ‘to suppress competition from the new market entrant for as long as possible’. 8.301 The CNMC was clearly inspired by AstraZeneca and has focused primarily on the provision of misleading information, rather than on seeking preliminary injunctions per se, as that might run in to some of the problems with interfering with Fundamental Rights through inhibiting access to court that have been identified in other cases. The nature of the proceeding is also important as the relief sought was ex parte, meaning that the Court’s ability to verify the information provided was necessarily limited, another resonance with AstraZeneca.293 h. Use of blocking patents – Switzerland/EU – Novartis/Eli Lilly

8.302 Finally on this brief roundup of the progeny of AstraZeneca, the Swiss Competition Authority (COMCO) opened an investigation into whether Novartis had sought to protect its psoriasis drug, Cosentyx, from competition by using patents acquired from Genentech to initiate litigation against its competitors, including Eli Lilly (Lilly).294 Subsequently, the Novartis/ Lilly litigation settled so at the time of writing it was unclear whether this investigation (or an investigation by the Commission, with whom COMCO was cooperating) would continue. The underlying basis for the Swiss investigation appears to be ‘whether the alleged behaviour constitutes the use of a so-called blocking patent, which might amount to an unlawful abuse of an allegedly dominant position’. 8.303 If pursued, and if also taken up in the EU, this would be a significant development of the jurisprudence in the EU, where academic concerns about blocking patents and patent minefields have not yet resulted in cases.295

292 CNMC Press Release, The CNMC fines pharmaceutical company Merck 39 million euros for abuse of a dominant position in the market for vaginal contraceptive rings, 25 October 2022 (https://​www​.cnmc​.es/​sites/​default/​files/​editor​_contenidos/​ Notas​%20de​%20prensa/​2022/​20221025​_NPSancionador​_Merck​_eng​.pdf – accessed 26 August 2023). 293 See also (n 252) referring to the approach in some courts where there is a duty of full and frank disclosure if approaching a court on an ex parte basis.

294 COMCO Press Release, Investigation on use of patents, 15 September 2022 (https://​www​.weko​.admin​.ch/​weko/​en/​ home/​medien/​press​-releases/​nsb​-news​.msg​-id​-90320​.html – accessed 26 August 2023). 295 Angelika S. Murer, Blocking Patents in European Competition Law: The Implications of the Concept of Abuse (Wolter Kluwer, 2022); Andreas Heinemann, ‘Blocking Patents and the Process of Innovation’ (2019) 7 New Developments in Competition Law and Economics, 10.1007/978-3-030-11611-8_8) (Note Professor Heinemann is also president of the Swiss Competition Authority).

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2. Pay for delay and other exclusionary strategies

These have been discussed in some detail above as far as Article 101 TFEU is concerned. 8.304 Both Servier and Paroxetine also involved allegations of abuse of dominance under Article 102 TFEU. a. Les Laboratoires Servier (Servier)

In July 2014, the Commission announced that it had fined Servier and five generic competitors 8.305 for practices that delayed generic entry. The Commission had identified a series of patent settlement agreements which breached Article 102 TFEU as well as Article 101 TFEU. The Article 102 TFEU abuse was said to have arisen from the conclusion of the patent settlement agreements, together with Servier’s acquisition of a competing technology. The technology acquired was found by the Commission to be capable of use to produce an API outside the scope of Servier’s patent protection. In the Commission’s view, it followed that the technology represented a source of potential competition both on the market for the API and on the final product market. The Commission also found that Servier had never used the technology once acquired. Together, these agreements were found to be part of a ‘general strategy to delay generic entry’. 8.306 Then Competition Commissioner Almunia described the Commission’s concerns as follows: Servier had a strategy to systematically buy out any competitive threats to make sure that they stayed out of the market. Such behaviour is clearly anti-competitive and abusive. Competitors cannot agree to share markets or market rents instead of competing, even when these agreements are in the form of patent settlements. Such practices directly harm patients, national health systems and taxpayers. Pharmaceutical companies should focus their efforts on innovating and competing rather than attempting to extract extra rents from patients.296

Servier appealed the decision to the GC which gave judgment in December 2018. The Article 8.307 101 TFEU and market definition/dominance aspects of the GC’s judgment have been dealt with above. The Article 102 TFEU decision was overturned because the GC held that the Commission had been wrong to hold that Servier was dominant and that the Article 102 TFEU decision must therefore be annulled. The GC did not consider the question of abuse.297 AG Kokott gave her opinion on the Commission’s appeal of this aspect of the GC’s judg- 8.308 ment on 14 July 2022.298 She recommended that the GC’s judgment should be set aside, and the Commission decision reinstated, owing to various errors in the GC’s approach to market definition.299 In consequence, she recommended to the CJEU that those aspects of the Commission’s decision on which the GC had not previously ruled (essentially the abuse questions) should be referred back to the GC to consider further. Given this, it may be some time before the Article 102 TFEU abuse aspects of the Servier saga are finally resolved, although the direction of travel and some of the principal issues were dealt with by the CJEU in Paroxetine. 296 Commission Press Release IP/14/799, Antitrust: Commission fines Servier and five generic companies for curbing entry of cheaper versions of cardiovascular medicine, 9 July 2014 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​IP​_14​ _799 – accessed 26 August 2023). 297 Servier GC (n 62), paras 1623–1633. 298 Servier AG Opinion (n 62). 299 Ibid, paras 464–468.

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b. Paroxetine/generics300

8.309 Article 102 TFEU also played a part in Paroxetine.301 The CMA had held that GSK was dominant and that by concluding the three separate agreements at issue it had abused that dominance, contrary to Article 102 TFEU, in addition to each of the agreements itself infringing Article 101 TFEU.302 Following a reference from the CAT,303 the CJEU noted that the fine imposed on GSK in respect of Article 102 TFEU was predicated not on three separate abuses by concluding three separate arrangements with the three generics, but rather on a single abuse of dominance arising from an overall strategy relating to agreements with generics. 8.310 The CJEU (as is often the case) reformulated the question in its judgment. In this case the question it addressed was: … whether Article 102 TFEU must be interpreted as meaning that the strategy of a dominant undertaking that is the holder of a process patent, for the production of an active ingredient that is in the public domain, which leads it to conclude, either as a precaution or following the bringing of court proceedings challenging the validity of that patent, a number of settlement agreements, the effect of which is, at least, to keep temporarily outside the market potential competitors who manufacture generic medicines using that active ingredient, constitutes an abuse of a dominant position, within the meaning of Article 102 TFEU, even though one of the agreements concerned was exempted from the scope of national competition law.304

8.311 The CJEU approached the question by first reiterating some basic principles: ● that the same practice may infringe both Articles 101 and 102 TFEU;305 ● that ‘abuse of dominance’ is an objective concept;306 ● that even a dominant company may protect its commercial interests and has the right to take the reasonable steps it regards as appropriate to do so;307 ● that the exercise of an exclusive right linked to an IPR, such as the right to settle litigation, cannot itself constitute an abuse;308 but ● that such conduct may be abusive when its purpose is to strengthen a dominant position and abuse it, for example by depriving potential competitors of effective access to a market;309 and ● that a dominant company has a special responsibility not to allow its behaviour to impair undistorted competition.310 8.312 The CJEU noted that a ‘contract-oriented strategy’ may be penalized under Article 102 TFEU for the possible additional damage that it may cause to the competitive structure of a market in 300 Paroxetine CJEU (n 132).

301 See above at para 8.165 ff for a discussion of this case and its Art 101 TFEU aspects. 302 Paroxetine CMA Decision (n 130), para 141. 303 Paroxetine CAT (n 157).

304 Paroxetine CJEU (n 132), para 145. 305 Ibid., para 146. 306 Ibid., para 148. 307 Ibid., para 149. 308 Ibid., para 150. 309 Ibid., para 151. 310 Ibid., para 153.

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which competition is already weakened owing to the presence in it of the dominant company. Consequently, even: when the intention of a manufacturer of originator medicines holding a dominant position is to protect its own commercial interests, in particular by defending its patents, and to guard itself against the competition of generic medicines, that alone does not justify resorting to practices that fall outside the scope of competition on the merits.311

The CJEU then observed that before such conduct can constitute an abuse, it must be 8.313 established that the conduct was capable of restricting competition, for example by excluding competitors. It referred to the underlying facts as identified by the CMA and the CAT. They both considered that the agreements taken together were part of an overall strategy on the part of GSK having as either its object or its effect the delay of market entry by generics and the subsequent fall in both GSK’s market share and the sale price of Seroxat (the GSK product). In view of the factual findings at national level, the CJEU held that in principle, and subject 8.314 to the factual determination of the national court, a ‘contract-oriented strategy’ was liable to impede competition and that its anticompetitive effects were liable to exceed the effects of the separate agreements taken individually, having: a significant foreclosure effect on the market of the originator medicine containing the active ingredient at issue, depriving the consumer of the benefits of entry into that market of potential competitors manufacturing their own medicine and, therefore, reserving that market directly or indirectly to the manufacturer of the originator medicine concerned.

Having reached this conclusion, the CJEU regarded it as irrelevant that one of the three agree- 8.315 ments was concluded to avoid, rather than to settle, litigation and that one of them could not be penalized under UK competition law.312 On the latter point the CJEU noted that merely because an arrangement or practice was immune from penalty, did not mean that it did not have anticompetitive effects. The CJEU’s overall conclusion on anticompetitive effects (noting that the facts were for the 8.316 national court to establish) was that dominant companies are not entitled to ‘dictate how many viable competitors are to be allowed to compete’ and that the combination of the three agreements entered into by GSK with the generic manufacturers might have generated cumulative effects liable to strengthen GSK’s dominant position, making its contract-oriented strategy abusive. The CJEU added that any anticompetitive intent identified by the national court must also be considered when considering whether GSK’s conduct was abusive.

311 Ibid., para 152, citing by analogy, Case C-170/13 Huawei Technologies Company Limited v ZTE Corporation and ZTE Deutschland GmbH (ECLI:EU:C:2015:477), para 47 (and the case law cited). See by way of context the CJEU’s comment in AstraZeneca (n 2), para 129: As a preliminary point it must be stated that, as the General Court observed at paragraph 804 of the judgment under appeal, the preparation by an undertaking, even in a dominant position, of a strategy whose object it is to minimise the erosion of its sales and to enable it to deal with competition from generic products is legitimate and is part of the normal competitive process, provided that the conduct envisaged does not depart from practices coming within the scope of competition on the merits, which is such as to benefit consumers.

312 Paroxetine CJEU, ibid., paras 158–160.

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8.317 That left the question of any efficiency gains that might justify GSK’s conduct. It appears from the judgment that some efficiency gains had been identified for the National Health Service in the UK, particularly arising from one of the agreements. The CJEU held that if such gains were identified they must be weighed against the anticompetitive impact, and that applied whether those gains were intentional or accidental. The weighing of such efficiencies is an objective exercise, in the same way as the concept of abuse is objective.313 8.318 Having established that principle, the CJEU observed that the actual impact of the efficiencies would have to be weighed and noted that the referring Court had mentioned that the favourable effects identified were ‘significantly less than those which would have arisen upon the independent market entry of a generic version of Seroxat following a successful outcome … in the patent proceedings’.314 8.319 Paroxetine establishes in principle that the conduct of a dominant company in pursuing a strategy intended to foreclose generic competition may infringe Article 102 TFEU, in parallel with a number of individual Article 101 TFEU infringements arising from any agreements or arrangements entered into in pursuit of that strategy if, on the facts, that strategy ‘has the capacity to restrict competition and, in particular, to have exclusionary effects, going beyond the specific anticompetitive effects of each of the settlement agreements that are part of that strategy’.315 8.320 As Paroxetine was a reference from a national court, the CJEU did not have to engage in any detail with how such ‘enhanced’ effects might be established and how far beyond the effects of each Article 101(1) TFEU agreement they had to go to justify an additional abuse finding. From the little that is said in Paroxetine, it does not seem as if the CJEU envisages that a very substantial additional effect is identified. All that is mentioned in the operative part of the judgment (which mirrors the paragraph quoted above) is ‘the capacity to restrict competition … going beyond the specific anticompetitive effects of each individual agreement’. Given the CJEU’s comment that ‘The anticompetitive effects of such a contract-oriented strategy are liable to exceed the anticompetitive effects inherent in the conclusion of each of the agreements that are part of it’,316 the bar seems unlikely to be high – once a strategy is identified, and steps have been taken to implement it through more than one agreement, Article 102 TFEU liability seems a very significant risk (on the assumption of dominance). It will be fascinating to see how this issue is dealt with by the GC in Servier if the Article 102 TFEU abuse aspects of that case are referred back to it.

313 Ibid., paras 167–170. 314 Ibid., para 171. 315 Ibid., para 172. 316 Ibid., para 157.

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CHAPTER 9 COMPETITION LAW, STANDARDS AND FRAND I. INTRODUCTORY REMARKS 9.01 II. STANDARDS, SEPS AND FRAND – HISTORICAL AND TECHNICAL CONTEXT 9.05 III. CASE LAW AND LEGISLATIVE/REGULATORY DEVELOPMENTS9.31 A. Patent Ambush – Rambus9.35 B. Non-FRAND Terms – Qualcomm/Royalties9.46 C. IPCom – The Transfer of FRAND 9.54 D. PAEs, Privateering and Portfolio Splitting 9.56 E. Injunctions – A Straw in the Wind – Google/MMI9.71 F. Seeking Injunctions, Imposing Unfair Terms – EU Investigations into Motorola Mobility Inc (MMI) and Samsung 9.73

1.

Commission investigations: Apple/ Samsung; Microsoft and Apple/ Motorola9.78 a. Dominance 9.85 b. Abuse 9.91 2. National courts and CJEU – reference in Huawei v ZTE9.112 3. Access to court/the exercise of IPR 9.123 4. The ability to raise a competition defence in injunction proceedings 9.132 5. Discrimination and the right to a licence 9.144 IV. NON-COMPETITION LAW INITIATIVES 9.159

I. INTRODUCTORY REMARKS The uneasy and complex relationship between IPRs and competition law has played a key role 9.01 in the IT sector. Many of the most interesting cases and points of debate under both Article 101 TFEU and Article 102 TFEU arise from, or concern, the IT industry and its close cousin, the wireless communications sector. Most such cases have been dealt with above in the chapters on Articles 101 and 102 TFEU insofar as the points decided or discussed were of general interest. This chapter focuses on the competition law issues that arise from the adoption and implemen- 9.02 tation of standardized technology, particularly in the context of the mobile communications sector. Achieving and maintaining the right approach to the interplay between the protection of IP and enabling competition is at the heart of successful standardization. That relationship has been the subject of discussion in Europe since the earliest European standardization initiatives in the late 1980s.1

1

Very useful background documents from this early phase include: Commission Communications: COM(91) 521 final, Standardization in the European Economy, 16 December 1991; COM(92) 445, Intellectual Property Rights and Standardization, 27 October 1992.

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9.03 Competition law is not alone in this field – national contract law, national patent law, various equitable rights and specific regulatory initiatives all play their part. There is currently a lively debate in Europe as to the best way of resolving the tensions surrounding the acquisition, use, licensing and enforcement of patents essential to the implementation of a standard (standard essential patents, or SEPs).2 Those parallel considerations are described briefly below. This chapter aims to introduce the way in which competition law affects those whose who own, license and use patents essential to implementing a standard.3 The focus is on the way in which EU competition law has been applied to SEP licensing and related activities by the Commission and EU Courts. The general approach to standardization agreements and pooling of IPRs relevant to standards have been discussed above at paragraphs 5.84 ff and 4.10 ff respectively. 9.04 As throughout this text, the discussion focuses principally on the legal position in the EU. In Europe, the German courts have taken a leading role, along with those in the UK, in seeking to disentangle some of the legal complexities flowing from the interrelationship of IP law, contract law and competition law when enforcing patent rights in respect of SEPs.4 To the extent necessary to deal with competition law issues, those national cases are discussed briefly below. Given the international nature of the industry, many issues are also controversial in other jurisdictions including the US, Korea, Japan, India and China.

II. STANDARDS, SEPS AND FRAND – HISTORICAL AND TECHNICAL CONTEXT 9.05 Before reviewing recent developments in the world of FRAND it is wise to step back and consider how, in the EU at least, the technical business of standardization became intertwined with competition law. The summary below provides a brief historical overview of the evolution of that relationship before reviewing specific case law and legislative or regulatory developments.

2

3

4

See the policy papers and proposals published by the Commission Communications: COM(2017) 712 final, Setting out the EU Approach to Standard Essential Patents, 29 November 2017 (https://​ec​.europa​.eu/​docsroom/​documents/​ 26583 – accessed 5 August 2023); and COM(2023)232, Proposal for a regulation of the European Parliament and of the Council on standard essential patents and amending Regulation (EU) 2017/1001 (https://​single​-market​-economy​.ec​.europa​ .eu/​publications/​com2023232​-proposal​-regulation​-standard​-essential​-patents​_en – accessed 5 August 2023) (2017 SEP Communication). Also, e.g., Evelina Kugonaite, Pat Treacy and Edwin Bond, ‘Looking Back to the Future – Selective SEP Licensing Through a Competition Law Lens’ (2020) 11(3–4) Journal of European Competition Law & Practice.

Much has been and continues to be written on aspects of the debate surrounding SEPs. An extremely useful resource which deals with many of the core issues in detail and refers to many of the competing papers is Jorge L. Contreras (ed), The Cambridge Handbook of Technical Standardization Law: Further Intersections of Public and Private Law (Cambridge Law Handbooks, Cambridge University Press, 2019). More recently see Stefano Barazza, ‘Standard Essential Patents and FRAND Licensing: The Evolution of the European Approach’ in Hayleigh Bosher and Eleonora Rosati (eds), Developments and Directions in Intellectual Property Law (Oxford University Press, 2023. DOI: 10.1093/ oso/9780192864475.003.0031). Also taking a wholistic approach is Igor Nikolic, Licensing Standard Essential Patents FRAND and the Internet of Things (Bloomsbury/Hart, November 2021).

A compilation of cases following the Huawei v ZTE judgment of the CJEU (Case C-170/13 Huawei Technologies Co Ltd v ZTE Corporation and ZTE Deutschland GmbH (ECLI:EU:C:2015:477) (Huawei v ZTE CJEU) together with summaries of those national cases can be found at: https://​caselaw​.4ipcouncil​.com/​?​_gl​=​1*deajou*​_ga​*MTY2MzU5O​DgxNS4xNjg​ 4NTY2ODUx*​_ga​_VP07​TML3VF*MTY​4ODU2Njg1M​S4xLjEuMTY​4ODU2ODIxO​S4zMC4wLjA – accessed 5 August 2023.

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Standards of all sorts have a long history but in today’s highly interconnected world they are 9.06 ubiquitous and, with the rise of the Internet of Things, are becoming even more so.5 Successful standardization is critical to allow efficient specialization in manufacture and provision of complex products and services where many different undertakings produce complementary goods or services that need to interoperate. Those may themselves be comprised of components supplied by dozens or even hundreds of different manufacturers, and many of those components will themselves utilize standardized technologies to function. By way of example, a smartphone communicating with cellular base stations will use cel- 9.07 lular communications standards (of which there are many such as GSM, LTE, UMTS). Smartphones also utilize other standardised technology including, for example: for other means of wireless communication (such as Wi-Fi, Bluetooth or NFC); for audiovisual functionality (such as MPEG, JPEG and MP3); and for positioning (such as GPS). Numerous other technical standards will also be in play. Most such standards implement patented technology and as the generations and numbers of standard evolve so will the complexity of the patent landscape.6 Formal standards,7 such as most of those described above are developed collaboratively, 9.08 usually in industry groupings known as Standard Setting Organisations (SSOs) or Standards Development Organisations (SDOs). In practice very little turns on the different terminology although an SDO is generally accepted to be an organization focused on developing, publishing, or disseminating technical standards to meet the needs of an industry or field. SDO is used below to describe such bodies. They usually involve consensus decision making and allow all interested stakeholders to be involved in the standards development process. Examples of leading SDOs include the Institute for Electrical and Electronic Engineering (IEEE) and the European Telecommunications Standards Institute (ETSI). The world of standards could, with justification, be called the world of acronyms. Since at least the late 1980s, the institutions of the EU have consistently promoted the benefits 9.09 of standardization within Europe. Standards are seen as essential to the development and continued competitiveness of the EU single market. This is because common standards remove 5 6

7

For a brief description of how the Internet of Things (IoT) is affected by standards activities see: https://​www​.etsi​.org/​ technologies/​internet​-of​-things – accessed 5 August 2023. In 2022, the UK IPO calculated that the IoT had 7.6 billion active IoT devices at the end of 2019. Estimates of the number of SEPs in a smartphone vary greatly, and change regularly as the technology evolves. According to the UK government in 2022, ‘the number of declared SEPs doubled on average every five years between the early 1990s to 2014. As of 2020, around 95,000 patents had been declared essential for the 5G standard’ (https://​ www​.gov​.uk/​government/​news/​government​-publishes​-standard​-essential​-patents​-call​-for​-views​-response – accessed 25 November 2023). The complexity of the landscape is increased by the multiple standards in each device, and the fact that most devices are backwards-compatible. Of course not all patents that are said to be essential to a standard will be essential and not all of the patents applied for or granted will be valid. This chapter focuses primarily, though not exclusively on formal standards and in particular on those relevant to mobile telecommunications, mainly those developed through ETSI as these are the standards that have been most intensely scrutinized under competition law and whose development coincides closely with competition law thinking about standardization in Europe. For examples of the competition law approach to private standardization outside the context of formal standards setting bodies see, for example, Commission Press Release IP/03/1152, Commission clears Philips/Sony CD Licensing program, 7 August 2003 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​IP​_03​_1152 – accessed 3 November 2023) and Notice pursuant to Article 19 (3) of Council Regulation No 17 concerning Case No IV/34.796 – Canon/Kodak, OJ [1997] C 330/10.

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technical barriers to trade and enable the development of an environment where markets can grow and competition develop to the benefit of consumers. This remains a strong theme in EU policies relating to technical harmonization, the role of intellectual property (IP) and the creation of competitive markets today. Recently the Commission stated that: Standardisation has played a leading role in creating the EU Single Market. Standards support market-based competition and help ensure the interoperability of complementary products and services. They reduce costs, improve safety, and enhance competition. Due to their role in protecting health, safety, security, and the environment, standards are important to the public. The EU has an active standardisation policy that promotes standards as a way to better regulation and enhance the competitiveness of European industry.8

9.10 ETSI is responsible for producing standards for information and communications technology (ICT). It is recognized by the EU as a European Standards Organisation,9 (one of only three) and was set up in 1988 following the publication by the Commission of a Green Paper on the development of the common market for telecommunications services and equipment in Europe (the 1987 Commission Green Paper).10 In that Green Paper, the Commission stated that: ‘Standardisation … has become a cornerstone of a policy for: ensuring the future integrity of the telecommunications infrastructure in the Community; ensuring future open competitive markets; promoting future interoperability of telecommunications services.’ The European Council resolution on the development of a common telecommunication market11 of June 1988, adopted the Commission’s views, noting that the overriding objective for Europe must be ‘to develop the conditions for the market to provide European users with a greater variety of telecommunications services, of better quality and at lower cost’.12 The establishment of ETSI was seen as key to European industrial policy in the push towards the creation of the European single market. 9.11 By the early 1990s, the Commission was already voicing concerns that standardization might facilitate anticompetitive behaviour that could undermine the procompetitive benefits envis-

8

9

10

11 12

https://​ec​.europa​.eu/​growth/​single​-market/​european​-standards/​policy​_en – accessed 5 August 2023; see also the very recent updated EU Standardisation strategy: Commission Communication COM(2022) 31 final, An EU Strategy on Standardisation – Setting global standards in support of a resilient, green and digital EU single market, 2 February 2022 (https://​eur​-lex​.europa​.eu/​legal​-content/​EN/​TXT/​?uri​=​CELEX​%3A52022DC0031 – accessed 17 November 2023).

Regulation (EU) No 1025/2012 of the European Parliament and of the Council of 25 October 2012 on European standardisation, amending Council Directives 89/686/EEC and 93/15/EEC and Directives 94/9/EC, 94/25/EC, 95/16/ EC, 97/23/EC, 98/34/EC, 2004/22/EC, 2007/23/EC, 2009/23/EC and 2009/105/EC of the European Parliament and of the Council and repealing Council Decision 87/95/EEC and Decision No 1673/2006/EC of the European Parliament and of the Council, OJ [2012] L 316/12 (https://​single​-market​-economy​.ec​.europa​.eu/​single​-market/​ european​-standards/​key​-players​-european​-standardisation​_en). Commission Communications COM(87) 290 final, Towards a Dynamic European Economy, 30 June 1987.

Council Resolution of 30 June 1988 on the development of the common market for telecommunications services and equipment up to 1992, OJ [1988] C 257/01. Ibid., recital 9.

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aged from its flagship standardization initiatives.13 The Commission’s 1990 Green Paper14 recognized that the likely prevalence and importance of IPRs (particularly patents) in standards could create a degree of power for patent owners. The Green Paper stated: ‘… inclusion of such elements within a standard can lead to reinforcement of a dominant position within the market unless satisfactory conditions for use of such property have been agreed’15 and concluded that ‘The inclusion of IPR and patents within standards should be subject to clear rules, which provide for the right of use of IPR and patents either free or on fair and reasonable terms’.16 The tension between the interests of those working on creating a standard in protecting their 9.12 technical contributions through IPRs, and the interests of those seeking to implement that standard and compete on the market for products utilizing the standardized technology (who would require access to the necessary IPRs), continued to be of concern.17 However, it is worth noting, that at the time (in the late 1980s and early 1990s) most of those likely to be involved in manufacturing and selling products or providing services implementing telecommunications standards within ETSI were also involved in its development and owned essential IPRs.18 By 1992, the Commission had prepared a further Green Paper, dealing specifically with the 9.13 role of IPRs in European standardization.19 The paper summarized the overall approach to IP in standardization previously adopted by standards bodies and summarized the general principles applicable to the protection of IPR: Intellectual property rights include patents, trademarks, copyright, design rights, semi‑conductor topography rights, trade secrets. Works of the intellect are created as a result of a given volume of man-hours of labour and a return on the financial investment in that labour cost will be secured only if the creator of the work can control how his work is to be exploited and where. General principles are applicable to all forms of intellectual property protection. They include the following: • others may only use or copy the intellectual creation with his permission and, if the right holder so wishes, he may be paid for that permission; in order to ensure a wider distribution and use of works

13

14 15 16 17

This is not entirely surprising as the predecessor to ETSI, which had already been working on standardizing mobile communications technology, the GSM group within the CEPT, had already been embroiled in lengthy debates about issues relating to IPR. See Rudi Bekkers, Bart Verspagen and Jan M Smits, Intellectual Property Rights and Standardization: The Case of GSM (Telecommunications Policy, Elsevier Science, Spring 2002, pp 171–188).

Commission Green Paper on the Development of European Standardization: Action for Faster Technological Integration in Europe, COM(90) 456 final, 8 October 1990 (1990 Green Paper). Ibid., para 92. Ibid., p 53.

For a general discussion of these issues, see Maurits Dolmans, ‘Standards For Standards’ (2002) 26 Fordham Int’l L.J. 163 (https://​ir​.lawnet​.fordham​.edu/​ilj/​vol26/​iss1/​6 – accessed 25 November 2023).

18 As the structure of the industry has changed with the success and widespread adoption of cellular technology this situation has evolved and the ecosystem is now significantly more complex, with a number of those who own significant numbers of SEPs not involved (or significantly less involved) in implementation, and many of those who implement the standard having limited or no involvement in its development or in the underlying technologies. This has significantly sharpened the focus on the underlying tensions as there is much less scope for SEP disputes to be resolved through cross-licensing deals than was undoubtedly the case in early generations of mobile communications standards, such as GSM. 19

Commission Green Paper on Intellectual Property Rights and Standardization, COM(92) 445 Final, 27 October 1992 (1992 Green Paper).

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS of the intellect in society as a whole, limits are set on the scope and duration of the intellectual property protection; • the abusive exercise of intellectual property rights by individuals or companies occupying a dominant position is subject to the application of competition rules, and in particular Articles 85 and 96 of the Treaty. Agreements between companies regulating the exercise of intellectual property rights may be subject to the prohibition of Article 85 of the Treaty.20

9.14 The paper indicated that if those who owned patents essential to implementing a standard were not willing to license them to undertakings who wished to utilize the standardised technology, then standards were less likely to help Europe to reach its objectives of a larger, less fragmented and more competitive telecommunications market. The Green Paper stated that the development of standards was unlikely to achieve its potential unless SEP holders were willing to offer ‘ … fair, reasonable and non-discriminatory monetary, or non-monetary terms for the licence to use any IPR’.21 9.15 Having said that, the Commission also recognized the need to ensure that those who contributed the underlying technology were incentivized to remain engaged in standardization initiatives, noting that ‘… the incentive to develop new products and processes on which to base further standardisation will be lost if the standard-making process is carried out without due regard for intellectual property rights’.22 9.16 Section 4.3 of the paper set out the Commission’s view of how the system might work. It focused on the need to ensure that all patented technology incorporated in a standard was subject to an agreement by the patentee to license its patents on fair reasonable and non-discriminatory terms.23 It appeared to assume that patentees and licensees would generally reach agreement or that ‘Cases of disputes arising in relation to the terms and conditions offered by the rightholder could be resolved if necessary, by arbitration.’24 9.17 The 1992 Green Paper did not address the potential issues that might arise if those who wished to use technology covered by IPRs did so without first acquiring a licence and did not proactively seek licences from rights holders. The assumption may have been that patentees and national courts would ensure that this did not happen through the usual mechanisms for licensing and enforcement of IPR. If that was the assumption, it did not take into consideration the potential number of patents, patentees and licensees that would ultimately be involved in the creation and use of mobile communications (and other) standards. As will be seen below, the enormous success of the EU’s standardization initiatives and the complexity of the ecosystem 20

Ibid., para 3.1.1.

22

1992 Green Paper, ibid., para 1.1.1.

21

23

24

Ibid., para 6.2.1. The legacy of this observation can be seen today in the guidance given on standardization initiatives under Art 101 TFEU in the Horizontal Guidelines (Commission Communication, Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements C(2023) 3445 final 1 June 2023), discussed in Chapter 5. Interestingly the Commission gave an early indication of what this might mean while noting that concepts such as fairness and reasonableness would vary, subjectively, depending on the negotiation, it stated that ‘If the rightholder is to be satisfied that his investment in research and development can be adequately recovered, he would expect the royalty rate to relate in some way to the normal freely-negotiated commercial rate, allowing for the greatly increased market for his technology which standardisation will bring’ (1992 Green Paper, ibid., para 4.3.3). Ibid., para 4.3.4.

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that has evolved in respect of cellular communications standards (in particular) brought with it significant problems around the licensing and enforcement of SEPs. Other areas of concern mentioned in the 1992 Green Paper included failures by those involved 9.18 in standardization to disclose the existence of relevant IPR. The Commission identified this as a potential source of competition law concern which could lead to higher royalties or blocking of the standard.25 To address this concern, it indicated that SDOs should establish appropriate procedures to penalize late disclosure and suggested that deliberate acts of bad faith might be taken into consideration by the Courts when dealing with an action to enforce the IPR in question.26 It was clear from the outset that the Commission perceived the competition provisions of the 9.19 Treaty as having a central role in industries engaging in collective standardization: An important consideration in the successful management of standardization involving intellectual property rights must also be the application of the competition rules of the Treaty and specifically the application of Articles 85 and 86. The issues which arise may be divided into two categories: those which relate to the constitution and operation of the standard-making body under Article 86 [sic]27 and those which relate to a refusal to grant licences to use an IPR or to the offer of terms and conditions for such licences under Article 86.28

The approach in the 1992 Green Paper towards the application of competition law to IPR 9.20 holders whose rights were incorporated into a standard was informed by the then current state of competition law jurisprudence, particularly under Article 102 TFEU. The document was issued before the final outcome in the Magill case (the CJEU judgment in that case was given in 1995,29 although the original complaint was lodged with the Commission in 1986, and the General Court (GC) judgment was given in July 199130). The 1992 Green Paper referred to the earlier judgment in Volvo v Veng31 in which the CJEU had held that a mere refusal to license an IPR would not in itself infringe Article 102 TFEU, but that Article 102 TFEU could intervene if the exercise of an IPR involved abusive conduct,32 as well as to the GC judgment in Magill.33 The reference to the GC judgment in Magill was an indication that the Commission saw Article 102 TFEU as potentially having a role to play in dealing with problematic behaviour by patentees, as did the specific reference to the Commission’s view that ‘… excessive pricing of its technology by the dominant company could be indicative of abusive behaviour …’.34

25

Ibid., para 4.4.

27

I assume that this should be a reference to Art 85, now 101 TFEU.

26

28

29 30 31 32 33 34

Interestingly, at this point, while the Commission identified the possibility that late disclosure might lead to higher royalty rates being sought, it did not appear to envisage competition law liability. This initial position subsequently changed (see discussion of Rambus below at paras 9.35 ff). 1992 Green Paper (n 19), para 5.1.1.

Joined cases C-241/91P and C-242/91P Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v Commission of the European Communities [1995] ECR I-743 (ECLI:EU:C:1995:98). Case T-69/89 Radio Telefis Eireann (RTE) v Commission of the European Communities (ECLI:EU:T:1991:39). Case C-238/87 AB Volvo v Erik Veng (UK) Ltd [1988] ECR 6211 (ECLI:EU:C:1988:477). 1992 Green Paper (n 19), para 5.1.10. Ibid., para 5.1.7, fn 9. Ibid., para 5.1.14.

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9.21 The 1992 Green Paper concluded with a statement of general principles to be observed by European standardization bodies35 and by those contributing IPR to standardization initiatives. This recognized that both those developing standards and those who owned IPR covering technology necessary to those standards had rights and obligations. It did not make any reference to the rights or obligations of those who sought to implement standards incorporating IPR.36 The discussion of the role of competition law and the consequent brief principles set out in section 6.2.1 of the 1992 Green Paper underpinned much of the activity which followed in Europe. 9.22 The 1992 Green Paper was unambiguous about the need for European SDOs to have regard both to the standardization requirements of the EU and to the need to comply with EU law.37 Even before the publication of the 1992 Green Paper, the Commission had written to ETSI in early 1991, enclosing an extract from the 1990 Green Paper and making clear its view that ETSI must respect EU policies in its standardization activities. The Commission identified policies in the areas of IP, competition and trade as likely to be relevant.38 ETSI was therefore acutely aware of the concerns of the Commission. It liaised closely with the Commission about the ways in which it proposed to deal with IPR issues, and the Commission made known its views39 in discussions relating to ETSI’s attempts to draft and adopt a policy dealing with access to essential IPR.40 9.23 The centrality of competition law to the IPR policies of EU standardization bodies was underlined by the way in which the ETSI IPR Policy41 was developed, revised and adopted. For example, ETSI’s first attempt to adopt an IPR policy was the subject of a competition com-

35 36

37 38

39

40

41

Ibid., para 6.2. Note that these principles are reflected very clearly in the IPR policy adopted by ETSI in 1994 – see below at para 9.24 ff and are also incorporated into the approach in the current Horizontal Guidelines (n 21). The requirement that IPR owners should offer ‘fair reasonable and non-discriminatory terms for the licence to use any IPR’, might be taken to imply that implementers would at least have the right (perhaps acquired through some third-party mechanism) to accept such fair, reasonable and non-discriminatory terms, once offered. There is no suggestion that any obligations on third parties were envisaged, although again it might perhaps be inferred that the right to benefit from FRAND terms would apply only for as long as the use for which the IPR was sought was consistent with the underlying objectives of standardization. 1992 Green Paper (n 19), para 1.1.4.

Communication to ETSI 10th General Assembly, 6 March 1991.

See, e.g., the Commission letter to ETSI referred to at (n 38). The Commission showed a particular interest in ETSI’s efforts to develop an IPR policy during the early 1990s. At later points when controversy arose in the context of the ETSI IPR Policy, the Commission also became involved. For example, in June 2006, DG COMP wrote to ETSI to comment on aspects of discussions in the IPR review group (ETSI GA/IPRR05(06)12). This letter includes comments on moves towards greater transparency in declarations and on the competition law risks of a collective ex ante royalty cap regime and royalty allocation mechanism.

See, for further background, Eric L. Stasik, ‘The Role of the European Commission in the Development of the ETSI IPR Policy and the Nature of FRAND in Standardization’ in Ashish Bharadwaj, Vishwas H. Devaiah and Indranath Gupta (eds), Multi‑dimensional Approaches Towards New Technology (Springer, 24 July 2018) (https://​doi​.org/​10​.1007/​ 978​-981​-13​-1232​-8​_4 – accessed 4 November 2023). https://​www​.etsi​.org/​images/​files/​IPR/​etsi​-ipr​-policy​.pdf – accessed 25 November 2023 (ETSI IPR Policy).

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plaint to the Commission.42 It also caused significant tensions between the EU and the US.43 Against this backdrop, several contentious elements were dropped44 after a lengthy and heated debate.45 The substance of the current IPR policy was adopted in November 1994 following a breakthrough meeting of the ETSI General Assembly in July that year.46 That policy was largely based on the principles set out in section six of the 1992 Green Paper. 9.24 It was notified to the Commission (as was then possible under Regulation 17/6247) seeking an exemption or negative clearance.48 The Commission’s Article 19(3) notice49 sets out several aspects of the policy as adopted which the Commission regarded as having competition law implications, including: ● An obligation on a member to use reasonable endeavours to inform ETSI in a timely manner of essential IPR of which it become aware (without an obligation to search for such IPR) (Clauses 4.1 and 4.2). ● If a member informs ETSI that it is not prepared to license an SEP, an obligation on ETSI to seek to find a viable alternative and, if none can be found, an obligation on ETSI to ask the member to reconsider its licensing stance. If the member will not do so it is to be asked to provide a written explanation which can be sent to ETSI Counsellors (including the Commission) for consideration (Clauses 8.1.1 and 8.1.2).

42

43

44

45 46

47 48

49

This complaint was not published, and was ultimately withdrawn. The complaint is referred to and briefly summarized in the recitals to the Article 19(3) Notice approving the revised ETSI Interim IPR Policy (Case IV/35.006 ETSI Interim IPR Policy, OJ [1995] C 76/5 (https://​eur​-lex​.europa​.eu/​legal​-content/​EN/​TXT/​PDF/​?uri​=​CELEX:​C1995/​076/​05​&​ rid​=​10 – accessed 4 November 2023)). The Commission wrote to ETSI in 1994, as part of its investigation saying: … an undertaking pursuant to which IPR holders are deprived of their freedom to decide whether or not to grant licenses on their existing and future technology is restrictive of competition: it amounts to a mutual renunciation of gaining competitive advantages thanks to technical efforts and thereby deprives the participants of the incentive to develop new technologies …   Exemption under Article (81) (3) could not be contemplated if the lack of information [on the precise technological content of the standard before the public enquiry stage] makes it technically unfeasible to identify and withhold IPR.

https://​techmonitor​.ai/​technology/​telecommunications​_standards​_body​_sparks​_another​_us​_europe​_row – accessed 4 November 2023. It appears that in addition to government level contacts, the US DoJ also became involved, issuing Civil Investigative Demands on ETSI members, operating in the USA (https://​www​.keionline​.org/​miscdocs/​standards/​ bart​_openstandards​_briefing​.pdf – accessed 4 November 2023, slide 7). These related primarily to a requirement for ETSI members to sign an IPR Undertaking under which they agreed in advance (subject to certain notice provisions) that their IPRs could be incorporated in ETSI standards and would then be available to license on the basis of prescriptive obligations as to the terms to be offered. This ‘license by default’ system was regarded by some members as tantamount to compulsory licensing.

DG COMP wrote an open letter to ETSI and the complainant (CBEMA) in February 1994 addressing some of the controversial issues.

The policy has subsequently been amended in relatively minor ways. See the discussion of the original ETSI IPR Policy and Case IV/34.760 CBEMA v ETSI in Eric J. Iversen, Standardisation and Intellectual Property Rights: ETSI’s controversial search for new IPR-Procedures (IEEE Conference on Standardisation and Innovation in Information Technology, 15–17 September 1999). See discussion above at para 1.46 of this procedure, which was used before the adoption of Regulation 1/2003.

The original ETSI IPR Policy and Undertaking had also been notified to the Commission, which did not take a formal position on the notification, apparently on the basis that it had insufficient information. Iversen (n 46) reports that the Commission was concerned to ensure that if a ‘license by default’ approach was adopted, patentees should have a genuine possibility to withhold access. ETSI Interim IPR Policy (n 42).

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● A breach of the policy is a breach of a member’s obligations to ETSI and the ETSI General Assembly (Clause 14). ● A statement of principle that IPR owners should be adequately and fairly rewarded for the use of their IPRs in the implementation of standards (Clause 3.2). ● If essential IPR is identified to ETSI it shall ask the owner to give an undertaking in writing that it is prepared to grant irrevocable licences on FRAND terms (Clause 6.1). ● An obligation on ETSI to make available information about essential IPRS of which it is aware in respect of any published standard (Clause 7). 9.25 The Commission indicated that it was inclined to take a favourable view of the notified interim policy under the competition rules. That policy was ultimately made final in November 1997.50 It has subsequently been amended, mostly on points of detail relating to, for example, the way in which essential patents are to be identified and declared to ETSI.51 Some more interesting changes related to ETSI’s expectations of its members when transferring SEPs subject to a FRAND undertaking.52 Perhaps equally interesting are the amendments which have not happened. ETSI has consistently been unable to agree any policies relating to the definition of FRAND or the licensing obligations on members despite regular discussions of whether this should happen.53 9.26 ETSI’s position on the purpose of its IPR policy can be found at section 1.1 of the ETSI Guide on IPRs.54 These can be summarized as: ● ETSI’s objective is to create technical standards, based on the best technical solutions. 50 51

52

53

The 29th General Assembly of ETSI in November 1997 made the 1994 Policy permanent, removing all references to ‘interim’ and amending Article 15 relating to amendments, duration and termination of the policy.

This is described in the Background section of the ETSI Guide on IPRs (https://​www​.etsi​.org/​images/​files/​ipr/​etsi​ -guide​-on​-ipr​.pdf – accessed 25 November 2023) which explains that: A revised version of the Clause 4.1 of the ETSI IPR Policy was adopted by the 46th General Assembly in November 2005. This revision was induced by the EC DG COMPETITION in its concern to generate a general awareness of the risk of ‘patent ambush’ situation in the standard making process. The EC DG COMPETITION rationale behind the changes is given in section 4.5 of the present Guide. See ETSI IPR Policy (n 41), Art 6.1.bis.

For example, there were a number of ad hoc meetings between 2003 and 2005 to review the implementation of the IPR policy, but the only amendments adopted related to declarations and the ETSI IPR database (although the work of this group led to the creation of the ETSI Guide on IPRs in 2004). Further meetings followed in the period between 2005–2006 under the auspices of an Ad Hoc group set up by the ETSI General Assembly (The ETSI IPR Review Committee). The meetings of this group were directly largely towards the concerns of some that cumulative royalties were becoming excessive and seeking clarification of FRAND. The result was largely cosmetic, with the ETSI Guide on IPRs making clear that commercial issues are not to be discussed within ETSI but that voluntary disclosure of licensing terms was not precluded. (See 22 November 2006 versions of ETSI IPR Policy and ETSI Guide to IPRs). These discussions also dealt with an intervention by the Commission which was concerned ‘to generate a general awareness of the risk of patent ambush’. The history of this intervention and of the changes which were agreed is contained in section 4.6 of the ETSI guide on IPRs. Further discussions of potential amendments took place during the period from 2006–2008 through the IPR Special Committee. Again the Commission intervened, writing to ETSI on 21 June 2006 to set out its concerns about the imposition of an ex ante royalty cap. Further debates took place in the period from 2012 onwards. Perennial topics for debate have been around whether it is acceptable for ETSI Members to seek injunctive relief when enforcing SEPs, the appropriate royalty rate or royalty base for a FRAND licence and whether FRAND should be more clearly defined. ETSI has been unable to reach consensus on these topics and the IPR policy and its accompanying Guide have changed remarkably little since 1994, notwithstanding significant shifts in the commercial context.

54 Ibid.

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● The right to own and benefit from IPRs is recognized. ● ETSI seeks a balance between the needs of standardization and the rights of IPR owners. ● ETSI seeks to reduce the risk that investment in standardization could be wasted owing to non-availability of licences for essential IPRs. ● Transparency as to the existence of essential IPRs is therefore necessary, particularly if FRAND licences are not available. These reflect the policy objectives in Article 3.1 of the ETSI IPR Policy itself55 and have 9.27 remained unchanged since the policy was adopted in 1994. Competition law developments relating to SEPs have largely fallen into the areas already iden- 9.28 tified by the Commission in 1992, namely: ● ● ● ●

obligations to disclose IPRs and to accept the FRAND obligation; attempts to evade the FRAND obligation; arguments about the meaning of the FRAND obligation; and the competition law implications of failing to observe FRAND.

These developments are discussed below.

9.29

A general overview of the current landscape and the commercial issues that arise can be found 9.30 in the explanatory memorandum and impact assessment accompanying the Commission’s recent proposal of a draft SEP regulation.56

III. CASE LAW AND LEGISLATIVE/REGULATORY DEVELOPMENTS Before discussing specific competition law developments, it is worth noting that, in addition 9.31 to competition law developments before the competition authorities and in the EU Courts, national courts who are responsible for deciding when and how to provide a legal remedy to those whose patents are (allegedly) being used without their consent also have a significant role to play. Those courts are actively dealing with disputes where it is necessary to clarify through case law the obligations on patentees and on those who require licences to SEPs. Such national court cases are outside the ambit of this book except as they deal with competition law issues, but the approach of the courts in, for example, the Netherlands, Germany and the UK, are well worth understanding if this area is of particular interest.57 55

ETSI IPR Policy (n 41).

57

See the compilation of national cases at https://​caselaw​.4ipcouncil​.com/​?​_gl​=​1*deajou*​_ga​*MTY2MzU5O​DgxNS4xNjg​ 4NTY2ODUx*​_ga​_VP07​TML3VF*MTY​4ODU2Njg1M​S4xLjEuMTY​4ODU2ODIxO​S4zMC4wLjA – accessed 5 August 2023, which are discussed as relevant below. It remains to be seen how the newly established Unified Patent Court (UPC) will address FRAND and competition law issues although it is understood that SEP actions have been filed at the Court, including by, at least, Huawei and Panasonic.

56

Proposal for a Regulation of the European Parliament and of the Council on standard essential patents and amending Regulation (EU)2017/1001, COM(2023) 232 final (https://​eur​-lex​.europa​.eu/​legal​-content/​EN/​TXT/​?uri​=​COM​ %3A2023​%3A232​%3AFIN – accessed 29 November 2023). A further description, a summary of the proposed legislation and a synopsis of the views of various stakeholders, can be found in the European Parliament’s briefing on ‘Standard essential patents regulation’ (https://​www​.europarl​.europa​.eu/​RegData/​etudes/​BRIE/​2023/​754578/​EPRS​ _BRI(2023)754578​_EN​.pdf – accessed 24 April 2024).

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9.32 It is notable that while all three jurisdictions have provided guidance, the approach is rather different. In Germany, for example, the courts have focused largely on the more procedural requirements of the obligation to conclude FRAND licences. This has included reviewing how the parties should conduct themselves in view of the possibility that a potential licensee being sued for patent infringement may raise an EU competition law defence. Cases before the English courts (even before the UK’s departure from the EU) have focused more closely on the enforcement of the ETSI FRAND obligation as a contract under French law between ETSI members and ETSI58 and on an assessment of the FRAND rates payable in particular circumstances. The ETSI FRAND contract has been found to be enforceable by third parties against ETSI members.59 9.33 Notwithstanding the efforts of the courts60 and against a background of continued litigation, SDOs have provided limited clarity on the interpretation of FRAND; the scope and meaning of any obligation to license on FRAND terms; who may be the beneficiary of any such obligation; and whether such beneficiaries are themselves subject to any obligations. This has led to various competition law initiatives including: ● the imposition of compulsory licensing terms in the context of a settlement of a competition complaint following an alleged ‘patent ambush’; ● complaints to the Commission about allegedly unfair licensing practices – including excessive pricing; ● action by the Commission to ensure that a FRAND undertaking was available from the purchaser of a portfolio of SEPs; ● complaints to the Commission about the implications of splitting and divesting portfolios; ● complaints to the Commission about other unfair terms including the imposition of no challenge clauses by patentees; ● guidance from the CJEU about the circumstances in which seeking injunctive relief when enforcing SEPs may or may not give rise to competition law concerns; and ● complaints to the Commission about the availability of FRAND licences at various levels in the licensing chain.

58 59

60

The courts have held that the contract thus established can be enforced by third-party beneficiaries. As discussed below, some competition law issues have also been dealt with in SEP cases in English courts.

Unwired Planet International Ltd and another (Respondents) v Huawei Technologies (UK) Co Ltd and another (Appellants) [2020] UKSC 37 (Unwired Planet UKSC). This approach may not necessarily apply to other standardization bodies where the existence of a contract (and its governing law) and/or the obligations under such a contract may be unclear (such as in the case of e.g., the ISO or ITU). The comments of the English Court of Appeal in Vestel v Advance and Philips, para 78, note that the competition law issue was not taken before the Court in that case, even though it may have helped the appellant if it had been. Vestel Elektronik Sanayi Ve Ticaret A.S. & Anor v Access Advance LLC & Anor [2021] EWCA Civ 440 (26 March 2021). Competition law issues have on occasion arisen and gained traction in English cases (see, e.g., the discussion of competition aspects of patent privateering and FRAND in the Court of Appeal in an interim appeal as part of the Unwired Planet saga (Unwired Planet International Ltd v Huawei Technologies Co Ltd & Others [2015] EWHC 1198 (Pat)). In parallel, competition law continues to evolve. In a very different context, the CJEU in Case C-209/10 Post Danmark A/S v Konkurrencerådet (ECLI:EU:C:2012:172) (Post Danmark I), para 30, has explained that a dominant undertaking charging different customers, different prices does not of itself constitute discrimination. Meanwhile cases on excessive pricing in areas such as copyright licensing also provide useful insight into the application of Article 102 TFEU to IP licences. This line of cases is discussed at paras 6.268 ff above. There is also limited guidance in the Horizontal Guidelines (n 21).

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These competition law interventions are discussed below.

9.34

A. Patent Ambush – Rambus An initial complaint was made to the Commission in 2002 about Rambus’ behaviour in seeking 9.35 to enforce (and thus obtain royalties for) patents essential to a ‘Dynamic Random Access Memory’ (DRAM) standard.61 The DRAM standard was developed by JEDEC. JEDEC’s rules are different from those of ETSI, and the background factual context was complex.62 A statement of objections was sent to Rambus in August 200763 outlining the Commission’s 9.36 preliminary view that Rambus had engaged in intentional deceptive conduct in the standard-setting process by not disclosing the existence of patents which it later claimed were relevant to the adopted standard; a so-called ‘patent ambush’. Behaviour of this type had been on the Commission’s radar for some time, with a lack of transparency about the existence of SEPs and potential non-availability of FRAND licences a source of concern since at least the 1992 Green Paper. One difficulty in dealing with patent ambushes under Article 102 TFEU is that at the time 9.37 of the allegedly deceptive conduct (failing to disclose a patent), the patentee may not be in a dominant position, as the patent may not yet be included in the standard and thus not give rise to any market power. In view of this difficulty the Commission’s approach was to assert that Rambus had infringed Article 102 TFEU by seeking unreasonable royalties in respect of the use in DRAM chips of technology covered by its patents. In other words, the abuse was not the deceptive conduct as such, but the subsequent use of the ‘hold up’64 power acquired through inclusion in the standard to extract royalties that would not otherwise have been payable. 61

62

63 64

This issue was also the subject of long-running antitrust action in the US, where the FTC ultimately failed in its attempts to sanction Rambus when the US Supreme Court in 2009 declined the FTC’s request to revisit a judgment of the Appeals court in Washington DC which had found that the FTC had not proved its case: Rambus Incorporated v Federal Trade Commission, 522 F.3d 456 (D.C. Cir. 2008) (Rambus v FTC) (https://​www​.ftc​.gov/​sites/​default/​files/​documents/​ cases/​2008/​04/​08042​2appealsco​urtopinion​.pdf – accessed 25 November 2023). The withdrawal of the case following the Supreme Court’s denials of the FTC’s request is here: https://​www​.ftc​.gov/​legal​-library/​browse/​cases​-proceedings/​011​ -0017​-rambus​-inc​-matter – accessed 25 November 2023. A summary of the facts is set out in the Commission’s Decision finalizing the commitments ultimately offered by Rambus to settle the case. Case COMP/38.636 – Rambus, Commission Decision of 9 December 2009, OJ [2010] C 30/17 (Rambus Commitments Decision) (https://​ec​.europa​.eu/​competition/​antitrust/​cases/​dec​_docs/​38636/​38636​ _1203​_1​.pdf – accessed 25 November 2023). The decision is also discussed in a 2010 edition of the Commission’s competition policy brief: Ruben Schellingerhout and Piero Cavicchi, Patent ambush in standard-setting: the Commission accepts commitments from Rambus to lower memory chip royalty rates, Commission’s Competition Policy Newsletter, Number 1 (2010) (https://​ec​.europa​.eu/​competition/​publications/​cpn/​2010​_1​_11​.pdf – accessed 26 August 2023). Note the overlap between the patent ambush issues in this specific case and the Commission’s concerns to strengthen the approach to patent ambush in the ETSI IPR Policy (n 41), referred to at n 53 above.

‘Hold up’ and ‘hold out’ are terms often used in the context of SEPs. Hold up is a concept which derives from economic literature, rather than a legal concept (see, e.g., Benjamin E. Hermalin and Michael L. Katz, Information and the Hold-Up Problem, 29 November 2008 (https://​faculty​.haas​.berkeley​.edu/​hermalin/​Hermalin​_Katz​_7706​_RR​.pdf – accessed 25 November 2023)). It has been identified as a potential concern in many industries where investments are made without the costs of necessary inputs being contracted for. In the context of SEPs it is widely used to describe alleged opportunistic conduct by an owner of patents (which have become incorporated into a standard and are thus unavoidable) when the terms on which those patents are to be licensed are not set at the time of incorporation. ‘Hold out’ in the context of SEPs is often used to describe alleged opportunistic conduct by the implementor of a standard who uses

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9.38 After an oral hearing in December 2007, Rambus submitted commitments to the Commission undertaking to limit its royalty rates, in some instances to zero. Following a consultation with interested third parties, the Commission accepted the commitments offered by Rambus.65 9.39 Commitments decisions are interesting for the insight they provide into the Commission’s thinking on a given issue. However, the analysis is never complete as such decisions rest only on an initial review of the facts and a preliminary view of how the law applies. The Commission’s decision making final the commitments offered by Rambus stated that, owing to its deceptive conduct, Rambus was able to seek higher royalties than would have been the case had it disclosed its patents as part of the JEDEC standard setting initiative. This was argued to be a breach of Article 102 TFEU because the Commission believed that Rambus had intentionally breached JEDEC’s IP policy as well as ‘the underlying duty of good faith in the context of standard-setting, which resulted in a deliberate frustration of the legitimate expectations of the other participants in the standard setting process’.66 9.40 Although the Commission explained in its decision the reasons for its belief that Rambus had breached the JEDEC patent policy, given the terms of that policy, it also emphasized that it did not consider such a breach to be a pre-requisite for Article 102 TFEU liability to arise: … an actual breach of the precise rules of a standard-setting body would not be a necessary requirement for a finding of abuse in this context. The finding of abuse would rather be conditioned by the conduct that has necessarily influenced the standard process, in a context where suppression of the relevant information necessarily distorted the decision making process within a standard-setting body.67

9.41 The Commission focused on the standard setting context and noted that Rambus’ behaviour undermined confidence in that process and that, in the industry in question, an effective standardization process is ‘a precondition to technical development and the development of the market in general to the benefit of consumers’.68 9.42 Based on the facts it had analysed and its preliminary assessment the Commission considered that Rambus: ● might have deliberately set out to capture the DRAM standard from the outset and had revised its patent applications accordingly;69 ● was aware of the expectation that patents would be disclosed and of the duty of good faith on those participating in standard setting;70 and

65 66 67 68 69 70

imperfections in the patent enforcement system to delay, minimize or avoid paying royalties for SEPs in circumstances where those SEPs are used by the implementor without a licence being in place. There is a very large body of writing in economic journals about these concepts and their relationship with each other (see, e.g., Thomas Miceli and Kathleen Segerson, Opportunism in Sequential Investment Settings: On Strategies for Overcoming Holdups and Holdouts (University of Michigan, July 2015). There is also significant dispute about their consequences under competition law in the context of SEPs specifically. Rambus Commitments Decision (n 62). Ibid., para 28. Ibid., para 39. Ibid., p 3.

Ibid., para 40. Ibid., para 42.

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● intentionally did not disclose any patents. The Commission considered that in the absence of Rambus’ conduct, a patent-free standard 9.43 would have been adopted. It found that DRAM ‘users were willing to forego increases in performance in order to keep costs down’71 and, moreover, that un-patented technically and commercially feasible alternatives were available.72 These background findings are important. While it is not clear that all such conditions must be present for an Article 102 TFEU violation to arise from a ‘patent ambush’,73 it cannot simply be assumed that any failure to disclose technology on a timely basis will have anticompetitive effects.74 Hynix Semiconductors, one of the initial complainants, had objected to the Commission’s 9.44 decision to close the case by way of commitments.75 Hynix initially appealed this decision to the European Courts, but subsequently withdrew its action.76 Since the Rambus decision, issues of non-disclosure of patents, or lack of timely disclosure have 9.45 not arisen in the EU competition law arena, although they have come up in national patent litigation in both the US and in Europe. In the US the courts have tended to a text-based analysis of the ETSI IPR Policy and have imposed significant penalties in some instances (including the unenforceability of patents) on the basis of the doctrine of implied waiver for failures to disclose patents on a ‘timely’ basis, even if those patents were the subject of FRAND declarations at the time when they were actually being licensed.77 The national courts in the EU have taken a rather different approach under Article 102 TFEU, based on the underlying objectives of ETSI when setting standards and the overall role of FRAND in mitigating anticompetitive effects of non-disclosure.78 71

Ibid., para 45.

73

There is an interesting discussion of this case and its implications in Faull and Nikpay (eds), The EU Law of Competition (3rd edn, Oxford University Press, 20 March 2014), 4.750 et seq.

72

74

75 76 77

78

Ibid., para 46.

Indeed, in the parallel US antitrust case the US courts appear to have reached different conclusions on several factual issues which led them to reject the FTC’s analysis (Rambus v FTC (n 61)). In addition, a national court in Germany has held that a failure to disclose patents on a timely basis will not necessarily have anticompetitive effects if the patentee is subject to FRAND obligation, at least in the case of ETSI standards where the ETSI policy is to incorporate the best technical solution into the standard, irrespective of the patent position (IP Bridge v HTC, Higher Regional Court (Oberlandesgericht) of Karlsruhe 25 November 2020 – Case No. 6 U 104/18 para 106); see also Koninklijke Philips NV v Asustek Computers INC, Court of Appeal of The Hague, judgment 7 May 2019, dated Case No. 200.221.250/01 (Philips v ASUS).

A non-confidential version of the Commission’s Decision of 15 January 2010 to reject Hynix’ complaint is at https://​ec​ .europa​.eu/​competition/​antitrust/​cases/​dec​_docs/​38636/​38636​_1192​_5​.pdf – accessed 25 November 2023.

Joined Cases T-148/10 and T-149/10 SK Hynix v Commission (ECLI:EU:T:2013:358), Order of the President of the General Court dated 5 July 2013.

April 1, 2022, Final Initial Determination in Certain UMTS and LTE Cellular Communication Modules and Products Containing the Same, Inv. No. 337-TA-1240, US ITC, citing Core Wireless Licensing S.A.R.L. v Apple Inc, 899 F.3d 1356, 1365 (Fed. Cir. 2018) and Apple Inc v Motorola Mobility, Inc, 886 F. Supp. 2d 1061, 1086–1088 (W.D. Wisc. 2012).

See the alternative approach of the Netherlands courts in Philips v ASUS (n 74), where the court found that even though Philips had not declared the particular patents to be essential before the standard was set, it had given a general FRAND declaration many years earlier. This, together with the fact that an objective of ETSI (against which its IPR policy should be construed) is, in part, to achieve the best technical outcome, rather than a royalty free standard plus other relevant aspects of the ETSI regime, meant that the standard setting initiative was not adversely affected, and FRAND access

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B. Non-FRAND Terms – Qualcomm/Royalties 9.46 In the mid-2000s, six companies in the mobile communications industry (including Broadcom, Ericsson and Nokia) alleged that Qualcomm’s licences of standard essential patents were not on FRAND terms and breached Article 102 TFEU.79 Their complaint to the Commission alleged that once a patentee has given a FRAND commitment so as to enable its technology to be incorporated in a standard, charging non-FRAND royalties would be a form of exploitative abuse under Article 102 TFEU and could lead to higher handset prices, slower development and growth of the then cutting-edge 3G standard, and related negative consequences. The complainants also alluded to the ‘repeat game’ nature of formal standard setting in a sector like mobile communications by referring to the potential consequences for the next generation standard and for standard setting more generally if such behaviour were to go unchallenged. 9.47 The complaint raised issues which had been troubling the Commission for some time, including how to assess whether royalties charged for licences after a patented technology has been incorporated into a standard are FRAND, and how non-FRAND royalties relate to excessive prices under Article 102 TFEU. 9.48 The Commission opened a formal investigation in October 2007 and subsequently closed it on 24 November 2009.80 The decision to close the investigation was probably influenced by the fact that the underlying complaints were withdrawn after each of the complainants reached patent settlement agreements with Qualcomm. However, the Commission was candid in its case closure communication about the difficulties involved in assessing excessive pricing allegations relating to IPR in an economic context as complex as the standardization of mobile communications.

to the standard was ensured, thus no ‘patent ambush’ as in Rambus could occur owing to the different factual context. This case was helpfully summarized on the IPKat blog in 2019 (https://​ipkitten​.blogspot​.com/​2019/​05/​dutch​-court​ -of​-appeal​-injuncts​.html – accessed 25 November 2023) with links to an English translation of the judgment. See also https://​caselaw​.4ipcouncil​.com/​dutch​-court​-decisions/​hague​-court​-appeal/​koninklijke​-philips​-nv​-v​-asustek​-computers​ -inc​-court​-appeal – accessed 25 November 2023) which summarizes the key point as follows: Starting with the general purpose underlying the ETSI disclosure obligation, the Court of Appeal found that it was not—as Asus maintained—to allow ETSI participants to choose the technical solutions with the lowest cost, since ETSI standards seek to incorporate the best available technologies. Rather, the purpose of the declaration obligation was to reduce the risk of SEPs being ex post unavailable to users. (internal references omitted) Along similar lines, the German Federal Supreme Court (FSC) has held that a failure to declare patents and to give a FRAND declaration can be cured. See the discussion of recent German FRAND case law here: https://​link​.springer​ .com/​ article/​ 10​ .1007/​ s40319​ -021​ -01129​ -8​ #Sec7 – accessed 25 November 2023, discussing FSC decision of 24 November 2020 – KZR 35/17 (FRAND Defence II). A translation of this decision into English can be found in this issue of IIC at https://​doi​.org/​10​.1007/​s40319​-021​-01126​-x – accessed 25 November 2023. The key point here is that once a FRAND declaration is given, and binds the patentee, the assertion of the patent and the seeking of FRAND royalties does not infringe competition law. With all due respect to the US judgments, the judgments of the German and Dutch national courts appear to reflect more accurately the underlying ethos and objectives of the ETSI IPR Policy in its particular policy context. See the discussion of the evolution of that policy after the Rambus Commitments Decision (n 62), and the very different factual context of the JEDEC standard.

79 Commission MEMO/07/389, Antitrust: Commission initiates formal proceedings against Qualcomm, 1 October 2007 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​MEMO​_07​_389 – accessed 25 November 2023). 80

See Commission MEMO/09/516, Antitrust: Commission closes formal proceedings against Qualcomm, 24 November 2009 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​MEMO​_09​_516 – accessed 25 November 2023).

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The Commission noted that despite having committed time and resources for two years to 9.49 the assessment of ‘a complex body of evidence’ to investigate whether the royalties charged by Qualcomm for its patented technology since it became part of the standard were unreasonably high, it had not reached a formal conclusion. The Commission’s terminology here was interesting – it did not suggest that it was assessing whether Qualcomm’s royalties were ‘excessive’ (as might be the case under the United Brands81/Parke Davis82 line of cases), but whether they were ‘unreasonably high’. Perhaps the Commission was considering that there might be an Article 102 TFEU breach for charging non-FRAND (even if not abusively excessive) royalties because of the particular circumstances of the conduct. This could reflect the thinking apparent in Rambus (see above) where the Commission considered that the standardization context and the legitimate expectations of those engaged in standardization could give rise to an abuse even for conduct not otherwise falling within the prohibition in Article 102 TFEU (or any other legal obligations). Such an approach would not be entirely surprising given the other developments of ‘novel’ abuses under Article 102 as in, for example, AstraZeneca.83 Even if the Commission was thinking along those lines in 2009, it appears to have recognized 9.50 that there could be formidable difficulties in establishing an abuse even below the level of excessive pricing, noting that ‘In practice, such assessments may be very complex, and any antitrust enforcer has to be careful about overturning commercial agreements.’84 The Commission decided not to continue with the investigation, citing its other priorities. It is noticeable that while the Commission has subsequently provided guidance on mechanisms 9.51 that may be used to assess whether an SEP royalty is non-FRAND85 subsequent action at 81 82 83 84 85

Case 27/76 United Brands Company and United Brands Continentaal BV v Commission of the European Communities (ECLI:EU:C:1978:22). Case 24/67 Parke Davis & Co v Probel and Others [1968] ECR 55 (ECLI:EU:C:1968:11). See above para 8.253 ff.

Commission MEMO/09/516 (n 80).

Initially in the 2010 Horizontal Guidelines, paras 289–290 (https://​eur​-lex​.europa​.eu/​legal​-content/​EN/​TXT/​HTML/​ ?uri​=​CELEX:​52011XC0114(04) – accessed 25 November 2023) and subsequently in the 2023 Horizontal Guidelines (n 21), discussed in Chapter 5. The methodologies suggested in the guidelines were non-prescriptive and noted the difficulties of making comparative assessments ‘in a consistent and reliable manner’. Those who have considered how to apply these guidelines in practice may smile wryly at the difficulties apparently encountered by the Commission in Qualcomm as the information needed to assess a ‘reasonable’ royalty will be difficult to come by (even for a competition authority with full investigative powers), complex and difficult to analyse. Some of the difficulties with the various potential approaches to identifying FRAND royalties are summarized in Faull and Nikpay (n 73), 4.771–4.780. At the time of writing, in Europe only the English courts had grappled with the question of how to set a FRAND royalty, initially in the 2020 Supreme Court judgment in Unwired Planet UKSC (n 59), on appeals from: [2018] EWCA Civ 2344 and [2019] EWCA Civ 38, upholding in all material respects the first instance judgment of Birss J [2017] EWHC 711 (Pat) (Unwired Planet First Instance FRAND), which had also been upheld by the Court of Appeal. That judgment has been followed subsequently in other FRAND cases (InterDigital v Lenovo & Motorola [2023] EWHC 539 (Pat); Optis & Unwired Planet v Apple [2023] EWHC 1095 (Ch) (Optis v Apple FRAND)). The approach adopted by the English courts is, essentially, to place FRAND in its commercial context and assess whether particular terms are FRAND by reviewing comparable licences offered to others. A cross-check may also be applied based on a notional cumulative royalty. The English courts have not undertaken an Art 102 TFEU abuse analysis but have analysed the ETSI FRAND obligation as a contractual obligation under French law (the governing law of the ETSI arrangements). They have also stated that a non-FRAND royalty is not necessarily the same as an excessive royalty under Art 102 TFEU. In Germany, on the other hand, ever since the seminal judgment of the Bundesgerichtshoftt in the Orange Book Standard case in the 2009 (Federal Court of Justice (KZR 39/06) decision of 6 May 2009: http://​juris​.bundesgerichtshof​.de/​cgi​-bin/​

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EU level before both the Commission and the European Courts have not considered ‘what is a non-FRAND royalty’ focusing rather on seeking to ensure that the FRAND obligation could not be evaded by patentees and that patentees would find it difficult to put excessive pressure on implementers to ‘encourage’ them to take non-FRAND terms.86 9.52 A few months after its case closure decision, in June 2010, the Commission received a further complaint against Qualcomm from a UK telecoms company, Icera, about further alleged infringements of Article 102 TFEU for unfair licensing practices. This investigation (formally opened in July 2015) did not relate to SEPs, but rather to conditions in Qualcomm’s contracts for the supply of baseband chipsets used in smartphones (in particular chipsets complying with the 3G (UMTS) and 4G (LTE) standards).87 The investigation took several twists (and parallel investigations occurred in other jurisdictions) including before the CJEU.88 9.53 Back in the SEP and FRAND arena, Qualcomm is the subject of a significant claim under the UK’s class action regime.89 The claim is at an early stage but has been brought by the UK consumer association for damages to consumers caused by alleged abuse of dominance under both the relevant national competition legislation and, until 31 December 2020, Article 102 TFEU.90 The substance of the claim is that Qualcomm has leveraged an alleged dominant position in the supply of LTE chipsets to extract ‘supra-competitive’ royalties for patents and that it has refused to license competing chipset manufacturers, choosing instead to license the manufacturer of the final product. This complaint touches on two related issues that arise under competition law in the SEP context: first, the amount of FRAND royalties and the relationship between FRAND royalties and abusive royalties, as discussed above; and secondly, the meaning of the non-discrimination element of FRAND in a multi-level industry. The second of these issues is discussed below. C. IPCom – The Transfer of FRAND 9.54 IPCom, an IP licensing company, purchased a number of mobile telecommunications patents from Bosch in 2007. The patent portfolio had been developed by Bosch and contained patents which had been declared essential by Bosch to both the GSM (2G) and the UMTS/W-CDMA (3G) standards adopted by ETSI. Bosch – the original declarer of the patents’ essentiality, and

86

rechtsprechung/​document​.py​?Gericht​=​bgh​&​Art​=​en​&​nr​=​48134​&​pos​=​0​&​anz​=​1 and machine translation https://​www​ .cohausz​-florack​.de/​fileadmin/​documents/​Urteile/​IP​_made​_in​_Germany​_Urteile/​OrangeBook​_KZR​_39​-06​_wie​_ver​ %C3​%B6ffentlicht​-EN​.pdf – both accessed 29 November 2023, the courts have taken the broad approach that a royalty will be abusive (and non-FRAND) only if it is excessive, in line with Art 102 TFEU. This case is discussed at para 7 and following of Germany’s contribution to the 2014 OECD forum on Intellectual Property and Standard Setting (https://​ one​.oecd​.org/​document/​DAF/​COMP/​WD(2014)113/​en/​pdf – accessed 26 November 2023). While the Orange Book case did not relate to a formal standard set by ETSI, the principles were applied subsequently by German courts in SEP cases. The case was distinguished from formal standard setting cases in Huawei v ZTE CJEU as discussed at (n 4). See the discussions of IPCom, Motorola, Samsung and Huawei below.

87 See http://​ec​.europa​.eu/​competition/​antitrust/​cases/​dec​_docs/​40220/​40220​_791​_5​.pdf – accessed 25 November 2023. 88

Case C-466/19 P Qualcomm Inc and Qualcomm Europe Inc v European Commission (ECLI:EU:C:2021:76).

90

A summary of the claim is at https://​www​.catribunal​.org​.uk/​sites/​cat/​files/​2021​-03/​1382​_Qualcomm​_summary​_180321​ .pdf – accessed 25 November 2023.

89 Case 1382/7/7/21 Consumers’ Association v Qualcomm Incorporation (https://​www​.catribunal​.org​.uk/​cases/​13827721​ -consumers​-association – accessed 25 November 2023).

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a member of ETSI involved in the standardization process – had accepted an obligation to license the patents on FRAND terms. After IPCom acquired the patents, Nokia complained to the Commission that IPCom was seeking to evade the FRAND commitment given by Bosch. The Commission began an investigation into IPCom’s alleged unwillingness to license its patents on FRAND terms. After discussions with the Commission, IPCom declared publicly that it would license its 9.55 ETSI standard patents on FRAND terms. The Commission welcomed that declaration and took no further action.91 The Commission noted that ‘unrestricted access to the underlying proprietary technology on FRAND terms for all third parties safeguards the pro-competitive economic effects of standard setting. Such effects could be eliminated if, as a result of a transfer of patents essential to a standard, the FRAND commitment would no longer apply’. The ETSI IPR Policy was amended to clarify the position relating to patent transfers (as described above) by the insertion of Article 6(1) bis in March 2013. D. PAEs, Privateering and Portfolio Splitting The IPCom investigation drew competition law attention to a phenomenon which had been 9.56 gathering pace for some time: the acquisition of SEPs from the original owners by undertakings which had not been involved in the original standardization initiative. In some instances, the underlying rationale might be to provide new entrants or late entrants with a portfolio which could be used as ‘currency’ in cross-licence negotiations with other patentees. In other cases, the underlying rationale might be the decision of the original patentee to exit the relevant market and to seek to recognize its investment by a lump sum payment from a new purchaser who would then be free to license the patents in future. Another patent transfer business model involved undertakings with very large SEP portfolios choosing to split those portfolios and transfer part to one or more other undertakings. This might involve an outright sale and assignment, with no continuing connection between the original patentee and the new owner; other cases involved arrangements with some degree of deferred consideration, where the original owner obtained a share of any licence revenue obtained by the new owner from its subsequent enforcement and licensing activity.92 Those who purchased SEPs as an investment for out-licensing purposes, rather than because 9.57 they needed the patents in order to implement a standard and/or supply compliant products have been given many names. Some not too pejorative descriptions are Patent Assertion Entity (PAE) or Patent Licensing Entity (PLE). In some instances, patent pools may fall within this description.93

91 92 93

See Commission MEMO/09/549, Antitrust: Commission welcomes IPCom’s public FRAND declaration, 10 December 2009. Different types of patent transfer and some of their economic implications are discussed in Fiona M. Scott Morton and Carl Shapiro, ‘Strategic Patent Acquisitions’ (2013) 79 Antitrust Law Journal 464–499.

The US FTC has carried out an assessment of PAE activity in the US Federal Trade Commission, Patent Assertion Entity Activity: An FTC Study, October 2016 (https://​www​.ftc​.gov/​system/​files/​documents/​reports/​patent​-assertion​ -entity​-activity​-ftc​-study/​p131203​_patent​_assertion​_entity​_activity​_an​_ftc​_study​_0​.pdf – accessed 28 November 2023). The EU carried out its own study, Patent Assertion Entities in Europe. Their impact on innovation and knowledge

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9.58 Undertakings whose business is licensing have proved themselves more willing to seek a return on their patent assets, and to undertake enforcement activities if negotiations appear not to be proceeding favourably, than companies who have a different commercial focus. Much of the recent SEP litigation in national courts in Europe (including the UK) has been pursued by PAEs including, for example Core Wireless, Mosaid, Unwired Planet, Conversant and Vringo.94 9.59 The transfer of SEPs from one owner to another should not give rise in itself to competition law concerns particularly if the new owner continues to be bound by FRAND obligations. The increase in SEP transfers referred to at paragraph 9.56 was one of the reasons for the Commission’s keenness to ensure in the IPCom case that, as a general principle, it was accepted that FRAND obligations should be transferred along with the patent.95 However, while ETSI has changed its IPR policy to reflect the Commission’s preferred position stating that FRAND undertakings ‘shall be interpreted as encumbrances that bind all successors in interest’, it also recognizes that in some jurisdictions this is not legally possible. It therefore also imposes an obligation on an SEP owner having given a FRAND undertaking to include wording in the assignment or transfer document ‘to ensure that the undertaking is binding on the transferee and that the transferee will similarly include appropriate provisions in the event of future transfers with the goal of binding all successors-in-interest’.96 9.60 Notwithstanding efforts to ensure that FRAND obligations will bite on those who acquire SEPs, competition law concerns have continued to be expressed, particularly where owners of significant SEP portfolios have split them up, retaining a large number of SEPs in their own hands, while transferring other significant portfolios to one, two, or even several undertakings, outsourcing enforcement and licensing of those tranches of patents, while maintaining an interest in the proceeds of those licensing activities. This has come to be known as ‘privateering’, a nod to the historic practice of governments authorizing independent actors to engage in acts of warfare (such as engaging enemy ships at sea) with the promise of a share of any spoils of war.97 As with most business models, the competition implications depend very much on the circumstances and no competition authority has criticized the business model as such.

94 95

96

97

transfer in ICT markets, October 2016 (https://​publications​.jrc​.ec​.europa​.eu/​repository/​handle/​JRC103321 – accessed 26 November 2023).

This is discussed in Igor Nikolic, Patent Assertion Entities and Standard Essential Patents: Keep Calm and Carry On (https://​www​.4ipcouncil​.com/​application/​files/​4815/​1638/​1030/​PAE​_and​_SEPs​_Keep​_calm​_and​_carry​_on​.pdf – accessed 18 October 2023).

For example, in addition to its comments in the press release publicising IPCom’s commitment to observe FRAND, the then Director General of DG COMP was very keen to emphasize that ‘FRAND commitments travel with the standard essential patents if they are sold’: speech by Alexander Italianer to the Brussels Mentor Group, Shaken, not Stirred. Competition Law Enforcement and Standard Essential Patents, 21 April 2015, p 11 (https://​ec​.europa​.eu/​competition/​ speeches/​text/​sp2015​_03​_en​.pdf – accessed 18 October 2023). This reflects the position on the Horizontal Guidelines (n 21), which deal with SEP transfers in the context of collaborative standard setting at para 457: … to ensure the effectiveness of the FRAND commitment, there should also be a requirement for all participating IPR holders who provide such a commitment to ensure that any company to which the IPR owner transfers its IPR (including the right to license that IPR) is bound by that commitment for example through a contractual clause between buyer and seller. ETSI IPR Policy (n 41), Art 6.1 bis.

See the description of ‘privateering’ in Chryssoula Pentheroudakis and Justin A. Baron, Licensing Terms of Standard Essential Patents. A Comprehensive Analysis of Cases (JRC Science for Policy Report (2017) EUR 28302 EN; doi:10.2791/32230), section 3.3.4.3.

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Representatives of the Commission have expressed the view that the initiatives taken in the EU 9.61 to limit the ability of patent purchasers to evade the FRAND obligation (through the messages delivered via the IPCom investigation and the changes to the ETSI IPR Policy), together with the rules relating to injunctive relief, make anticompetitive behaviour by PAEs and privateers less likely in Europe. However, this has not prevented complaints about PAEs, a number of whom have acquired very significant patent portfolios whether from a variety of sources or from individual original patentees with whom they have a close relationship. For example, it was widely reported98 that Google complained to the Commission about an 9.62 arrangement under which Nokia and Microsoft transferred over 1,000 patents to a Canadian PAE, Mosaid (now renamed Conversant).99 It was reported that under the terms of the transaction, Mosaid would retain one-third of any revenue derived from royalties, with the remainder going to Nokia and Microsoft. Public details about the substance of Google’s complaints are very limited and the Commission appears not to have pursued them. The competition concerns that may arise from privateering activity will vary depending on 9.63 the legal context100 but some of the considerations which have been mentioned as potentially harmful, depending on the context include: the potential avoidance of FRAND obligations; greater propensity to royalty stacking caused by more licensors with an interest only in royalty maximization; and concerns that such behaviour can form part of an overall anticompetitive strategy by the original patentee. It is argued that the use of PAEs as proxies may increase the ability of the original patentee to subject implementers to costly and time-consuming litigation against opponents who are not constrained by reputational considerations or by the need to obtain cross-licences and that such conduct may have the purpose of increasing and obtaining supra-FRAND rates. While the Commission continues to keep a watching brief on the privateering/patent transfer 9.64 issue, it has come up from time to time in national courts. In the UK, the implications of the Ericsson/Unwired Planet relationship came up as part of 9.65 the Unwired Planet litigation which ultimately ended up in the UK Supreme Court (on other issues). As part of the overall dispute, Unwired Planet and Ericsson had argued at an interim hearing that the arrangement between Ericsson and Unwired Planet infringed Article 101 98

99

Google files EU complaint against Nokia, Microsoft over alleged patent collusion with MOSAID (update: Microsoft responds), 31 May 2012 (https://​www​.theverge​.com/​2012/​5/​31/​3055676/​google​-nokia​-microsoft​-patent​-mosaid​ -europe – accessed 26 November 2023); Microsoft and Nokia hit back at Google ‘patent troll’ claims, The Guardian, 1 June 2012 (https://​www​.theguardian​.com/​technology/​2012/​jun/​01/​microsoft​-nokia​-google​-patent​-troll – accessed 26 November 2023). A similar deal between Ericsson and Unwired Planet was concluded about a year later, and also was also subject to some speculation about the competition law implications: see Paul Belleflamme, Beware! Privateers patrol these patent waters, 3 June 2013 (https://​www​.ipdigit​.eu/​2013/​06/​beware​-privateers​-patrol​-these​-patent​-waters/​ – accessed 26 November 2023).

100 See the discussion of this consideration in European Economics: European Commission, Joint Research Centre, Nikolaus Thumm and Garry Gabison (eds), Patent Assertion Entities in Europe (EUR 28145 EN; doi:10.2791/134702) at section 7, and for a review that covers US as well as EU concerns and which has numerous helpful references for further reading Mark S. Popofsky and Michael D. Laufer, Patent Assertion Entities and Antitrust: Operating Company Patent Transfers (The Antitrust Source, April 2013) (https://​www​.ropesgray​.com/​en/​insights/​alerts/​2013/​04/​antitrust​-attacks​ -on​-patent​-assertion​-entities – accessed 26 November 2023).

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TFEU and was therefore void should be struck out and not permitted to proceed to trial.101 The basis for the competition law defences was an argument that the object and effect of the Ericsson/Unwired Planet agreement: … was and is unfairly and unreasonably to increase the returns that Ericsson is able to secure from the exploitation of its SEPs. The core of the anti-competitive conduct is said to be Ericsson’s strategic division of its original portfolio of SEPs and the transfer of part of it to UP in such a way as to place UP and Ericsson in the position of being able to extract unfair and unreasonable royalties from potential licensees, thereby harming consumers, competition and innovation.102

9.66 At first instance, the English High Court had accepted that the allegations that an Article 101(1) TFEU infringement arose from the specific terms of the agreement between Ericsson and Unwired Planet should be permitted to proceed to trial. It had been argued that aspects of the arrangements would lead to higher royalties and greater concerns about royalty stacking. These were specifically: Ericsson’s continued interest in the revenues generated by Unwired Planet; together with provisions in the agreement which were said to affect Unwired Planet’s freedom to deal with and license the patents as it wished; plus Unwired Planet’s greater freedom to act more assertively in negotiations (as it did not require cross-licences). While troubled by the implications of these arguments, the Judge did not feel able to say that they had no realistic prospects of success, and therefore declined to strike them out. 9.67 However, the Judge did strike out a separate allegation that the agreement between Ericsson and Unwired Planet infringed Article 101(1) TFEU because it had not required Unwired Planet to accept the same FRAND obligation as Ericsson, stepping directly into Ericsson’s shoes. This was argued to be important because it could enable Unwired Planet and Ericsson (as beneficiaries of the licensing income achieved by Unwired Planet) to evade the implications of some of Ericsson’s licensing conduct, during the time when it had been the owner of the patents. The Judge held that this argument was not sustainable on the basis that Unwired Planet’s acceptance of a general FRAND obligation could be enforced by third parties103 and would be sufficient to avoid hold up. The Judge also considered that it would be commercially unworkable for Unwired Planet to have to step into Ericsson’s shoes. 9.68 Without ruling finally on the issue, the Court of Appeal104 held that the defendants should be permitted to argue that after a patent transfer the transferee should be bound by the same FRAND commitment as the transferor. This would include an obligation to have regard to the FRAND terms that had previously been offered by the transferor. The competition concern was that otherwise the transferor could avoid the implications of its previous licensing practices and FRAND licences (particularly under the non-discrimination limb of FRAND/Article 102 TFEU) by outsourcing enforcement of parts of its portfolio to a third party, while benefitting from any increased royalty obtained. The Court of Appeal held that the defendants had:

101 That decision was appealed to the Court of Appeal: Samsung Electronics Co Ltd and Samsung Electronics (UK) Ltd v Telefonaktiebolaget L M Ericsson and Others [2016] EWCA Civ 489 (Unwired Planet – Samsung/Ericsson Appeal). 102 Ibid.

103 It had been argued that as Unwired Planet was not an ETSI member, there was no contractual nexus which would allow it to be sued. The High Court’s finding that the FRAND obligation would have teeth even though Unwired Planet was not an ETSI member finding was upheld on appeal (Unwired Planet – Samsung/Ericsson Appeal, ibid., paras 37, 38). 104 Ibid.

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COMPETITION LAW, STANDARDS AND FRAND … a realistic prospect of persuading a judge at a full trial that in the circumstances of this case Article 101 TFEU required the effective transfer to UP of Ericsson’s FRAND obligation so that UP could not obtain more favourable terms from its licensees than Ericsson could itself have obtained … It is arguable that in breach of Article 101 TFEU the MSA agreements fell short of a full transfer of the non-discrimination aspect of Ericsson’s FRAND obligation and that the anticompetitive nature of this breach renders the MSA agreements as a whole anticompetitive and void.105

The Unwired Planet case also gave rise to arguments about the effects of portfolio division 9.69 in Germany, where their success varied.106 In the parallel case between Unwired Planet and Samsung, the regional court had held in 2016 that ‘as long as the overall royalty rate payable for the use of the standard(s) is fair and reasonable, the splitting of a SEP portfolio is legitimate, even if licensees of the new SEP proprietor have to pay higher royalties than licensees of the previous SEP proprietor’.107 That court regarded the need to avoid an excessive aggregate royalty as the only relevant competition law threshold, holding that if the royalty range for the portfolio as a whole was towards the lower end of the FRAND range, it was not anticompetitive to enable higher royalties by splitting the portfolio as long as the overall royalty did not exceed the FRAND range. However, in the case between Unwired Planet and Huawei, the Higher Regional Court of 9.70 Düsseldorf held (in March 2019) that while SEP transfers did not as such give rise to an infringement under Article 101 or 102 TFEU, new assignees assume the FRAND pledge of the original owner and are obliged to follow the same licensing practice as the original owner, removing the risks identified in the parallel case in the UK.108 E. Injunctions – A Straw in the Wind – Google/MMI On 13 February 2012, the Commission approved the acquisition by Google of Motorola 9.71 Mobility Holdings Ltd (MMI) and its portfolio of standard essential patents.109 The Commission’s approval was without prejudice to potential competition law concerns about the exercise of SEPs, that is, the Commission found that there were no merger-specific issues. The decision provided some insight into potential abuses that might arise when litigating SEPs. In particular, paragraph 106 indicated the Commission’s view that the holder of an SEP could in principle enforce its SEPs in national courts against an infringer and seek an injunction if licensing discussions fail: 105 Ibid., para 50. These issues were not finally addressed at trial as the defendant which had included them as part of its defence (Samsung) settled its dispute with Unwired Planet before the FRAND issues and other non-patent law defences were considered by the court. 106 Unwired Planet v Huawei [2019] Higher District Court of Düsseldorf, Case No I-2 U 31/16 (Higher District Court of Düsseldorf) (Unwired Planet LG Düsseldorf High Court); Unwired Planet v Samsung [2016] LG Düsseldorf, Case No 4b O 120/14 (Unwired Planet LG Düsseldorf). 107 Unwired Planet LG Düsseldorf, ibid., para. I, 4, b, aa and bb.

108 Unwired Planet LG Düsseldorf High Court (n 106), paras 212 et seq. The conclusion that SEP transfers do not, as such, amount to an abuse of dominance appears to be based on the premise that FRAND commitments operate as a type of encumbrance on the patent, treating a patent as if it were a species of real property. (‘in rem’) (para 205). It remains to be seen how this asepct of patent transfers continues to evolve. 109 Case COMP/M.6381 – Google/Motorola Mobility, Commission decision C(2012)1068 of 13 February 2012; see also Commission Press Release IP/12/129, Mergers: Commission approves acquisition of Motorola Mobility by Google, 13 February 2012 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​IP​_12​_129 – accessed 28 November 2023).

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EU COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS … any company manufacturing products incorporating a certain standard must either obtain the appropriate licences covering the technology included in that standard or risk infringing the IP rights of the patent holders reading on the standardised technology. In the event licensing discussions fail, the holder of a standard essential patent may ultimately take its counterparty to court and seek an injunction.

9.72 In the following paragraph the Commission identified a risk that seeking an injunction against a ‘good faith’ potential licensee might have a negative impact on competition. Two Commission decisions and a later CJEU judgment gave these issues much greater prominence.110 F. Seeking Injunctions, Imposing Unfair Terms – EU Investigations into Motorola Mobility Inc (MMI) and Samsung 9.73 SEP issues became more widely known outside a relatively small circle of competition lawyers and those involved in mobile communications standards when the so called ‘patent wars’ broke out early in the 2010s. The background context included the adoption of new technical standards that enabled much more data to be transmitted wirelessly and the related development and launch of smartphones. Demand for mobile communications and the related infrastructure and devices exploded, owing in part at least to the technical developments incorporated in the 3G and 4G standards.111 New implementers including Apple, but also for the first time Chinese manufacturers, entered the sector. Many of the newer entrants used the Android operating system, developed by Google. Apple, of course, used its own proprietary system. The rivalry between Apple and Google in mobile communications became much discussed in the business pages and specialist press.112 Innovation and disruption on such a scale often results in disputes as interested players tussle over the parameters and ground rules of market engagement. As part of the overall commercial context, access to SEPs, the cost of SEPs and the ways in which SEPs could be enforced became major sources of controversy. 9.74 While the cost of SEP licences was a concern for both implementers and patentees, the competition law debate in Europe did not focus on this issue directly. Instead, other aspects of SEP conduct came to the fore. One concern was that an SEP holder might use a position of domi-

110 Subsequently Google agreed to sell Motorola’s mobile devices business to Lenovo. The transaction was notified to the Commission under the EU merger regulation. It was cleared unconditionally. As part of that transaction, Lenovo acquired a selection of Motorola patents, having previously acquired a portfolio of SEPs from Unwired Planet. The Commission confirmed its previous view that each SEP constitutes a separate technology market. The implications of Lenovo’s patent position were considered. Lenovo explained to the Commission that the agreement with Unwired Planet provided that Lenovo would assume the FRAND commitment given by Unwired Planet. The Commission noted in the decision that that commitment would continue and would constrain Lenovo’s conduct. Case COMP/M.7202 – Lenovo/Motorola Mobility, Commission decision C(2014) 4459 of 26 June 2014 (https://​ec​.europa​.eu/​competition/​ mergers/​cases/​decisions/​m7202​_20140626​_20310​_3789783​_EN​.pdf – accessed 26 November 2023). 111 The success of standardization in the mobile communications sector undoubtedly far exceeded that anticipated in the early 1990s.

112 Column: Inside the Apple and Google smartphone war (https://​www​.reuters​.com/​article/​us​-opinion​-vogelstein​ -i​dUKBRE9AE0​UJ20131115 – accessed 26 November 2023). Separately, Google and Microsoft were also engaged in a market battle as Google’s Chrome operating system challenged Windows. These developments were widely followed and commented upon by the business press, e.g., see https://​www​.politico​.com/​story/​2011/​02/​tech​-war​-google​-vs​ -microsoft​-049114 – accessed 26 November 2023.

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nance113 to extract unfair consideration from implementers not just in monetary terms but also by seeking to extract cross-licences from the implementor covering its non-SEPs which might have significant value in differentiating products on the market. A further concern was that an SEP owner might use its SEP position to force an implementer to accept licences to patents the implementer did not want, for example non-essential patents, through a form of patent tying. The EU’s focus during the ‘smartphone wars’ was the mechanism by which it was argued that 9.75 SEP owners induced implementers to accept allegedly non-FRAND or anticompetitive terms. Inevitably, this put a spotlight on court procedures used to enforce patents. In practice, SEP owners could not withhold their technology from implementers. The technical information required to implement the standards on which mobile communications systems run is available to all – that is the nature of a public standard. The only way of preventing an implementer from using that technology is for a patentee to bring patent enforcement proceedings and to persuade a national court (or now the UPC) to grant an injunction prohibiting the manufacture and sale of products utilizing technology in which the teaching of a valid patent is implemented. In the mobile communications industry such proceedings generally are not commenced until 9.76 well after the implementer product is launched. Once a product is on the market negotiations may follow to seek to agree terms for a licence.114 If those negotiations fail (or take too long or are otherwise unsatisfactory) the parties may resort to legal proceedings to force the issue to a conclusion.115 This generally happens through patent litigation116 to enforce the legal exclusivity over an invention. This right is part of the specific subject matter of a patent. In normal circumstances patent enforcement almost always involves seeking damages in respect of past infringement and an injunction prohibiting future unlicensed use. Such proceedings may be settled by the conclusion of a licence (and usually some payment towards past damages). If no settlement is reached, it is for the relevant court to decide on appropriate remedies. The competition law focus in Europe in the early to mid-2010s was the extent to which and the 9.77 circumstances in which seeking an injunction when litigating an SEP might give rise to competition law liability under Article 102 TFEU. The issue was considered in two Commission investigations and a seminal CJEU judgment.

113 For the purposes of this initial discussion, it is assumed that an SEP owner is likely to be dominant, but this is discussed further below.

114 In an industry, such as mobile communications, replete with standards and patents which read on multiple products, it is rare for an implementer to obtain licences from all potential licensors and rare for patentees to conclude licences with all those who may potentially infringe their patents. 115 Arbitration is also a popular mechanism for resolving such disputes. As noted elsewhere (see paras 2.270 and 8.64) limited information is publicly available about arbitral proceedings. In addition, arbitrators have no powers to award exclusionary relief and can reach only advisory views on the validity, infringement or essentiality of patents.

116 While there might be occasions on which an implementer will proactively seek to force the patentee to conclude a licence on FRAND terms, the mechanisms for doing so are far from clear, not least given the reluctance of competition authorities to become involved as price regulators (see the discussion of Qualcomm at paras 9.46 ff above). There have been suggestions that national courts might be willing to adjudicate on a dispute of this nature in the right circumstances, but as far as the writer is aware, none has yet reached judgment. An interesting example of such an attempt, through the declaratory relief jurisdiction of the English courts failed on the particular facts at an early stage in the recent litigation between Vestel and the patent pool HEVC Advance (the Court of Appeal judgment is at [2021] EWCA Civ 440).

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1. Commission investigations: Apple/Samsung; Microsoft and Apple/Motorola

9.78 In January 2012, following a complaint by Apple, the Commission launched an investigation to assess whether Samsung had sought to abuse a dominant position in patent litigation against competing mobile device makers117 by seeking injunctive relief in the courts of Member States for alleged infringements of SEPs. 9.79 In December 2012, the Commission issued a Statement of Objections taking the preliminary view that seeking injunctions against a ‘willing licensee’ was incompatible with a commitment to ETSI to license essential patents on FRAND terms118 and could distort competition in the field of mobile devices. 9.80 On 29 April 2014, the Commission formally accepted commitments offered by Samsung. The Commission’s preliminary conclusions on the competition law issues raised by the complaint are summarized in the first few paragraphs of the Commission’s Article 9(1) Decision adopting the commitments.119 9.81 In parallel, on 2 April 2012, following complaints from both Apple and Microsoft, the Commission launched two investigations against MMI (which had been acquired by Google, as discussed above) following complaints by Apple and Microsoft. The first investigation focused on MMI’s ETSI standard essential patents and resulted in a Statement of Objections in May 2013.120 The second related to various other standards.121 9.82 While noting that a patent owner is generally entitled to seek an injunction when exercising its IP rights, and that such conduct cannot of itself be an abuse under Article 102 TFEU, the Commission explained that this may be different in ‘exceptional circumstances’. The Commission found that Samsung’s conduct appeared to involve such ‘exceptional circumstances’, namely: (i) the standards setting context; and (ii) Samsung’s commitments to license its SEPs on FRAND terms.122 It also noted that while Samsung’s requests for injunctive relief might in some circumstances be objectively justified, that was not the case here because Apple was not unwilling to conclude a FRAND licence for Samsung’s SEPs.123 As a result, the Commission reached the preliminary conclusion that Samsung’s conduct in seeking both preliminary (interlocutory) and permanent injunctions based on its SEPs raised concerns under Article 102 TFEU.

117 At the time Samsung and Apple were the most successful suppliers of smart mobile devices. Samsung was also the most important supplier of Android devices.

118 Commission Press Release IP/12/1448, Antitrust: Commission sends Statement of Objections to Samsung on potential misuse of mobile phone standard-essential patents, 21 December 2012 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​en/​IP​ _12​_1448 – accessed 28 November 2023). 119 Case AT.39939 – Samsung – Enforcement of UMTS Standard Essential Patents, Commission Decision of 29 April 2014, OJ [2014] C 2891 final (Samsung Commitments Decision).

120 Commission Press Release IP/13/406, Antitrust: Commission sends Statement of Objections to Motorola Mobility on potential misuse of mobile phone standard-essential patents, 6 May 2023 (https://​ec​.europa​.eu/​commission/​presscorner/​detail/​ en/​IP​_13​_406 – accessed 28 November 2023). 121 Case COMP/C-3/39.985 – Motorola – Enforcement of ITU, ISO/IEC and IEEE standard essential patents.

122 The ‘exceptional circumstances’ are discussed in more detail at section 4.4.1 of Samsung Commitments Decision, ibid. 123 Ibid., section 4.4.3.

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When settling the case, Samsung committed not to seek injunctions in Europe when enforcing 9.83 its smartphone and tablet SEPs for five years, as long as prospective licensees agreed to follow a specific negotiation framework. Under that framework, any dispute over FRAND terms was to be determined by a court or, if both parties agreed, by an arbitrator. The Commission referred to this decision as establishing a ‘safe harbour’ for all potential licensees of the relevant Samsung SEPs.124 On the same day, the Commission adopted an infringement decision in the MMI case.125 It 9.84 found that MMI had abused a dominant position, contrary to Article 102 TFEU, by seeking and enforcing an injunction against Apple as part of patent enforcement proceedings before a German court. The patents in question were smartphone SEPs, subject to a FRAND licensing obligation. Again, the Commission identified exceptional circumstances which justified the use of Article 102 TFEU to limit MMI’s ability to enforce its patent rights. The exceptional circumstances were the same as those identified in the Samsung case: the standard setting process; and MMI’s FRAND commitment. a. Dominance

The question of dominance is addressed at some length in the MMI decision in section 6 9.85 (market definition) and section 7 (dominance). The detail is unlikely to be of interest in most circumstances. In principle, the Commission’s approach was to focus on the market for the licensing of technology specified in the technical specification of the standard relevant to the SEP in dispute.126 It referred to the guidance on defining the technology market contained in both the 2004 and 2014 Technology Transfer Guidelines127 and concluded that there were no substitutes for the patent in question in the particular standard (GPRS) nor could that standard be substituted by other standards such as 3G or 4G, as mobile devices needed to have the capability to use GPRS, even if they also had the ability to use 3G or 4G functionality. The Commission also concluded that supply side substitutability was impossible owing to the incorporation in the standard of the technology covered by the relevant patent. In the circumstances, with no viable substitutes for the standard or for the technologies covered 9.86 by the patent in issue, the licensing of those technologies was held to constitute a separate relevant product market.128 Having reached its conclusion on product market definition, the Commission briefly discussed 9.87 the geographic market,129 before turning to dominance. Given the narrow product market definition, it is unsurprising that the Commission found that MMI had a 100 per cent share of that

124 See the Commission Press Release IP/14/490, Antitrust: Commission accepts legally binding commitments by Samsung Electronics on standard essential patent injunctions, 29 April 2014 (http://​europa​.eu/​rapid/​press​-release​_IP​-14​-490​_en​ .htm​?locale​=​de – accessed 6 August 2023). 125 Case AT.39985 – Motorola – Enforcement of GPRS Standard Essential Patents, Commission Decision of 29 April 2014, OJ [2014] C 344/06 (MMI Commission Decision). 126 Ibid., para 186.

127 Commission Notice, Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union (TFEU) to technology transfer agreements, OJ [2014] C 89/3 (Technology Transfer Guidelines), paras 19 et seq.

128 MMI Commission Decision (n 125), para 213. 129 Ibid., paras 214–220.

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market. Nevertheless, the Commission was careful to point out that, ‘Motorola’s mere holding or exercise of its rights under the Cudak GPRS SEP does not, however, confer dominance on its own. This must be assessed on the basis of all relevant factors.’130 The factors of particular importance (which are also likely to be important in other standards contexts) were identified as being: 1. the indispensability of the GPRS standard to those manufacturing mobile devices; and 2. the extent of industry lock-in to that standard. 9.88 MMI raised several arguments, including some relating to the countervailing bargaining power of Apple, to try to persuade the Commission that it did not enjoy a dominant position at least vis-à-vis Apple. The Commission dismissed these arguments, on the basis that the assessment of dominance was a factor of the economic position MMI held as against the industry as a whole, rather than its position in particular negotiations. General bargaining power in an SEP context was held to differ from countervailing buyer power of the type referred to in previous cases because the purchaser/licensee had no ability to switch to competing suppliers. 9.89 The Commission also considered and dismissed on the facts other arguments put forward by MMI as demonstrating its lack of market power, including Apple’s non-payment of royalties; Apple’s assertion of non-SEPs against Motorola; Apple’s own position of technological strength; and Apple’s much greater profitability as against MMI’s then-current losses.131 9.90 While market definition and dominance will need to be addressed on the facts and in the particular circumstances in any future SEP cases, the approach of the Commission in MMI suggests that it will be difficult for a party which holds a patent essential to a widely adopted standard established by a major SDO to avoid at least a strong presumption of dominance. Questions remain about the implications for dominance assessments of patents which read only on optional parts of the standard, or parts of a standard which are obsolete or not implemented by a particular implementer in the way envisaged by the standard, for example, because they have in some way been ‘designed around’.132 b. Abuse

9.91 MMI had argued that Apple’s conduct in the licensing negotiations objectively justified MMI’s decision to seek and enforce an injunction, because Apple was not approaching the negotiations in good faith and was not a willing licensee.

130 Ibid., para 226.

131 Ibid., paras 239–270.

132 It is not unknown in individual cases dealing with infringement/essentiality of a declared SEP for an implementer to argue that even though a patent has been found to be essential to a standard, it can nevertheless be avoided in some way, meaning that any injunction will not affect products incorporating the allegedly non-infringing alternative. This gives rise to interesting questions both about dominance and also about the right of the products which incorporate the design-around, and which therefore do not necessarily comply with the standard in all respects, to a FRAND licence. For example, under the ETSI IPR Policy SEP owners undertake to grant FRAND licences in respect of ‘EQUIPMENT’, which is defined as ‘any system, or device fully conforming to a STANDARD’ (Art 15, paras 4 and 5 of the ETSI IPR Policy (n 41) (emphasis added).

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The Commission disagreed, holding that during its negotiations with MMI, Apple demon- 9.92 strated that it was not unwilling to enter into a FRAND licence: With its Second Orange Book Offer, Apple proposed to enter into a licensing agreement with full judicial review and determination of the proposed FRAND royalties with retroactive effect by a court. As regards the scope of the Second Orange Book Offer, as outlined in recitals (125)–(126), it covered all Apple products infringing the licensed SEPs in Germany. Hence, this offer was a clear indication of Apple’s willingness to enter into a licensing agreement on FRAND terms and conditions.133 (emphasis added)

The Commission found that as soon as Apple agreed to court adjudication of FRAND terms 9.93 it was no longer objectively necessary for MMI to obtain an injunction to protect its legitimate interest in receiving a FRAND royalty for the SEPs in respect of which it had given a FRAND commitment as, ‘That right is safeguarded by the judicial determination of the FRAND royalties by the rate-setting court and the possibility to obtain damages for unauthorised use by Apple through actions before the German courts’.134 The Commission also held that:

9.94

1. previous ‘unwillingness’ is irrelevant to the question of whether continued conduct which is abusive on its face can be objectively justified – what matters is the situation at the time when the question of abuse is to be assessed; and 2. later conduct in other (albeit related) proceedings is also not relevant to the question of objective justification. If that conduct post-dates the anticompetitive conduct in issue, it cannot have affected the 9.95 mindset of the patentee and cannot therefore have been an objective justification for earlier conduct. In addition, the Commission’s decision made clear its view that under Article 102 TFEU a licensee’s unwillingness to accept no challenge obligations (or a terminate on challenge obligation) in a proposed licence of SEPs is not a sign of unwillingness to enter into a FRAND licence,135 while it is non-FRAND and abusive for a licensor to seek to extract such a promise from a licensee. The Commission summed up its position as follows: The seeking and enforcement of an injunction by a patent holder, including a holder of SEPs, is generally a legitimate course of action. However, the context is different with regard to the seeking and enforcement of an injunction on the basis of a SEP for which a voluntary commitment to license on FRAND terms and conditions has been given during a standard-setting process. The essence of the commitment to license on FRAND terms and conditions is a recognition by a SEP holder that, given the purpose of the standardisation process, its essential patents will be licensed in return for FRAND remuneration, in contrast to those patents which do not read on a standard and for which no FRAND commitment has been given by the patent holder.136

133 MMI Commission Decision (n 125), para 437. 134 Ibid., para 438.

135 See the discussion of this issue and the relevance of the TTBER then in force at section 9.4 of the decision noting the fact that the TTBER does not apply to conduct under Art 102 TFEU, and that the market share thresholds in the TTBER were in any event exceeded. 136 MMI Commission Decision (n 125), para 492.

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9.97 However, the analysis would change if the patentee were objectively justified in seeking an injunction. The Commission identified three scenarios in which this might be the case: (a) the potential licensee is in financial distress and unable to pay its debts; (b) the potential licensee’s assets are located in jurisdictions that do not provide for adequate means of enforcement of damages; or (c) the potential licensee is unwilling to enter into a licence agreement on FRAND terms and conditions, with the result that the SEP holder will not be appropriately remunerated for the use of its SEPs. The corollary of a patent holder committing, in the standardization context, to license its SEPs on FRAND terms and conditions is that a potential licensee should not be unwilling to enter into a licensing agreement on FRAND terms and conditions for the SEPs in question.137 9.98 The Commission did not impose any competition law duty on a prospective licensee to act in a particular way nor did it identify any positive obligation for the licensee to be ‘not unwilling’. This is unsurprising. As the licensee is unlikely to be dominant it is difficult to see how any such duty could be established under competition law.138 As a practical matter, however, the Commission’s approach to objective justification would enable the licensor to obtain and enforce injunctions where a licensee is, objectively, acting as an unwilling licensee. This created commercial jeopardy for any licensee not prepared to agree to enter a licence on FRAND terms to be settled by a third party if not agreed. The consequences of recalcitrance would be exposure to an injunction if the patentee succeeded in establishing validity and infringement, as the patentee would in principle then be objectively justified in protecting its IPRs against an unwilling licensee. The acceptance of potential third-party determination of FRAND terms139 is at the heart of the Commission’s approach in both the Samsung and MMI decisions. The Commission hoped that the Samsung commitments would provide a template for how such negotiations and third-party determinations might work in future. 9.99 Possibly because of its experience in Qualcomm,140 the Commission did not engage with the discussion of whether rates offered by the parties in negotiation were or were not FRAND, stating instead that national courts and arbitrators are ‘well-placed’ to set FRAND rates and that national courts may seek guidance from the Commission on the interpretation of EU competition law ‘to the extent they deem necessary’.141

137 Ibid., para 427.

138 Although it might arguably exist as a contractual matter in the right circumstances. For a discussion of this issue see Jorge L. Contreras, A Framework for evaluating willingness of FRAND licensees (IP Law 360, 16 March 2021) (https://​dc​.law​ .utah​.edu/​cgi/​viewcontent​.cgi​?article​=​1299​&​context​=​scholarship – accessed 16 November 2023). 139 This approach is reflected particularly in the approach of the English courts where a potential licensee is expected to give an undertaking to enter into a FRAND licence on terms decided by the court if it is to avoid an immediate injunction once liability for patent infringement is established. The point at which the undertaking is to be given is still being worked out but appears to be at the latest once the outcome of the infringement action is known and before any FRAND determination has taken place. For an example of how these issues are dealt with in practice see Nokia v Oppo [2023] EWHC 1912 (Pat). 140 Faull and Nikpay (n 73) contains a summary of some of the difficulties that the potential mechanisms for setting FRAND rate were perceived to involve (paras 4.771–4.780). There are multiple other critiques of various approaches to FRAND that have been suggested. 141 But see below on national court decisions.

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The Commission’s decisions in Samsung and MMI were designed to encourage the adoption by 9.100 parties of a mechanism by which FRAND could be established and a licence concluded without the need for competition law intervention. By making a licensee’s demonstrated ‘willingness’ to conclude a FRAND agreement central to the question of objective justification, and by making clear that one way of showing willingness would be to agree to third party determination the Commission sought to encourage parties to find a route to FRAND without its involvement. One difficulty with the Commission’s approach identified by patentees is that the incentives 9.101 for a potential licensee to act ‘willingly’ in negotiations are limited if the potential licensee can ‘cure’ any previous unwillingness by agreeing only at the last minute to take a licence on third party determined terms. This has the consequence that while the patentee would have been objectively justified in seeking an injunction, or even in enforcing it, that objective justification disappears once the licensee becomes ‘willing’. In addition, the fact that by implication the outcome for a licensee after a third-party determination can never be worse than FRAND is argued to incentivize delay and prevarication in licensing negotiations in the hope that the patentee will settle for terms that may be less than FRAND so as to conclude negotiations and avoid time, expense and continued litigation jeopardy. This issue and its implications for ‘hold up’ and ‘hold out’ have remained at the forefront of discussions, both in national courts and before the CJEU, as discussed below. One further issue that was hotly debated in both Samsung and MMI was the extent to which 9.102 imposing limits on seeking injunctive relief was compatible with the right of access to a court which is protected both by the European Convention on Human Rights and Article 47 of the Charter of Fundamental Rights of the European Union (the Charter). As has already been discussed above,142 the Courts of the EU have been concerned to respect these obligations and have significantly limited the circumstances in which bringing and pursuing litigation can be deemed abusive under Article 102 TFEU. Other fundamental rights such as the rights linked to IP, protected by Article 17 of the Charter and the freedom to conduct a business, protected by Article 16 of the Charter are also relevant. These issues are discussed at some length in the MMI infringement decision143 including a detailed discussion of the ITT Promedia144 test for abusive litigation.145 Motorola had argued that the cumulative tests in ITT Promedia must be satisfied before Article 9.103 102 TFEU liability could arise from accessing the courts to enforce legal rights. In summary, those criteria are that: 1. the legal proceedings cannot reasonably be considered as an attempt to establish legal rights but serve only to harass the other party; and 2. the litigation has been commenced in the framework of a plan whose goal is to eliminate competition.

142 See discussion of ITT Promedia in Article 102 at paras 6.234 ff.

143 See section 11 of the Decision (n 125) which discusses International Obligations and Fundamental Rights.

144 Case T-111/96 ITT Promedia NV v Commission of the European Communities (ECLI:EU:T:1998:183) (ITT Promedia). 145 MMI Commission Decision (n 125), paras 527–534.

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9.104 It further relied on both ITT Promedia and Protégé to argue that not only were those criteria applicable, but they must also be strictly applied as they provided a derogation from the general and fundamental principle of the right of access to a court. 9.105 The Commission disagreed. 9.106 The Commission’s position was that the general principles on the right of access to a court which were established in cases outside the competition law context applied across all sectors and that there was no suggestion in either ITT Promedia or Protégé that the CJEU was establishing a separate legal regime under Article 102 TFEU. Specifically in respect of Article 102 TFEU, the Commission relied on IMS Health as having established that a dominant company’s right to enforce its IP in court could be limited even if the ITT Promedia criteria were not satisfied saying: If the exercise of an IP right through the seeking of an injunction could be abusive only if the ITT Promedia or Protégé International criteria applied, there would have been no need for the Court of Justice to assess whether IMS’s refusal to licence could constitute an abuse of a dominant position within the meaning of Article 102 TFEU on the basis of different criteria.146

9.107 The Commission then stated that the SEP cases were different from both ITT Promedia or Protégé as there was no FRAND commitment or standard setting context in either of those cases, meaning that they could be distinguished. Finally, the Commission noted that the decision was rooted in its specific facts and that no inferences as to the general approach under Article 102 TFEU to other litigation could be drawn as all such decisions would need to be taken in the light of the specific circumstances of each case. 9.108 The Commission’s position on ITT Promedia and Protégé was greeted with some concern and ultimately the position had to be considered by the CJEU (see below). 9.109 However, before discussing the CJEU’s view in the SEP context it may be worth noting that while unpopular in some quarters, the Commission’s view of what had been established by ITT Promedia had support in the Promedia judgment itself. The GC noted explicitly that its role in that case (which was an appeal against a Commission decision to dismiss a complaint) was to establish only whether the two criteria applied by the Commission in dismissing the complaint had been properly applied. Importantly, the appellant had not challenged the Commission’s decision to apply those criteria.147 9.110 As far as access to court was concerned, the position of principle taken by the GC in Promedia was broader than the two criteria established by the Commission: As access to the Court is a fundamental right and a general principle ensuring the rule of law, it is only in wholly exceptional circumstances that the fact that legal proceedings are brought is capable of constituting an abuse of an [sic] dominant position within the meaning of Article 86 of the Treaty.148 (emphasis added)

146 Ibid., para 531.

147 ITT Promedia (n 144), para 57. 148 Ibid., para 60.

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This suggests that the GC in ITT Promedia was, in keeping with the general approach of the 9.111 EU Courts under Article 102 TFEU, agreeing that in certain circumstances particular conduct would infringe Article 102 TFEU, without going so far as to hold that those were the only circumstances in which such conduct might be abusive. In ITT Promedia, the GC relied, as elsewhere when balancing the needs of competition law as against other legal principles or rights, on the concept of exceptional circumstances to indicate when the balance may fall in favour of competition law. 2. National courts and CJEU – reference in Huawei v ZTE

The circumstances in which a patentee which has given a FRAND declaration might not seek 9.112 an injunction had also been considered by national courts before the Commission decisions in Samsung and MMI. For example, the German FSC in its 2009 Orange Book decision149 took the view that a defence 9.113 to an injunction following a finding of patent infringement based on competition law would succeed only in limited circumstances. That case did not involve formal standard setting, although the patent in question related to a de facto standard. The regime established by the Orange Book case would protect the potential licensee from an 9.114 injunction only if: 1. it had made an unconditional offer to take a licence which could not be rejected by the licensor without infringing the law on non-discrimination or acting anticompetitively; and 2. the potential licensee was acting as if the licence were already in place, for example by paying or placing in escrow the applicable royalties (if already using the patent, as is almost always the position in SEP cases).150 The approach laid down by the German Supreme Court was subsequently applied by lower 9.115 German Regional and appellate courts, including to other SEP cases in a way that was generally perceived to be patentee friendly.151 In 2010, the Dutch court in Philips v SK Kasetten152 held that in the circumstances of that case 9.116 an injunction was available on the basis that the defence raised by SK Kassetten did not fall within the regime for the grant of compulsory licences in the Netherlands; would lead to exces149 Orange Book case (n 85).

150 There is an interesting discussion of the German competition authority’s perspective on these issues in 2014 in DAF/ COMP/WD(2014)113, a note by Germany to the Competition Committee of the OECD just before the CJEU judgment in Huawei v ZTE CJEU (n 4).

151 Not least as the questions of infringement and validity in German patent cases are dealt with by different courts and at different times, with the infringement decision usually coming before (and sometime significantly before) the decision on patent validity. If the patentee is successful in establishing infringement, it is not uncommon for an injunction to be granted once judgment on infringement is given. At that time, a patentee wishing to enforce the injunction must give a bond to protect the injuncted party against the consequences of an injunction having been wrongly granted (e.g., because the patent subsequently turns out to have been invalid, or the infringement decision is overturned), but is otherwise able to exclude the party found to have infringed from the market for so long as its products continue to incorporate patented technology. 152 Koninklijke Philips Electronics N.V. v SK Kassetten GmbH & Co. KG, Infringement, FRAND, District Court The Hague, The Netherlands, 17 March 2010, Joint Cases No. 316533/HA ZA 08-2522 and 316535/HA ZA 08-2524.

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sive legal uncertainty if a FRAND defence was permitted before the terms of the licence were known; and because the defendant had not sought a licence from Philips, or made an offer to take a licence. The Dutch court explicitly declined to follow the same approach as the German Orange Book case. 9.117 In 2011, LG succeeded in obtaining an interim ex parte seizure order in the Netherlands against Sony Blu Ray products on the basis that those products infringed patents essential to the Blu-ray Disc standard for which LG had offered a FRAND licence. However, that order was overturned after a hearing on the basis that the state of the negotiations did not justify such a draconian remedy. Later that year, however, in Samsung v Apple the Dutch court153 took the view that a preliminary injunction was not available as Samsung had not shown that good faith negotiations had finished although it suggested that if negotiations concluded and no licence had resulted Samsung could renew its request. 9.118 At the time of the Commission decisions in Samsung and MMI the issue had not yet been determined by a court in the UK.154 9.119 This left the door open for an intervention by the CJEU in the light of the general uncertainty and differences of approach in the courts of the Member States. It was given the opportunity to provide greater clarity by a reference from a German court. That court asked, in essence, whether and when an SEP holder which had given a FRAND undertaking, would abuse a dominant position if it sought injunctive relief or damages from a company which was using an SEP without having first concluded a licence agreement. 9.120 This reference was apparently prompted by the Commission decisions in Samsung and MMI as the referring court explained that if it had applied the approach under the German Orange Book case, an injunction would have been available to the patentee (because the potential licensee had not made an unconditional offer; had not paid or deposited any monies towards royalties; and had not given an account of its use of the patents), whereas applying the Commission’s approach would rule out an injunction. 9.121 The referring court was unusually clear in setting out its view of the situation, which encapsulates many of the issues and concerns which had blown up over the previous four or five years, particularly but not only in the context of patents declared essential to mobile communications standards: … the referring court considers that the positions of the proprietor of an SEP and of the infringer ought not to make it possible for them to obtain excessively high royalties (a ‘hold-up’ situation) or excessively low royalties (a ‘reverse hold-up’ situation), respectively. For that reason, but also on the grounds of equality of treatment between the beneficiaries of licences for, and the infringers in relation to, a given product, the proprietor of the SEP ought to be able to bring an action for a prohibitory injunction. Indeed, the exercise of a statutory right cannot, in itself, constitute an abuse of a dominant position, for characterisation as such requires other criteria to be satisfied. For that reason, it is not sat-

153 See Reuters, Samsung loses Dutch bid to ban Apple products, 14 October 2011 (https://​www​.reuters​.com/​article/​2011/​10/​ 14/​apple​-samsung​-id​USL5E7LE20​C20111014/​– accessed 29 November 2023).

154 But see IPCom v HTC [2012] EWHC 1567 (Pat). The issue had been raised in previous litigation, but had not reached a final determination.

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The referring court provided the CJEU with five, rather precise, questions, which the CJEU, 9.122 as is its habit, reformulated having first made some preliminary observations on the need to strike a balance between maintaining free competition and safeguarding the patentee’s rights in respect of its IP and to effective access to a court (Articles 17(2) and 47 of the Charter).156 None of the questions raised by the referring court related to dominance, which was not addressed by the CJEU. 3. Access to court/the exercise of IPR

The CJEU did not address the ITT Promedia and Protégé cases directly. It adopted a similar 9.123 approach to the Commission in MMI, holding that as the conduct at issue was ‘the exercise of an exclusive right linked to an intellectual-property right – in the case in the main proceedings, namely the right to bring an action for infringement’ the exceptional circumstances’ criterion from the Magill and IMS line of cases was applicable: ‘it is … settled case-law that the exercise of an exclusive right linked to an intellectual-property right by the proprietor may, in exceptional circumstances, involve abusive conduct for the purposes of Article 102 TFEU’.157 The AG referred explicitly to the importance of the right of access to the courts in his opinion, 9.124 but also did not address ITT Promedia, stating: Despite the fact that the Charter does not create a hierarchy among the fundamental rights which it recognises, with the exception of human dignity, which is inviolable and subject to no exception, the bringing an action for a prohibitory injunction can constitute an abuse of a dominant position only in exceptional circumstances, given the importance of the right of access to the courts.158 (emphasis added)

155 Huawei v ZTE CJEU (n 4), para 38.

156 Ibid., para 41: For the purpose of providing an answer to the referring court and in assessing the lawfulness of such an action for infringement brought by the proprietor of an SEP against an infringer with which no licensing agreement has been concluded, the Court must strike a balance between maintaining free competition – in respect of which primary law and, in particular, Article 102 TFEU prohibit abuses of a dominant position – and the requirement to safeguard that proprietor’s intellectual-property rights and its right to effective judicial protection, guaranteed by Article 17(2) and Article 47 of the Charter, respectively. 157 Ibid., para 47.

158 Ibid., Opinion of AG Wathelet delivered on 20 November 2014 (ECLI:EU:C:2014:2391) (Huawei v ZTE AG Opinion), para 67.

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9.125 The CJEU considered that the case differed from other cases involving access to IPRs in particular because of the standardization context; the unavoidable nature of SEPs; and the fact that the patentee’s technology had only come to be included in the standard and achieved SEP status because the patentee had agreed to license it on FRAND terms. The CJEU found that this created legitimate expectations on the part of other market participants and appeared to regard these legitimate expectations in that overall context as constituting sufficiently exceptional circumstances to render an Article 102 TFEU abuse possible, even in the context of the exercise of IPR. 9.126 The CJEU also held that the ownership of an SEP gave the proprietor the ability to exclude competitor products from the market thereby reserving ‘to itself the manufacture of the products in question’. This conclusion does not sit particularly comfortably in the factual context of the supply of mobile communications devices and services. The proliferation of SEPs and of SEP owners means that the proprietor of an SEP or a portfolio of SEPs might itself easily be excluded from the market by the enforcement of others’ patents, complementary to its own.159 The competitive context for mobile communications products downstream would mean that it was most unlikely that an SEP owner seeking to reserve the market to itself would face anything other than intense competition from licensed and unlicensed implementers, as well as likely retaliation. In the circumstances of the case, even if Huawei had succeeded in injuncting ZTE, several other significant manufacturers remained – at least some of whom probably had a licence to Huawei’s portfolio. 9.127 It may be that the CJEU felt that it was necessary to identify at least the capability for some downstream effect on competition when contemplating the application of Article 102 TFEU, rather than holding that the legitimate expectations of other players in the standardization process sufficed in itself by way of exceptional circumstances. 9.128 The AG took a different approach, although he also wrestled with the difficulty of fitting this situation into previous case law on abuse. He identified a relationship of technological and economic dependence between: (i) those who sought to implement the standard; and (ii) SEP owners who had given a FRAND commitment to enable their technology to be incorporated in the standard. 9.129 Having done so, he referred back to the early judgment of the Court in Volvo v Veng160 in which the Court had given examples of potential exceptional circumstances which would justify competition law intervention in the exercise of IP rights. The AG stated: … the guidance given by the Court in that judgment concerning lines of conduct capable of constituting abuse of a dominant position attaches importance, on the one hand, to a relationship of dependence between the intellectual property right holder occupying a dominant position and other undertakings and, on the other, to the abusive exploitation of that position by the right holder through recourse to methods different from those governing normal competition.161

159 This form of mutually assured destruction had in practice resulted in significant cross-licensing in the sector. 160 See above at para 6.104 ff.

161 Huawei v ZTE AG Opinion (n 158), para 73.

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Having reached this view, the AG still had to consider how to establish the capability of the 9.130 conduct to affect competition, something which clearly troubled him, as well as the Court. He concluded, in essence, that because the SEP owner’s conduct was not ‘normal competition’ it would have an adverse effect on competition. As with the CJEU, the AG’s conclusion on effect on competition is not particularly compel- 9.131 ling. It comes close to saying that once a dominant company engages in a course of conduct that is not ‘normal competition’ that will inevitably have the capability to affect competition and fall within the ambit of the prohibition in Article 102.162 In fairness, the AG sought to put his conclusions about the inevitable impact on competition of conduct which was not ‘normal competition’ into the overall standardization context but did not really explain how that context would lead to an effect on competition. One potential route would have been to grasp the nettle as firmly as the Commission had done in Rambus by pointing to the need to preserve the economic and competition benefits of standards setting.163 Another possible route would have been to adopt a similar approach to some of the case law in the pharmaceutical sector164 and rely upon the uncertainty and chilling effect that could be caused to potential entrants/manufacturers and thus to downstream competition if the risks of market exclusion are increased by conduct which is not ‘normal’. 4. The ability to raise a competition defence in injunction proceedings

Having resolved to its own satisfaction the point of principle on the balance between com- 9.132 petition law and the rights of IPR owners to access courts and to exercise their IPRs, the CJEU held that an SEP holder which has committed to license its SEPs on FRAND terms has created legitimate expectations on the part of third parties that FRAND licences will be available. In principle such an SEP holder will infringe Article 102 TFEU if it refuses to grant licences on FRAND terms. In consequence, a failure to grant such a licence may be raised

162 Ibid., para 74: In those circumstances, which are characterised, on the one hand, by the infringer’s technological dependence following the incorporation into a standard of the teaching protected by the patent and, on the other hand, by unfair or unreasonable conduct by the SEP-holder, at variance with its commitment to grant licences on FRAND terms, towards an infringer which has shown itself to be objectively ready, willing and able to conclude such a licensing agreement, the bringing of an action for a prohibitory injunction constitutes recourse to a method different from those governing normal competition; it has an adverse effect on competition to the detriment, in particular, of consumers and the undertakings which have invested in the preparation, adoption and application of the standard; and it must be regarded as an abuse of a dominant position for the purposes of Article 102 TFEU.

163 In the Rambus Commitments Decision (n 62), the Commission noted that: unrestricted access to the underlying proprietary technology on FRAND terms for all third parties safeguards the pro-competitive economic effects of standard setting. Such effects could be eliminated if, as a result of a transfer of patents essential to a standard, the FRAND commitment would no longer apply. For a commentary on this aspect (among others) of the CJEU judgment see Nicholas Banasevic, ‘The Implications of the Court of Justice’s Huawei/ZTE Judgment’ (2015) 6(7) Journal of European Competition Law & Practice 463–464 (https://​academic​.oup​.com/​jeclap/​article/​6/​7/​463/​1790488 – accessed 28 November 2023). Mr Banasevic was head of unit in the relevant part of DG Competition at the time and, writing in his personal capacity, is very alive to the focus in the CJEU judgment on the standardization context when striking the balance between competition law and other fundamental rights.

164 For example, the Italian approach in Pfizer (Decision of the Autorità Garante della Concorrenza e del Mercato of 11 January 2011; judgment of the Consiglio di Stato of 12 February 2014) (see Chapter 8, paras 8.280 ff).

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by way of competition defence in patent infringement proceedings which seek a prohibitory injunction or the removal of infringing products from the market. 9.133 However, as the CJEU acknowledged, this is only the first step in resolving the dispute because in most SEP litigation, the parties would not be able to agree as to what FRAND terms might be. National litigation demonstrated that the SEP owner inevitably argued that the terms which it had offered were FRAND, while the potential licensee disagreed, often putting forward alternative proposals. As the only obligation on an SEP owner is to grant a licence on FRAND terms it should logically be precluded from enforcing its right to injunctive relief only if the terms it offered were not FRAND.165 9.134 Having identified the problem, the CJEU showed no appetite for engaging in the knotty issues surrounding the meaning of FRAND or how to calculate or set a FRAND royalty. It concentrated on ensuring that the parties would at least be clear as to their respective positions on FRAND so that the dispute could be adjudicated by a national court. It did this by setting out criteria that would, if followed, entitle the patentee to seek and enforce an injunction when FRAND negotiations could be demonstrated to have broken down owing to the behaviour of the licensee, thus establishing an objective justification for the patentee’s conduct. 9.135 Like the Commission before it,166 the CJEU held that to avoid an action seeking an injunction from being abusive, it was for the proprietor of the SEP to ‘… comply with conditions which seek to ensure a fair balance between the interests concerned’.167 Unsurprisingly, given its initial conclusion of principle on the balance between competition law and other fundamental rights, the CJEU held that the conditions to be observed by the SEP owner had to have regard to all the relevant circumstances including the requirements of Articles 17 and 47 of the Charter of Fundamental Rights of the European Union. The CJEU explained the balance between the various fundamental rights in play stating that: … although the irrevocable undertaking to grant licences on FRAND terms given to the standardisation body by the proprietor of an SEP cannot negate the substance of the rights guaranteed to that proprietor by Article 17(2) and Article 47 of the Charter, it does, none the less, justify the imposition on that proprietor of an obligation to comply with specific requirements when bringing actions against alleged infringers for a prohibitory injunction or for the recall of products.168

9.136 The CJEU then held that the owner of an SEP would infringe Article 102 TFEU if it brought an action requesting a prohibitory injunction without first giving notice to or consulting with the alleged infringer – and that this requirement held good even if the alleged infringer was already marketing allegedly infringing products. This obligation on the patentee appears to be 165 Following the Orange Book case in Germany, the obligation was on the licensee to make a FRAND offer, and the competition defence would be available to the implementer only if that offer was at or above the maximum non-excessive/ non-discriminatory royalty for the SEP being enforced and was, nevertheless, rejected by the SEP owner. In the eyes of the German courts, the obligation to seek a licence was on the party seeking to use the patents so it was for that party to make an offer, but as the obligation on the patentee under competition law was only to avoid abusing its position of dominance, the patentee would be justified in refusing to license as long as it was not infringing Art 102 TFEU by seeking excessive royalties or by engaging in anticompetitive discrimination. 166 But unlike the German courts, which had mostly imposed obligations on the potential licensee. 167 Huawei v ZTE CJEU (n 4), para 55. 168 Ibid., para 59.

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a mandatory requirement to avoid Article 102 TFEU liability when engaging in SEP litigation.169 The CJEU stipulates that the patentee must both tell the infringer of the SEP which is alleged to be infringed and ‘… specify the way in which it has been infringed’.170 After that initial step, further elements in the so-called ‘FRAND dance’ are set out in the 9.137 following paragraphs.171 Once the SEP holder has notified the potential licensee, and if the prospective licensee expresses its willingness to conclude a licensing agreement on FRAND terms,172 the patentee must make a written offer173 to the potential licensee of a licence on FRAND terms, specifying, in particular, the royalty to be applied and the way in which it is to be calculated. This concludes the obligations on the potential licensor. If the alleged infringer continues to use the patent and does not respond diligently to the 9.138 offer (which is to be determined in accordance with recognized commercial practices and in good faith174), including by making a counter-offer and by providing security for its use of the patents, the SEP holder may seek injunctive relief. This is because it is then objectively justi-

169 See the discussion of this issue in the UKSC judgment in Unwired Planet UKSC (n 59), paras 146–158.

170 Huawei v ZTE CJEU (n 4), para 61. The precise scope of the obligation to notify and the degree of detail required were left unclear and have been the subject of bitter and protracted litigation in the national courts, particularly in Germany. In its 2020 judgment in Sisvel v Haier, Case no KZR 35/17, the German Federal Court of Justice held that it was not necessary to supply claim charts to a patentee, but that a letter listing relevant patents and stating that the patent sued on is being infringed was sufficient.

171 Note that both the UKSC and the German Federal Court of Justice have held that the first (notification) step is mandatory with the further steps providing a ‘safe harbour’ for the patentee (Sisvel v Haier, ibid., para 65; Unwired Planet UKSC (n 59), paras 146–158). The German Federal Court of Justice further held in Sisvel v Haier that if the prospective licensee does not, once notified by the patentee of the infringement concern and the identity of the patent to be enforced, unambiguously state its willingness to conclude a FRAND licence, further steps in the FRAND dance do not apply to the patentee. The Court’s reasoning is that a clear statement on the part of the implementer of willingness to regularise its previously unauthorized use of the patent for the future by accepting FRAND terms is a pre-requisite for placing the burden on the SEP holder to negotiate a FRAND licence with the implementer (para 58).

172 In Sisvel v Haier, ibid., the German FSC held that such an expression of willingness must be clear and unequivocal and not conditioned, for example, on confirmation of infringement and validity (although of course the right to maintain or bring challenges may be included in the licence). In England Optis & Unwired Planet v Apple [2021] EWHC 2564 (Pat) (Optis v Apple Injunctive Relief) considers similar issues including whether a willing licensee must give an undertaking to accept a FRAND licence on terms to be set by a court, before first knowing what those terms are (paras 279, 285, 288, 290 and 362). 173 Unlike the Orange Book case law, the CJEU imposes the obligation to make an initial offer on the patentee, on the basis that once an SEP owner has made an undertaking to license on FRAND terms, it should be in a position to make an offer to do so – unlike the normal position where a patentee has not explicitly expressed its willingness to license. Moreover, the CJEU notes that the patentee most likely has more information available about other licences, so it can check whether the offer complies with the obligation not to discriminate (Huawei v ZTE CJEU (n 4), para 64).

174 The concept of ‘good faith’ referred to in this paragraph may be inspired by the obligation to act in good faith in para 242 of the German Civil Code which is referred to by the CJEU at para 9 of the judgment. The CJEU gives some added colour to the requirement by observing that this implies, ‘in particular, that there are no delaying tactics’ (Huawei v ZTE CJEU (n 4), para 65). This was subsequently picked up and amplified by the German Federal Court of Justice in Sisvel v Haier (n 170), which also had regard to the developing jurisprudence in the UK in Unwired Planet when it held that the implementer must negotiate in good faith and must not delay negotiations. Moreover, it is not enough simply to state in an abstract way that the implementer is willing to negotiate, nor to seek to condition its willingness to accept a FRAND licence. As in Unwired Planet, the implementer must be unequivocal that it is willing to accept a licence on ‘whatever terms are in fact FRAND’ (Unwired Planet First Instance FRAND (n 85), para 708).

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fied in seeking to protect its commercial interests, and can take the benefit of a form of ‘safe harbour’. 9.139 If a counter-offer is made by the licensee, it must be specific and ‘correspond to FRAND terms’. The security to be provided must be in accordance with recognized commercial practices in the field, including providing the number of past acts of use of the SEP. Moreover, the alleged infringer must be able to render an account of those uses.175 The CJEU makes clear, confirming the position reached by the Commission in MMI, that the alleged infringer cannot be criticized for making or maintaining a challenge to infringement or validity, nor can it be criticized for reserving the right to bring future challenges.176 9.140 The CJEU comments that if no agreement is reached after the process of offer and counter-offer it is open to the parties to agree that an independent third party should determine the amount of the royalty.177 The CJEU did not require either party to submit to third party determination in order to be regarded as ‘willing’.178 The steps to be taken by the potential licensee to enable it to avoid being injuncted indicate that the CJEU agreed in principle with the AG that ‘a mere willingness on the part of the infringer to negotiate in a highly vague and non-binding fashion cannot, in any circumstances, be sufficient to limit the SEP-holder’s right to bring an action for a prohibitory injunction’.179 Having given this guidance to the national courts, it is then for the court dealing with the dispute to decide whether an injunction is available, or whether an infringement of Article 102 TFEU has occurred.180 9.141 In summary, therefore, following Huawei v ZTE the position adopted by the Commission and courts on potential abuse when enforcing SEPs was, broadly: ● The existence of the FRAND commitment and the standardization context constitute exceptional circumstances of the type envisaged under previous case law about situations in which the exercise of an IP right may constitute an abuse contrary to Article 102 TFEU. ● In principle, therefore, given the legitimate expectations to which those exceptional circumstances give rise, a refusal by the owner of an SEP to grant a licence on FRAND terms may constitute an abuse. ● While the exercise of the right to seek injunctive relief or the removal from the market of infringing products against a potential licensee who is in principle entitled to a FRAND

175 Huawei v ZTE CJEU, ibid., para 67.

176 Ibid., para 69 but note the ruling of the German FSC in Sisvel v Haier (n 170), that the potential licensee cannot condition its willingness to accept a licence on a prior finding of validity and infringement and the position now reached in both the UK (Unwired Planet) and Germany (Sisvel v Haier) that a worldwide portfolio licence offer is FRAND and cannot be rejected by the licensee. 177 Huawei v ZTE CJEU, ibid., para 68.

178 Although this has come to be regarded as important in the UK, where the courts are willing to set the terms of a FRAND licence and require both parties to agree to be bound by it if they are to be regarded as willing and, in the case of the licensee avoid an injunction. Unwired Planet UKSC (n 59), as applied in, e.g., Optis v Apple FRAND (n 85); Optis v Apple Injunctive Relief (n 172).

179 Huawei v ZTE AG Opinion (n 158), para 50.

180 See, e.g., Optis v Apple Injunctive Relief (n 172); Unwired Planet First Instance FRAND (n 85) and UKSC (n 59); and in Germany Sisvel v Haier (n 170).

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licence may, on the assumption of dominance, constitute an abuse, the same does not apply to actions seeking relief by way of damages or other monetary remedies. Seeking an injunction or similar relief against a potential licensee may be objectively justified, and therefore not abusive, in certain circumstances. To bring itself within the safe harbour established by Huawei v ZTE the SEP owner must: ● notify the alleged infringer of the infringement complained of, identifying the SEP at issue and how it is infringed;181 and ● if the alleged infringer clearly states its willingness to enter into a FRAND licence182 the SEP owner must make a written licence offer, specifying the amount of the royalty and how it is to be calculated.183 To avoid that an SEP owner which has followed these steps is then objectively justified in seeking an injunction, the prospective licensee must diligently respond to the offer made. The diligence of the response is to be measured against recognized commercial practices, and good faith. In particular the potential licensee should not engage in delaying tactics.184 If the potential licensee, acting diligently, decides not to accept the offer of the SEP owner it should make a counter-offer, in writing, to take a licence on specific terms which must be FRAND. If it does not, the SEP owner may be entitled to obtain injunctive relief without infringing Article 102 TFEU. If its counter-offer is in turn rejected, and if it continues to use the SEP(s), the potential licensee should, to avoid the risk of failure of its competition law defence and consequent injunction, provide some form of commercially appropriate security. This may be a bank guarantee, and the sum to be secured must be calculated in part at least in the basis of the number of past infringing acts/acts of use of the SEP.185 The potential licensee must not be precluded from contesting the validity or infringement/ essentiality of the SEP(s).186

Since the judgment in Huawei v ZTE the Commission has not formally opened any FRAND 9.142 related investigations under the competition rules (although various complaints have been made). Huawei v ZTE did not deal with all the potential competition law issues that SEP licensing might entail, being focused mainly on ensuring that, by and large, the job of deter181 The national courts have spent some time since Huawei v ZTE CJEU (n 4) considering what notice is required, when and in what detail.

182 This requirement was not suggested by the AG, who recommended only that the SEP owner ‘must, in any event, present to the alleged infringer a written offer for a licence on FRAND terms’ (Huawei v ZTE AG Opinion (n 158), para 85). In the national courts this requirement has assumed considerable importance. In Germany a failure by the potential licensee to express sufficient willingness sufficiently unequivocally means that the SEP owner is justified in seeking an injunction (Sisvel v Haier (n 170)). See also the discussion of Optis v Apple Injunctive Relief (n 172). 183 The national courts have spent some time since Huawei v ZTE CJEU (n 4) considering the form in which the offer must be made, and what detail is required of any royalty calculation.

184 In practice the speed and diligence of the response will be assessed in all the circumstances. If the licence offer is unclear or relates to a complex portfolio, greater delay is likely to be acceptable without justifying an injunction request by the SEP owner. Various different time periods have been accepted in Germany.

185 The actual mechanism for calculating the amount of security continues to be discussed in national court proceedings. In the UK it is possible that a formal undertaking to the Court from a well-funded defendant to pay royalties and damages at whatever rate is set by the court might suffice. Whether the UK courts will continue to have close regard to all aspects of the CJEU judgment post-Brexit, and given the contractual approach to FRAND adopted following Unwired Planet UKSC (n 59), remains to be seen.

186 This reflects the Commission’s position in MMI and echoes the view of the AG.

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mining FRAND royalties and encouraging FRAND conduct in negotiations so as to have the best chance of achieving a balanced outcome would be left to the national courts of the Member States. As explained below, the Commission and the other EU institutions have been exploring other options to deal with FRAND and SEP related issues. 9.143 The national courts have risen to the task and through several decisions (primarily in Germany and the Netherlands, with considerable input from former EU Member State the UK187) the enforcement regime for SEPs and the terms on which licences are to be granted for SEPs (at least in the field of mobile communications standards) has become significantly clearer.188 Nevertheless, the position is not entirely harmonized and the inevitable piecemeal effect of creating precedents and information through individual case law is seen as less than optimal.189 As discussed briefly below, this has led to various initiatives outside the sphere of competition law. 5. Discrimination and the right to a licence

9.144 Considerations relating to FRAND licences and access to/use of standardized technology have become particularly acute in the context of the expanding numbers of products involved in the Internet of Things. Many more products and services utilize wireless technologies today. Implementers requiring access to technology covered by SEPs are now to be found far outside the traditional sphere of those who supply mobile communications or other specifically IT-focused devices. Several possible competition law concerns have been raised190 and remain the subject of debate in both academic and practitioner circles.191 One of the more prominent issues has been the application in this context of the non-discrimination element of the FRAND commitment (and the obligation not to discriminate under Article 102(c) TFEU). This issue has not yet been dealt with as a competition law issue at EU level.

187 Notably, many of the decisions in the UK are based on a textual reading of the ETSI IPR Policy in the light of French Law (Unwired Planet; Optis v Apple) rather than explicitly on competition law considerations, while judgments in EU Member States are inevitably more likely to be grounded in the regime established by the CJEU. Despite that, and although there are inevitable differences on points of procedure and in the willingness or ability of courts to resolve the thorny issue of settling a FRAND royalty, significant progress in establishing some licensing and negotiating parameters has been made in the ten years since the Samsung and MMI decisions and the subsequent intervention of the CJEU. 188 For example, it is now generally accepted in Europe in the field of mobile communications at least, that FRAND licences will be for a portfolio of essential patents and that they are likely to be global in the absence of special considerations. (Unwired Planet UKSC (n 59)/Sisvel v Haier (n 170)). Both the English and German courts have also held that FRAND does not require an SEP owner to offer identical terms to all comers and is not (at least in the ETSI context) a mechanism to impose an MFN obligation.

189 See, e.g., this review of the landscape by one of those involved in the SEP cases at the Commission during the period before and after Huawei v ZTE CJEU (n 4): Nicholas Banasevic and Zuzanna Bobowiec, ‘SEP-Based Injunctions: How Much Has the Huawei v ZTE Judgment Achieved in Practice?’ (2023) 14(2) Journal of European Competition Law & Practice 121–133 (https://​doi​.org/​10​.1093/​jeclap/​lpad012 – accessed 8 August 2023).

190 Jorge Padilla and Koren Wong-Ervin, Portfolio Licensing at the End-User Device Level: Analyzing Refusals to License FRAND-Assured Standard-Essential Patents at the Component Level, 19 October 2016 (https://​papers​.ssrn​.com/​sol3/​ papers​.cfm​?abstract​_id​=​2806688 – accessed 28 November 2023). 191 A number of possible considerations are discussed in Evelina Kurgonaitė, Pat Treacy and Edwin Bond (n 2). More recently see, e.g., Damien Geradin and Dimitrios Katsifis, ‘End-product- vs Component-level Licensing of Standard Essential Patents in the Internet of Things Context’ (18 May 2021) (https://​ssrn​.com/​abstract​=​3848532 or http://​dx​ .doi​.org/​10​.2139/​ssrn​.3848532 – accessed 28 November 2023); and Jean-Sébastien Borghetti, Igor Nikolic and Nicolas Petit, FRAND Licensing Levels Under EU Law’ (2021) 17(2) European Competition Journal 205–268 (https://​hdl​ .handle​.net/​1814/​74433 – accessed 28 November 2023).

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Both the English and German Supreme Courts have considered discrimination allegations in 9.145 their post Huawei v ZTE jurisprudence. They have reviewed, in particular, whether the ‘ND’ aspect of the FRAND commitment should be read as a separate element rather than as a part of an overall FRAND obligation; and whether that aspect of FRAND brought with it an obligation to offer all licensees the same terms (a form of most favoured licensee obligation) or whether it provided the parties with scope for terms to vary to reflect specific situations. The UKSC has held (agreeing both with the judge at first instance and with the Court 9.146 of Appeal) that under the ETSI policy the ‘ND’ aspect of FRAND is general rather than ‘hard-edged’. Reading the ETSI IPR Policy as a whole, the UKSC held that ‘… the terms and conditions on offer should be such as are generally available as a fair market price for any market participant’,192 and, moreover, ‘… that the role of the non-discrimination limb is to ensure that the fair and reasonable royalty is one which does not depend on any idiosyncratic characteristic of the licensee’.193 The UKSC’s position on this issue was significantly influenced by its view of the purpose of the ETSI regime and, in particular, of the IPR policy. The UKSC paid particular attention to discussions within ETSI following which the inclusion of a most favoured licensee clause had been rejected.194 The UKSC also recognized that public policy and private interests are not usually adversely 9.147 affected by differential pricing in licences (or indeed more generally). In the context of ETSI, the UKSC concluded that as price differentiation is normal when concluding licences and ‘may promote objectives which the ETSI regime is intended to promote (such as innovation and consumer welfare)’, far clearer language would have been required in the contract itself (i.e., the FRAND undertaking in the ETSI IPR Policy) to impose a strict obligation of no-differentiation. The UKSC made clear that its view was based on the ETSI regime and context. It expressly did not exclude the possibility that in some circumstances differential prices might have anticompetitive effects, concluding that ‘… in view of the prevalence of competition laws in the major economies around the world, it is to be expected that any anti-competitive effects from differential pricing would be most appropriately addressed by those laws’.195 The UKSC appeared to view the ETSI IPR Policy as a contract which operated in the context of competition law, but which did not ‘internalise’ competition law, leaving anticompetitive behaviour to be dealt with outside the contractual sphere.196

192 Unwired Planet UKSC (n 59), para 114. 193 Ibid., para 122.

194 Ibid., paras 115–118. 195 Ibid., para 124.

196 The position in the English courts appears to be that there is a distinction between behaviour that may or may not be FRAND under the ETSI policy and behaviour that may or may not be anticompetitive if engaged in by a dominant company. So, behaviour that may breach the ND requirement of the ETSI policy might not infringe Art 102(c) because it might not have the necessary effect on competition. Given the history of the ETSI IPR Policy, the importance of competition law to its evolution and the involvment of DG Comp at many critical stages (as discussed above at paras 9.10 ff), other courts, particularly those in EU Member States, may regard competition law concepts as more central to the interpretation and requirements of the ETSI FRAND obligation. See by contrast the approach of the German FSC in Sisvel v Haier (n 170), discussed at paras 9.148–9.149 below.

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9.148 In Germany, the ‘ND’ part of FRAND came up in Sisvel v Haier.197 The German FSC reached a similar legal conclusion to the UKSC, holding: that generally a patentee is not obliged to license all comers on the same terms and there is no requirement for a standard tariff; that negotiation has a role to play in licensing arrangements even in the context of SEP licences; that particular ‘reasonable and non-discriminatory’ terms will vary depending on the circumstances and will be difficult to define objectively; and that sometimes a patentee will be justified in granting licences on more beneficial terms to some users, but that does not mean that subsequently those terms will be available to all. 9.149 Sisvel v Haier related to the GPRS standard and, thus, to the ETSI IPR Policy. Like the UKSC, the FSC considered the policy in its context, but, unlike the UKSC, reached its conclusion by applying Article 102 TFEU rather through a purely contractual approach. The FSC held that even dominant companies are entitled to safeguard their business interests198 and that in some circumstances it might be justifiable to offer favourable terms to particular licensees. If that were done, it would not necessarily be unreasonable or discriminatory to refuse the same terms to others. The FSC indicated that the terms offered to others must not, however, be unreasonably different. If the different terms offered to different licensees affected their competitiveness, that might give rise to concerns under Article 102 TFEU. The FSC found that it would be for an implementer to show that a licensing request was anticompetitive, but that patentees should put forward reasons for differential treatment.199 9.150 The potential competition law concerns raised by refusals to license at some levels in the supply chain was raised in competition law complaints to the EU against Finnish tech company Nokia by companies including German carmaker Daimler; French automotive supplier Valeo; and German automotive parts supplier Continental. The complaints were widely reported and were made in the context of a wider dispute, including patent litigation between Nokia and Daimler in Germany. and against the background of antitrust and procedural litigation between Continental and Nokia in the US.200 9.151 In brief, the allegations against Nokia in the Commission complaint centred on Nokia’s decision to license its SEPs only at the end of the supply chain for components which are eventually incorporated into a product (e.g., a car) which uses wireless connectivity. The principal issue raised in the complaint against Nokia appears to have been whether an SEP owner in a dominant position and having given a FRAND undertaking is obliged to offer a licence to all potential (and willing) licensees whose products implement the standard (sometimes called

197 May 2020 judgment KZR 36/17. 198 Sisvel v Haier (n 170), para 102. 199 Ibid., para 76.

200 See, e.g., PaRR Global, EC sees at least four connected car SEP licence complaints against Nokia (https://​app​.parr​-global​ .com/​intelligence/​view/​prime​-2819299 – accessed 12 April 2019); Foss Patents, Nokia is abusing standard-essential patents, Daimler and medium-sized supplier BURY Technologies allege in EU antitrust complaints, 9 April 2019 (http://​www​ .fosspatents​.com/​2019/​04/​nokia​-is​-abusing​-standard​-essential​.html – accessed 28 November 2023); and FOSS Patents Blog, At least five German Nokia v. Daimler patent infringement trials to take place between December 2019 and May 2020, 5 September, 2019 (http://​www​.fosspatents​.com/​2019/​09/​at​-least​-five​-german​-nokia​-v​-daimler​.html – accessed 28 November 2023).

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‘license to all’)201 or whether it is sufficient to ensure access to the standardized technology by ensuring that one party in the supply chain has a suitable licence under the SEPs which can cover the use of that technology by those who manufacture standards compliant components for supply to it (sometimes called ‘access for all’).202 The principal theory of harm appeared to be based on the obligation not to discriminate between potential licensees,203 but underpinning the debate appears to be a concern that royalties on more expensive products will inevitably be higher (in euro terms) than royalties on less expensive products, potentially engaging the rules on excessive/unfair pricing.204 The ins and outs of this dispute are labyrinthine and multi-jurisdictional. In Europe the dispute 9.152 resulted not only in the complaint to the Commission, but also in a reference to the CJEU from the Düsseldorf Court as part of the national litigation between Nokia and Daimler.205 Ultimately that dispute settled206 and the CJEU reference was withdrawn as it was moot. The reference to the CJEU covered not only issues relating to the level in the supply chain at 9.153 which licences must be offered and concluded (questions A1 to A3) but also a number of other aspects of the Huawei v ZTE framework which continue to be unresolved within the national court systems (questions B1 to B2). Owing to the settlement of the German litigation between

201 These issues were discussed in the SEPs Expert Group, Contribution to the Debate on SEPs, January 2021 (SEPs Expert Group Report) (https://​ec​.europa​.eu/​docsroom/​documents/​45217). Their report on this issue generated significant comment including, by way of example only: http://​www​.fosspatents​.com/​2021/​02/​european​-commissions​-expert​ -group​.html; Damien Geradin, ‘The European Commission’s Expert Group Report on SEP Licensing and Valuation: What Did We Achieve? What Did We Miss?’ (11 February 2021) (https://​ssrn​.com/​abstract​=​3783710 or http://​dx​.doi​ .org/​10​.2139/​ssrn​.3783710). (All accessed 28 November 2023.) 202 A similar issue arose in litigation between the FTC and Qualcomm in the US, where the FCA Ninth Circuit reversed the original decision of the district court and held that the FTC had not showed anticompetitive effects arising from Qualcomm’s licensing practices: Federal Trade Commission v Qualcomm Inc, No. 19-16122 (9th Circuit). 203 In a very different context, the CJEU in Post Danmark I (n 60), paras 29–30, has explained that for a dominant undertaking to charge different customers different prices does not of itself constitute discrimination. See also the comments of the UK Supreme Court in Unwired Planet UKSC (n 59), and those of the German FSC in Sisvel v Haier (n 170).

204 Some respected judges and practitioners in Germany have expressed the view that there can be no doubt that an SEP owner has to respond to any licensing request. In 2019, e.g., Judge Dr Thomas Kuhnen referred to Huawei v ZTE CJEU (n 4), noting that the CJEU had not indicated that a party requesting a FRAND licence needed to justify such a request. Thomas Kühnen, ‘FRAND Licence in the Value Chain’ (Intellectual property and copyright law (GRUR), 7/2019) (http://​www​.grur​.org/​uploads/​media/​GRUR​_2019​_07​_Inhalt​_fertig​.pdf – accessed 25 November 2023). This is an area where the complexities of the underlying policy and competition law considerations are likely to take some time to untangle, not least because of the need to link any decision not to license an individual undertaking to an impact on competition, or at least on the standardization process, before competition liability under Art 102 TFEU could be established, and the possibility that such decisions might be objectively justified.

205 Case C-182/21 Request for a preliminary ruling from the Landgericht Düsseldorf (Germany) lodged on 23 March 2021 – Nokia Technologies Oy v Daimler AG OJ [2021] C 252/8 (https://​eur​-lex​.europa​.eu/​legal​-content/​EN/​TXT/​PDF/​?uri​ =​CELEX:​62021CN0182 – accessed 28 November 2023). 206 Although as of January 2023 the US litigation between Continental and Nokia continued. See Delaware judgment of 31 January 2023 in C.A. No. 2021-0066-NAC. That judgment is on mainly jurisdictional issues but notes: At bottom, Continental wants a license to certain Nokia SEPs and contends that Nokia has failed to provide Continental with a license on appropriate terms. In this action, Continental asks the Court to require that Nokia offer Continental a license to the Nokia SEPs on terms and conditions that are either fair, reasonable, and non-discriminatory (‘FRAND’) or otherwise consistent with certain commitments made by Nokia. Continental also seeks various forms of declaratory relief.

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Daimler and Nokia and the withdrawal of the CJEU complaint, these issues remain unclear.207 It remains to be seen if the Commission will take action208 under Article 102 TFEU. 9.154 Although the focus within the Commission appears to have shifted to a legislative, rather than competition enforcement approach (see below), further steps under the competition rules cannot be ruled out. This is particularly so in the context of issues such as those covered by the reference which are not touched on by the Commission’s new legislative proposals.209 9.155 Leaving aside the particular Article 102 TFEU issues that arose in the complaint against Nokia, competition law considerations could arise for those involved in setting the standard if a failure to ensure that any party seeking a licence from an SEP owner was entitled to receive one meant that the standard setting initiative fell outside the safe harbour provided by the Horizontal Guidelines. One of the safeguards contained in those guidelines which is intended to reduce the risk that standardization activities will create and enable the abuse of market power is a requirement that: ‘participants wishing to have their IPR included in the standard [are] to provide an irrevocable commitment in writing to offer to license their essential IPR to all third parties on fair, reasonable and non-discriminatory terms’ (emphasis added).210 9.156 This language suggests that it is at least arguable that a policy which permits licensing by SEP owners at only one level in the supply chain might fall outside the safe harbour provided by the Horizontal Guidelines. However, even if this were the case it does not mean that the standardization initiative and related agreements are caught by the prohibition in Article 101(1) TFEU. It means only that analysis of the competitive effects of the initiative and the adequacy of its IPR policy under Article 101(1) TFEU could give rise to questions of compatibility with Article 101(1) TFEU and the automatic exception under Article 101(3) TFEU. 9.157 Elsewhere in the Horizontal Guidelines, the discussion is couched in terms of the purpose of FRAND being to ‘ensure that the essential IPR-protected technology incorporated in a stand-

207 Nokia’s views on the issue can be deduced from its response to the CMA’s request for comments on the Horizontal Guidelines, pp 10–18: https://​assets​.publishing​.service​.gov​.uk/​government/​uploads/​system/​uploads/​attachment​_data/​ file/​1178335/​Nokia​_​_1​_​.pdf; and Continental’s views on the correct approach are summarized at pp 4–7 of its response to the CMA consultation: https://​assets​.publishing​.service​.gov​.uk/​media/​62500​9018fa8f54​a92278985/​Continental​ _Redacted​.pdf. Their responses on the parallel EU consultation can be accessed here: https://​competition​-policy​ .ec​.europa​.eu/​public​-consultations/​2022​-hbers​_en​#contributions​-to​-the​-consultation​-on​-the​-draft​-revised​-texts. (All accessed 29 November 2023.)

208 It appears that Continental continued to pursue its complaint to the Commission, at least into 2021 (https://​ www​.businesswire​.com/​news/​home/​20210126005728/​en/​Continental​-Files​-New​-Suit​-Seeking​-Fair​-Licensing​-Rates​ -from​-Nokia​#:​~:​text​=​In​%20Europe​%2C​%20Continental​%20upholds​%20its​,offer​%20Continental​%20a​%20FRAND​ %20license – accessed 28 November 2023). The dispute between Continental and Nokia also continued into 2023 in the US, with Continental succeeding in establishing jurisdiction in Delaware over some of its FRAND arguments. The substance of the dispute can be established from the judgment in Continental v Nokia C.A. No.2021-0066-NAC (https://​law​.justia​.com/​cases/​delaware/​court​-of​-chancery/​2023/​2021​-0066​-nac​.html – accessed 28 November 2023).

209 The only reference to these issues in the new legislative proposals comes in the Impact Assessment. The Commission states that the appropriate level of licensing will be a matter for specific industries with no ‘one size fits all solution’ (p 20) but should avoid a situation in which royalties can be charged twice for the same IPR (known as ‘double dipping’) (https://​single​-market​-economy​.ec​.europa​.eu/​system/​files/​2023​-04/​SWD​_2023​_124​_1​_EN​_impact​_assessment​_part1​ _v4​.pdf, Annex 5.5 – accessed 28 November 2023). 210 Horizontal Guidelines (n 21), para 456.

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ard is accessible to the users of that standard on fair, reasonable and non-discriminatory terms and conditions’.211 It is certainly arguable that such a purpose could be achieved by means other than mandating the level or levels at which licences may be granted. The Guidelines continue ‘… FRAND commitments can prevent IPR holders from making the implementation of a standard difficult by refusing to license or by requesting unfair or unreasonable fees (in other words excessive fees) after the industry has been locked into the standard or by charging discriminatory royalty fees’.212 This might be taken to suggest that as long as the implementation of the standard is not made difficult, and fees charged are not unreasonable or discriminatory, no issue should arise from the decision of an SEP owner to ensure access through indirect licensing. However, the footnote to the paragraph refers to the passage from Huawei v ZTE213 which states that an action for infringement against a willing licensee without complying with the steps set out by the CJEU in that case may amount to abuse. The steps set out by the CJEU include offering a licence to the prospective licensee.214 This suggests that failing to offer such terms and commencing litigation may give rise to Article 102 TFEU risk. This issue continues to generate some controversy both from a competition law perspective 9.158 and more broadly. An assessment of the competition law implications is unlikely until the Commission (and ultimately the EU courts) have reviewed relevant licensing arrangements in their specific factual context215 and having regard to the relevant economic and commercial implications.

IV. NON-COMPETITION LAW INITIATIVES The hiatus in competition law enforcement does not mean that the Commission is uncon- 9.159 cerned about SEP issues; on the contrary, the Commission has continued to consider how SEP licensing is evolving and its impact on the economy. To this end it has taken a series of steps, first publishing a Communication to the other EU institutions on standard essential patent licensing in 2017;216 subsequently convening an expert group which published a report in 2021;217 and most recently conducting a consultation into how to create a fair and balanced 211 Ibid., para 458. 212 Ibid., para 458.

213 Huawei v ZTE CJEU (n 4), para 71.

214 Ibid., para 63: Secondly, after the alleged infringer has expressed its willingness to conclude a licensing agreement on FRAND terms, it is for the proprietor of the SEP to present to that alleged infringer a specific, written offer for a licence on FRAND terms, in accordance with the undertaking given to the standardisation body, specifying, in particular, the amount of the royalty and the way in which that royalty is to be calculated.

215 For summaries of the positions the following documents may be of interest: Fair Standards Alliance – https://​fair​ -standards​.org/​wp​-content/​uploads/​2021/​03/​210215​_SEP​-licenses​-should​-be​-available​-to​-all​-companies​-in​-a​-supply​ -chain​-that​-want​-a​-license​-for​-SEPs​-in​-their​-products​.pdf; 4ipCouncil – https://​www​.4ipcouncil​.com/​application/​ files/​4315/​9534/​2328/​License​_to​_All​_or​_Access​_to​_All​.pdf summarizing Anne Layne-Farrar and Richard Stark, ‘License to All or Access to All? A Law and Economics Assessment of Standard Development Organizations’ Licensing Rules’ (2020) George Washington Law Review (SSRN: https://​ssrn​.com/​abstract​=​3612954) (all accessed 28 November 2023). 216 2017 SEP Communication (n 2).

217 SEPs Expert Group Report (n 201).

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licensing framework for SEPs;218 which it followed in 2023 with a proposal for a regulation on SEPs.219 9.160 The objectives of the draft SEP regulation are to: 1. ensure that end-users, including small businesses and EU consumers benefit from products based on the latest standardized technologies; 2. make the EU attractive for standards innovation; and 3. encourage both SEP holders and implementers to innovate in the EU, make and sell products in the EU; and be competitive in non-EU markets. 9.161 The initiative states that its aim is to incentivize participation by European firms in the standard development process and the broad implementation of such standardized technologies, particularly in IoT industries.220 9.162 To that end the Commission proposes to: 1. make available detailed information on SEPs and existing FRAND terms and conditions to facilitate licensing negotiations; 2. raise awareness of SEP licensing in the value chain; and 3. provide for an alternative dispute resolution mechanism for setting FRAND terms and conditions.221 9.163 This initiative followed the Commission’s 2020 IP action plan222 and its 2022 updated standardization strategy223 and is placed by the Commission squarely in a context in which standardization is increasingly important and where other institutions worldwide are taking steps whether through their courts, guidelines or otherwise to establish the rules on which SEPs may be licensed. The initiative is led by DG Grow which has primary responsibility for Internal Market, Industry, Entrepreneurship and SMEs, but has had input from other interested Commission directorates including DG Comp.

218 See: https://​ec​.europa​.eu/​info/​law/​better​-regulation/​have​-your​-say/​initiatives/​13109​-Intellectual​-property​-new​ -framework​-for​-standard​-essential​-patents​_en – accessed 28 November 2023. The Commission is planning legislative action in Q4 2022. 219 COM(2023)232 – Proposal for a regulation of the European Parliament and of the Council on standard essential patents and amending Regulation (EU) 2017/1001 (Draft SEP Regulation).

220 Draft SEP Regulation, ibid., Explanatory Memorandum, Context. A further description, a summary of the proposed legislation and a synopsis of the views of various stakeholders, can be found in the European Parliament’s briefing on ‘Standard essential patents regulation’ https://​www​.europarl​.europa​.eu/​RegData/​etudes/​BRIE/​2023/​754578/​EPRS​ _BRI(2023)754578​_EN​.pdf (accessed 24 April 2024), see also (n 56). 221 Ibid.

222 Commission Communication COM(2020) 760 final, Making the Most of the EU’s Innovative Potential An intellectual property action plan to support the EU’s recovery and resilience, 25 November 2020.

223 Commission Communication COM(2022) 31 final, An EU Strategy on Standardisation. Communication on An EU Strategy on Standardisation – Setting global standards in support of a resilient, green and digital EU single market, 2 February 2022.

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The principal elements are:224

9.164

● The establishment of a register at the EUIPO for SEPs plus a database containing information about SEPs. ● An obligation on SEP proprietors to register SEPs. ● Provisions for essentiality checks. ● The establishment of a non-judicial procedure to adjudicate on FRAND terms and on aggregate royalties for a given standard. ● Mandatory conciliation before litigation commences, to be completed within nine months of initiation. If this does not result in settlement, a non-binding report would be issued which could be used in evidence in future proceedings. The draft regulation is at the time of writing (November 2023) under review by the European 9.165 Parliament and the European Council as part of the legislative process. In the Parliament, the dossier is with the Committee on Legal Affairs (JURI) but is commented upon by others.225 It affects a large number of interested stakeholders including standardization bodies,226 the EPO227 and national courts. It has been significantly criticized and it remains to be seen whether or in what form it survives.228 Lobbying is undoubtedly going to be intense. While being broadly welcomed by some, the utility of the proposed regime has been questioned by some.229 In the meantime, the courts of the EU Member States (particularly Germany), and of non-EU 9.166 countries (particularly the US, China, Japan and the UK) will continue to deal with FRAND issues, including competition law concerns as and when they arise. The new entrant on the

224 There are numerous overviews of the draft available. One which comments briefly on some of the potential competition law concerns is https://​competitionlawblog​.​kluwercomp​etitionlaw​.com/​2023/​05/​15/​the​-ec​-sep​-regulation​-proposal​ -new​-rules​-to​-be​-frand/​. For a consideration of the impact on German patent litigation and the German Courts, see https://​glo​balcompeti​tionreview​.com/​hub/​sepfrand​-hub/​2022/​article/​proposed​-ec​-sep​-regulation​-could​-be​-big​-shake​ -german​-courts. (Both accessed 28 November 2023.) 225 See, e.g., the Opinion of the Committee on International Trade: https://​www​.europarl​.europa​.eu/​doceo/​document/​ INTA​-PA​-753729​_EN​.pdf – accessed 28 November 2023 and of the Committee on the Internal Market and Consumer Protection https://​www​.europarl​.europa​.eu/​doceo/​document/​IMCO​-PA​-753649​_EN​.pdf – accessed 28 November 2023. 226 More recently two European Standardization bodies (CEN and CENELEC) provided their initial comments on the proposal, CEN and CENELEC response to the European Commission proposal for a Regulation on SEPs, August 2023 https://​www​.cencenelec​.eu/​media/​response​-to​-the​-draft​-regulation​-on​-standard​-essential​-patents​.pdf – accessed 28 November 2023.

227 Letter from the President of the EPO to the Chair and Rapporteur, Committee for Legal Affairs, European Parliament, Proposal for a Regulation of the European Parliament and of the Council on Standard Essential Patents COM (2023) 232 final, 18 October 2023: https://​files​.lbr​.cloud/​public/​2023​-10/​EPO​%20Letter​%20IAM​.pdf​?VersionId​=​Xk2GKKPZ​ .qRi​sb5bU4BFaeiLe44oIuGB – accessed 28 November 2023. 228 Before adoption, the draft proposal was the subject of a formal letter from ETSI to the Commission: http://​www​ .fosspatents​.com/​2023/​04/​etsi​-asks​-european​-commission​-to​.html – accessed 28 November 2023. On 28 February 2024, the European Parliament approved the text by a significant majority but the draft regulation now needs to be considered and approved by the EU Member States. Further amendments to the draft are therefore possible and there is no timetable for adoption at the time of writing.

229 Jean-Claude Alexandre Ho, Interview with Eric Stasik on the EU SEP Regulation draft proposal, 4 April 2023 https://​www​.linkedin​.com/​pulse/​interview​-eric​-stasik​-eu​-sep​-regulation​-draft​-alexandre​-ho​-ll​-m​-/​; and http://​www​ .fosspatents​.com/​2023/​04/​european​-commissions​-formal​-sep​.html – both accessed 28 November 2023).

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patent enforcement scene, the UPC, has recently been seised of what seems to be its first SEP case,230 so this is a field in which competition law, IP law and other EU policies seem destined to keep jostling for some time.

230 In a dispute between Huawei and Netgear (see https://​www​.unified​-patent​-court​.org/​en/​registry/​cases/​case​-details​ ?case​_number​=​459771​&​year​=​2023; and http://​www​.fosspatents​.com/​2023/​07/​will​-huawei​-make​-european​-sep​-case​ -law​.html – both accessed 28 November 2023).

472

INDEX Abbott, A 4.13, 8.131 abuse and Article 102 see dominance and abuse and Article 102 TFEU pharmaceutical sector see pharmaceutical sector, Article 102 TFEU, abuse and standardized technology, injunctions 9.91–9.111, 9.94–9.95, 9.97–9.98, 9.100, 9.119–9.142 acceptable behaviours, dominance and abuse and Article 102 TFEU 6.62–6.65 administrative infringement proceedings, IP licensing and Article 101 TFEU 2.89 advertising, and mergers 7.18–7.19, 7.146–7.147, 7.150 Almunia, J 1.09, 1.25, 8.07, 8.306 Anatomical Therapeutic Classification (ATC), pharmaceutical sector 8.216–8.236 ancillary restrictions competition restraints 2.53–2.58 mergers see mergers, ancillary restrictions pharmaceutical sector 8.129, 8.183 restrictive clauses, exclusivity 2.136 restrictive clauses, no challenge clauses 2.293 ancillary trademark licences 2.314 Anderman, S 1.11, 1.62, 2.108, 2.118 anticompetitive effect IP licensing and Article 101 TFEU 2.04, 2.12, 2.13, 2.31, 2.39, 2.49, 2.52, 2.54–2.55, 2.98, 2.139–2.140, 2.157, 2.160, 2.168, 2.178–2.180, 2.195, 2.201, 2.246, 2.264, 2.290, 2.293, 2.307, 2.315, 2.344 pharmaceutical sector, Article 102 TFEU, abuse, AstraZeneca 8.277 standardized technology 9.11–9.13, 9.18, 9.20

technology licences outside TTBER, multilateral licences and patent pooling arrangements 4.15 arbitration IP licensing and Article 101 TFEU, restrictive clauses 2.240, 2.271 mergers, remedies 7.127 pharmaceutical sector 8.50, 8.64, 8.110 standardization agreements, FRAND commitment 5.122 standardized technology 9.16, 9.83, 9.99 Article 101 TFEU competition and IP law interface, Single Market for IPRs 1.88–1.95 and dominance and abuse 6.26, 6.89 and IP licensing see IP licensing and Article 101 TFEU pharmaceutical sector see pharmaceutical sector and Article 101 TFEU and R&D agreements 5.37, 5.40, 5.52 specialization agreements 5.83 standardization agreements 5.89–5.99, 5.100, 5.103, 5.133–5.135 standardized technology 9.65–9.68 standardized technology, injunctions 9.156 technology licences outside TTBER 4.02–4.03, 4.05–4.06, 4.08, 4.10, 4.16–4.17, 4.34, 4.41–4.46 Technology Transfer Block Exemption (TTBER) and Guidelines 3.07–3.09, 3.11, 3.27, 3.31, 3.36, 3.45, 3.48–3.49, 3.51, 3.68, 3.73, 3.97, 3.123, 3.147–3.148, 3.151, 3.154, 3.163–3.164, 3.171, 3.189, 3.194–3.195 vertical agreements and analogous arrangements 5.14, 5.16, 5.19

473

INDEX Article 102 TFEU competition and IP law interface, Single Market for IPRs 1.88–1.95 dominance and abuse see dominance and abuse and Article 102 TFEU pharmaceutical sector see pharmaceutical sector, Article 102 TFEU, abuse standardized technology 9.37, 9.52–9.53 standardized technology, injunctions 9.77, 9.82, 9.84, 9.95, 9.102, 9.123, 9.125, 9.127, 9.136, 9.140, 9.144, 9.149 Bailey, D 5.03, 5.25, 7.08 ‘balancing’ of efficiencies against anticompetitive effects, Article 101 TFEU 2.55–2.57 Banasevic, N 9.131, 9.143 barriers to trade see entry barriers Big Data, and mergers see mergers, Big Data concerns block exemptions competition restriction effect, de minimis effect 2.65 IP licensing and Article 101 TFEU and consequences of infringement 2.93, 2.97, 2.99, 2.100, 2.101 IP licensing and Article 101 TFEU, restrictive clauses 2.110, 2.114, 2.117–2.123, 2.216–2.217, 2.261–2.262, 2.268–2.269, 2.302–2.303, 2.321 pharmaceutical sector and Article 101 TFEU 8.45–8.47, 8.105, 8.109 R&D agreements 5.30, 5.39–5.41, 5.44, 5.48–5.49, 5.51–5.52, 5.60–5.64, 5.75, 5.78 (SBE), specialization agreements 5.81–5.82 TTBER see Technology Transfer Block Exemption Vertical Agreements Block Exemption (VABE) 2.113, 5.03–5.06, 5.08–5.11, 5.14, 5.16, 5.18–5.19 blocking patents, pharmaceutical sector, Article 102 TFEU, abuse 8.302–8.303 blocking positions, Technology Transfer Block Exemption (TTBER) and Guidelines 3.64–3.94

blue pencil test, mergers, ancillary restrictions 7.116 ‘blue sky’ research projects, R&D agreements 5.33, 5.78 Boldrin, M 1.18, 8.06 ‘break through’ products, and Technology Transfer Block Exemption (TTBER) 3.38 ‘bright line’ approach dominance and abuse and Article 102 TFEU 6.127, 6.178 IP licensing and Article 101 TFEU, object restrictions 2.33 see also information access broadcasting rights, IP licensing and Article 101 TFEU, restrictive clauses 2.135, 2.139–2.140, 2.154–2.159, 2.163–2.165, 2.335, 2.337–2.343 ‘by effects’ restrictions see effect restrictions ‘by object’ restrictions see objects restrictions captive use restrictions, Technology Transfer Block Exemption (TTBER) and Guidelines 3.125, 3.152 cartels dominance and abuse and Article 102 TFEU 6.06, 6.26 Technology Transfer Block Exemption (TTBER) and Guidelines 3.107, 3.124 Cavicchi, P 6.263, 9.35 Christmas Notice 1.37, 2.105, 2.301 co-marketing and co-promotion, pharmaceutical sector and Article 101 TFEU 8.98–8.109 collaboration and R&D agreements 5.33–5.41, 5.44–5.59, 5.62–5.72, 5.75–5.78 R&D results access see R&D agreements, access to results of collaboration and to IPR standardization agreements 5.99 see also collusion collecting societies dominance and abuse and Article 102 TFEU 6.266–6.285 IP licensing and Article 101 TFEU 2.332–2.338

474

INDEX collusion IP licensing and Article 101 TFEU 2.12, 2.13, 2.218 pharmaceutical sector and Article 101 TFEU, price agreements 8.121 standardization agreements 5.101 technology licences outside TTBER 4.14 Technology Transfer Block Exemption (TTBER) and Guidelines 3.107 see also collaboration commercial feasibility issues, pharmaceutical sector and Article 101 TFEU 8.77–8.85 competition defence, ability to raise, standardized technology, injunctions 9.132–9.143 competition distortion, dominance and abuse and Article 102 TFEU 6.03–6.04, 6.69, 6.86–6.87 competition and IP law interface 1.01–1.120 Christmas Notice 1.37 competition law and deference to IP law 1.34–1.44 competition law enforcement 1.11–1.12, 1.26–1.28 competition law enforcement, over- and under-enforcement issues 1.65–1.67 competition law history 1.23–1.33, 1.36–1.37, 1.46–1.48, 1.61 consumer welfare 1.02, 1.06, 1.25–1.26, 1.43 copyright issues 1.40–1.42, 1.102, 1.103 design rights 1.101, 1.103 Digital Single Market 1.51, 2.172 digital technologies 1.57–1.59 economics-based approach 1.46–1.48 effective competition 1.26, 1.41, 1.43 EU enlargement effects 1.63 European Commission role 1.69–1.75 European Council, courts and parliament 1.76–1.86 European Parliament 1.84–1.86 exceptional circumstances 1.10, 1.43 and exploitation 1.08, 1.34, 1.39 free movement of goods and services 1.50–1.51, 1.87–1.88, 1.103, 1.111 geographical indications 1.16, 1.101 harmonization 1.49–1.53, 1.103 incentives 1.03, 1.62 industrial property rights 1.20–1.22

innovation role 1.06–1.11, 1.17, 1.19, 1.55–1.56, 1.67 interventionist approach 1.37–1.39 IP in commercial practice, evolving role 1.54–1.60 IP in commercial practice, evolving role, IPR portfolios, purchase and sale 1.59 IP laws, history 1.15–1.22, 1.49–1.50 IPR categorization 1.15–1.17 IPR licensing 1.38–1.44 IPR Strategy for Europe 1.51 market integration 1.25 merger control 1.29–1.32, 1.56 modernization 1.46–1.53, 1.103 moral considerations 1.19 new business models 1.55–1.56 New EU Industrial Strategy 1.52 patent protection 1.39, 1.62, 1.99, 1.100 pharmaceutical sector 1.63 price factors 1.05 recent trends 1.45–1.68 sectoral variations 1.61–1.68 standardization 1.64 sui generis database 1.18 technological change effects 1.64–1.65, 1.67 Technology Transfer Block Exemption (TTBER) 1.08, 1.16, 1.37 and Technology Transfer Guidelines 1.08 telecoms sector 1.63 third party involvement 1.41, 1.90, 1.96, 1.99, 1.105, 1.107 trademarks 1.100, 1.103, 1.105–1.106 trademarks, essential function concept 1.105–1.106 unilateral conduct 1.36, 1.39 Unitary Patent Court creation 1.51 competition and IP law interface, Single Market for IPRs 1.51, 1.53, 1.87–1.120 Articles 34–36 TFEU and 101–102 TFEU interplay 1.88–1.95 barriers to trade, removal of 1.90 essential function concept 1.95, 1.105–1.106 exhaustion of rights 1.58, 1.91–1.92, 1.96–1.99, 1.103–1.104, 1.111–1.120 exhaustion of rights, international exhaustion/harmonizing initiatives 1.111–1.120

475

INDEX exhaustion of rights, international exhaustion/harmonizing initiatives, software licensing 1.117–1.119 and national law enforcement 1.91–1.94 and owner’s consent 1.107–1.110 specific subject matter concept 1.100–1.104 competition on the merits dominance and abuse and Article 102 TFEU 6.38, 6.63, 6.66–6.69, 6.74–6.75, 6.77, 6.233 pharmaceutical sector 8.159, 8.269–8.271 competition restriction effect, Article 101 TFEU see IP licensing and Article 101 TFEU, competition restriction effect competitive advantage IP licensing and Article 101 TFEU 2.223, 2.229, 2.328 mergers, Big Data concerns 7.90 competitive strength of market participants, dominance and abuse and Article 102 TFEU 6.11–6.16 competitors and non-competitors, distinction between see Technology Transfer Block Exemption (TTBER) and Guidelines, competitors and non-competitors, distinction between compound patents, pharmaceutical sector 8.18, 8.139, 8.155, 8.165, 8.171, 8.211, 8.213, 8.239 see also patents compulsory licensing dominance and abuse and Article 102 TFEU 6.88, 6.92–6.95, 6.106, 6.107–6.109, 6.116, 6.120, 6.122, 6.124, 6.127, 6.135, 6.140, 6.148, 6.163, 6.166, 6.176–6.177, 6.179–6.180 pharmaceutical sector 8.275 standardized technology 9.33, 9.116 concentrations, mergers 7.14–7.26 concerted practices, IP licensing and Article 101 TFEU 2.05, 2.07, 2.09–2.12 concurrence of wills, IP licensing and Article 101 TFEU 2.08, 2.12, 2.13 confidentiality clauses, mergers, ancillary restrictions 7.111, 7.118 consumers see customers

contract-oriented strategy, pharmaceutical sector, Article 102 TFEU, abuse, pay for delay and generics 8.312, 8.314–8.316, 8.320 Contreras, J 5.113, 5.116, 9.03, 9.98 Cook, T 8.01, 8.14 copyright competition and IP law interface 1.40–1.42, 1.102, 1.103 dominance and abuse and Article 102 TFEU, case law development 6.110–6.118, 6.121, 6.124, 6.127, 6.128–6.129, 6.134, 6.135, 6.136, 6.140, 6.145, 6.161, 6.163, 6.167, 6.176, 6.178 IP licensing and Article 101 TFEU, restrictive clauses, exclusivity 2.135, 2.135–2.140, 2.139–2.140, 2.154–2.159, 2.163–2.165 IP licensing and Article 101 TFEU, restrictive clauses, existence/exercise distinction/specific subject matter concepts 2.111 and restrictive licences see IP licensing and Article 101 TFEU, restrictive clauses, copyright/design right licences software see software licensing vertical agreements and analogous arrangements 5.14, 5.16 see also innovation; patents; trademarks counter-offers, standardized technology, injunctions 9.138–9.140, 9.141 counterfactual effects, pharmaceutical sector, patent infringement by generic entrant 8.191–8.193 cross-licensing grant back obligations, non-exclusive licences and cross-licences, Technology Transfer Block Exemption (TTBER) and Guidelines, excluded restrictions 3.170 IP licensing and Article 101 TFEU, restrictive clauses 2.203–2.204, 2.243 technology licences outside TTBER, settlement agreements 4.38–4.39 Technology Transfer Block Exemption (TTBER) and Guidelines, hardcore restrictions 3.107

476

INDEX Technology Transfer Block Exemption (TTBER) and Guidelines, hardcore restrictions, markets/customers allocation 3.116 see also licences customers consumer welfare 1.02, 1.06, 1.25–1.26, 1.43, 6.30 downstream restrictions see IP licensing and Article 101 TFEU, restrictive clauses, downstream restrictions on prices or customers field of use restrictions, IP licensing and Article 101 TFEU 2.206, 2.210 mergers and transfer of customer loyalty 7.108 dangerous products, Technology Transfer Block Exemption (TTBER) and Guidelines 3.147–3.149 data access, mergers, remedies 7.145–7.150 see also information de minimis effect, IP licensing and Article 101 TFEU see IP licensing and Article 101 TFEU, competition restriction effect, de minimis effect De Minimis Notice, EU Commission 2.32, 2.61, 2.64–2.65, 2.345, 5.23 ‘defence’ for infringing agreements, IP licensing and Article 101 TFEU and consequences of infringement 2.94–2.101, 2.114, 2.117 delimitation agreements, IP licensing and Article 101 TFEU, trademark licences 2.324–2.328 design right infringement for spare parts, dominance and abuse and Article 102 TFEU 6.104–6.109, 6.114, 6.116, 6.178 digital technologies, competition and IP law interface 1.57–1.59 see also technology disclosure IP licensing and Article 101 TFEU, disincentives for licensee to develop/ exploit own technology 2.222 and IP licensing and Article 101 TFEU, patent licences/knowhow licences 2.305

standardization agreements 5.99, 5.101, 5.106, 5.125–5.132 and Technology Transfer Block Exemption (TTBER) 3.73, 3.132, 3.134, 3.192 see also information discrimination, standardized technology, injunctions 9.144–9.158 discriminatory licensing see dominance and abuse and Article 102 TFEU, unfair licences disincentives for licensee to develop/exploit own technology see IP licensing and Article 101 TFEU, restrictive clauses, disincentives for licensee to develop/exploit own technology see also incentives distribution channels, pharmaceutical sector 8.23–8.24, 8.99, 8.103 distributors IP licensing and Article 101 TFEU 2.24, 2.27–2.28, 2.62, 2.168 parallel trade, pharmaceutical sector and Article 101 TFEU 8.112, 8.114–8.116 Technology Transfer Block Exemption (TTBER) and Guidelines, sales to authorized distributors only 3.155–3.158 divestitures, mergers, remedies 7.120, 7.122–7.124, 7.137 divisional patents, pharmaceutical sector see pharmaceutical sector, Article 102 TFEU, abuse, Teva/Copaxone and misuse of divisional patents dominance and abuse and Article 102 TFEU 6.01–6.296 abuse categories, evolution of, and first principles 6.56–6.76 abuse overview 6.21–6.28, 6.44–6.45, 6.53, 6.60, 6.292–6.296 acceptable behaviours 6.62–6.65 and Article 101 TFEU 6.26, 6.89 Article 102 TFEU, purpose of 6.29–6.42 ‘bright line’ approach 6.127, 6.178 cartel behaviour 6.06, 6.26 competition distortion 6.03–6.04, 6.69, 6.86–6.87 competition on the merits 6.38, 6.63, 6.66–6.69, 6.74–6.75, 6.77, 6.233

477

INDEX competitive strength of market participants 6.11–6.16 competitor protection issues 6.30–6.31, 6.33 compulsory licensing consideration 6.88, 6.92–6.95, 6.106, 6.107–6.109, 6.116, 6.120, 6.122, 6.124, 6.127, 6.135, 6.140, 6.148, 6.163, 6.166, 6.176–6.177, 6.179–6.180 consultation process and guidelines 6.23 consumer welfare 6.30 dominance overview 6.10–6.20, 6.289–6.291 downstream market 6.42, 6.89–6.90, 6.93, 6.97, 6.99, 6.106, 6.160, 6.172, 6.176 effective competition 6.10, 6.19, 6.33–6.35, 6.66, 6.113, 6.154, 6.157 efficiency defence 6.36–6.38, 6.77, 6.78–6.80 entry barriers 6.16–6.20, 6.68 essential facilities doctrine 6.98, 6.100–6.101, 6.122, 6.125, 6.171, 6.174, 6.179 evidence assessment 6.48–6.54, 6.80 exceptions 6.77–6.81 exclusionary conduct 6.22–6.23, 6.39, 6.227, 6.233 exclusive licensing 6.222–6.229 exploitation prevention 6.82–6.87 exploitation prevention, refusals to deal 6.88–6.95, 6.104–6.118 exploitation prevention, refusals to deal, and exceptional circumstances 6.93, 6.114, 6.119–6.128, 6.131–6.141 and ‘follow on’ innovation 6.42 geographic market 6.12, 6.14 health and safety concerns 6.77 and incentives 6.18, 6.32, 6.46, 6.81, 6.127, 6.163, 6.165, 6.168, 6.176, 6.178, 6.249 intent in establishing abuse, role of 6.53, 6.59 and market access 6.192 market power 6.06, 6.12, 6.15–6.16, 6.76, 6.214, 6.290 and market structure effects 6.40–6.41 monopoly concerns 6.12, 6.40, 6.54, 6.98–6.99, 6.113, 6.281, 6.295 ‘normal’ competition 6.41, 6.44, 6.62–6.63, 6.70, 6.74, 6.77 and ‘object or effect’ distinction 6.43–6.55

overenforcement concerns 6.31, 6.35, 6.39–6.40 and ‘patent wars’ 6.07 patented inventions 6.13–6.17, 6.20 prices and rebates 6.67 pricing abuses 6.35, 6.38, 6.82 proportionality context 6.59, 6.71–6.73, 6.77, 6.78, 6.79 refusal to deal 6.88–6.95, 6.104–6.118, 6.119–6.128 short-termism issues 6.07, 6.08, 6.290 software licensing 6.145, 6.196 specific subject matter concept 6.14, 6.84–6.85, 6.87, 6.92, 6.106, 6.117, 6.193 static and dynamic competition, balance between 6.07–6.08 supplementary protection certificate (SPC) 6.243–6.244, 6.246, 6.250 third party involvement 6.14, 6.15, 6.19, 6.69, 6.84, 6.88, 6.102, 6.105, 6.142, 6.165, 6.169, 6.195, 6.196, 6.213, 6.223, 6.295 trademarks 6.17 transparency 6.241, 6.246 tying 6.182–6.193 tying, separate products regarded as single product 6.187–6.188, 6.190–6.191 unfair licences 6.194–6.206 unfair licences, fees bearing no reasonable relation to the economic value of the service provided 6.198–6.199 unilateral conduct 6.24–6.25, 6.47, 6.83, 6.96, 6.174 US antitrust regime and over-intervention 6.32, 6.33 US doctrine of ‘essential facilities’ 6.98 withholding information 6.143 dominance and abuse and Article 102 TFEU, case law development 6.96–6.179 Commercial Solvents decision and control over raw materials 6.96–6.101, 6.124, 6.145 Google Shopping and refusal to supply 6.174–6.175 IBM and interface information availability 6.102–6.103

478

INDEX IMS Health, market reports and refusal to deal 6.130, 6.131–6.141, 6.145, 6.153, 6.159, 6.160, 6.161, 6.167, 6.172, 6.176 IMS Health, market reports and refusal to deal, preliminary ruling on national court reference 6.139–6.141 Magill1, television guide copyright-protected information and indispensability requirement 6.110–6.118, 6.121, 6.124, 6.127, 6.128–6.129, 6.134, 6.135, 6.136, 6.140, 6.145, 6.161, 6.163, 6.167, 6.176, 6.178 Microsoft, tying and refusal to provide interoperability information and exceptional circumstances 6.142–6.170, 6.172, 6.177 Microsoft, tying and refusal to provide interoperability information and exceptional circumstances, cloud computing services 6.170 Microsoft, tying and refusal to provide interoperability information and exceptional circumstances, Commission’s remedies 6.169 Microsoft, tying and refusal to provide interoperability information and exceptional circumstances, competition elimination 6.154–6.157 Microsoft, tying and refusal to provide interoperability information and exceptional circumstances, indispensability argument 6.151–6.153 Microsoft, tying and refusal to provide interoperability information and exceptional circumstances, new product criterion argument 6.158–6.163 Microsoft, tying and refusal to provide interoperability information and exceptional circumstances, refusal to license justification 6.164–6.168 Oscar Bronner and exceptional circumstances 6.124–6.128, 6.134, 6.135, 6.173, 6.174, 6.175, 6.176

Slovak Telekom and indispensability 6.173, 6.175 Tiercé Ladbroke and exceptional circumstances 6.119–6.123, 6.135 Volvo UK v Veng and design right infringement for spare parts 6.104–6.109, 6.114, 6.116, 6.178 dominance and abuse and Article 102 TFEU, excessive pricing (royalties) 6.207–6.221 Commission’s approach 6.219–6.221 and entry discouragement 6.213 and FRAND (Fair, Reasonable and Non-Discriminatory) terms 6.218 and patent pools 6.218 versus economic value 6.208–6.211, 6.215–6.217 dominance and abuse and Article 102 TFEU, IP system abuse and competition law implications 6.230–6.285 AstraZeneca and misuse of patent and regulatory systems 6.237, 6.239–6.256 Boehringer Ingelheim and unmeritorious patents 6.257–6.258 collecting societies and price comparisons 6.266–6.285 collecting societies and price comparisons, excessive pricing 6.271–6.272, 6.276–6.277 collecting societies and price comparisons, flat rate tariff use 6.284 ‘competition on the merits’ effect 6.233 fraud or deceit, consideration of deliberate 6.251–6.252 intent, relevance of 6.234 ‘legitimate commercial conduct’ effect 6.233, 6.245 misrepresentations to national patent offices 6.237, 6.241–6.256 new entrants 6.232, 6.240–6.256 patent ambush 6.260–6.265 regulatory system for patented pharmaceuticals 6.253–6.256 standard essential patents (SEPs), enforcement of 6.238, 6.250, 6.262 Teva and divisional patents 6.259

479

INDEX vexatious trademark oppositions 6.232, 6.235, 6.239 dominance and abuse and Article 102 TFEU, unfair licences minimum commitment obligations 6.196–6.197 ‘per system’ licences 6.196, 6.197 restrictions on licences 6.203 ‘trailing edge’ products 6.200–6.201 unfair royalties and discriminatory licensing 6.204–6.206 and vexatious or abusive litigation use 6.202–6.203 dominant position pharmaceutical sector see pharmaceutical sector, Article 102 TFEU, dominant position standardized technology, injunctions 9.78–9.80, 9.85–9.90, 9.135 downstream markets dominance and abuse and Article 102 TFEU 6.42, 6.89–6.90, 6.93, 6.97, 6.99, 6.106, 6.160, 6.172, 6.176 foreclosure concerns 2.342, 2.344 IP licensing and Article 101 TFEU, exclusivity 2.143–2.150 IP licensing and Article 101 TFEU, restrictive clauses, tying and bundling 2.185, 2.188, 2.189 mergers 7.62, 7.125, 7.127, 7.134 R&D agreements 5.71 restrictions on prices or customers see IP licensing and Article 101 TFEU, restrictive clauses, downstream restrictions on prices or customers royalty payments on unpatented/partially patented products 2.249, 2.255 standardization agreements 5.94, 5.96, 5.101 standardized technology 9.126–9.127, 9.131 Technology Transfer Block Exemption (TTBER) 2.196–2.197, 3.44, 3.98, 3.107, 3.158, 3.168, 3.173–3.174 ‘drastic innovations’, Technology Transfer Block Exemption (TTBER) and Guidelines 3.62 see also innovation

e-commerce sector and cross-border limitations 2.171–2.173 economics-based approach, competition and IP law interface 1.46–1.48 effect, ‘object or effect’ distinction, and dominance and abuse and Article 102 TFEU 6.43–6.55 effect restrictions IP licensing and Article 101 TFEU, competition restriction effect 2.47–2.52 pharmaceutical sector, patent infringement by generic entrant 8.163, 8.189, 8.198, 8.205 standardization agreements 5.102–5.106 effective competition competition and IP law interface 1.26, 1.41, 1.43 dominance and abuse and Article 102 TFEU 6.10, 6.19, 6.33–6.35, 6.66, 6.113, 6.154, 6.157 mergers 7.44, 7.84, 7.119, 7.122, 7.136–7.137, 7.140, 7.148 pharmaceutical sector 8.20, 8.215, 8.246 Technology Transfer Block Exemption (TTBER) and Guidelines 3.31, 3.64 efficiency dominance and abuse and Article 102 TFEU 6.36–6.38, 6.77, 6.78–6.80 IP licensing and Article 101 TFEU, competition restriction effect 2.55–2.57 mergers, substantive test 7.84–7.85 pharmaceutical sector, Article 102 TFEU, abuse, pay for delay and generics 8.317–8.320 technology licences outside TTBER, multilateral licences and patent pooling arrangements 4.29–4.30 and technology licences outside TTBER, settlement agreements 4.31 entry barriers competition and IP law interface, Single Market for IPRs 1.90 dominance and abuse and Article 102 TFEU 6.16–6.20, 6.68

480

INDEX dominance and abuse and Article 102 TFEU, excessive pricing (royalties) 6.213 IP licensing and Article 101 TFEU, field of use restrictions 2.205 IP licensing and Article 101 TFEU, trade effects 2.70, 2.72–2.80, 2.81–2.87 mergers, Big Data concerns 7.94 mergers, remedies 7.124, 7.129–7.134 pharmaceutical sector 8.34 pharmaceutical sector, patent infringement by generic entrant 8.147–8.149, 8.159, 8.176–8.177 and technology licences outside TTBER, settlement agreements 4.33 see also market access; new entrants essential facilities doctrine 6.98, 6.100–6.101, 6.122, 6.125, 6.171, 6.174, 6.179 essential function concept 1.95, 1.105–1.106 essential patents see standard essential patents EU Charter of Fundamental Rights 6.92 Commission, De Minimis Notice 2.32, 2.61, 2.64–2.65, 2.345, 5.23 Commission Green Paper, standardized technology 9.10–9.11, 9.13–9.14, 9.17–9.22, 9.24 Commission investigations, standardized technology, injunctions 9.78–9.111 Commission role, competition and IP law interface 1.69–1.75 Copyright Directive 2.42–2.45 Digital Single Market 1.51, 2.172 enlargement effects 1.63 Member benefits, standardization agreements 5.89–5.91 Merger Regulation 7.09–7.10, 7.11–7.14, 7.17, 7.22, 7.27–7.29, 7.31–7.32, 7.36, 7.39, 7.96, 7.119, 7.120 New EU Industrial Strategy 1.52 Resale Price Maintenance 2.90, 3.138 Satellite Broadcasting Directive 2.46 single market integration, pharmaceutical sector 8.11–8.13 Single Market for IPRs see competition and IP law interface, Single Market for IPRs

Software Directive 1.117 Trade Mark Directive 1.114 Vertical Guidelines 2.19–2.30, 3.138, 3.155, 5.06, 5.08, 5.09, 5.12–5.13, 5.14, 5.18–5.19, 5.138 European Council, competition and IP law interface 1.76–1.86 European Economic Area (EEA) 1.92, 1.100, 1.102, 2.40, 2.76, 2.164, 2.337, 7.06, 7.12, 7.37, 7.57, 7.81 European Parliament, competition and IP law interface 1.84–1.86 European Telecommunications Standards Institute (ETSI) standardization agreements 5.110, 5.111, 5.130 standardized technology 9.10, 9.12, 9.22–9.23, 9.24–9.26, 9.54–9.55, 9.59, 9.61, 9.146–9.147, 9.149 evidence assessment, dominance and abuse and Article 102 TFEU 6.48–6.54, 6.80 ‘exception’ or ‘defence’ for infringing agreements 2.94–2.101, 2.114, 2.117 exceptional circumstances competition and IP law interface 1.10, 1.43 dominance and abuse and Article 102 TFEU 6.93, 6.114, 6.119–6.128, 6.131–6.141 dominance and abuse and Article 102 TFEU, case law development 6.124–6.128, 6.134, 6.135, 6.173, 6.174, 6.175, 6.176 mergers, ancillary restrictions 7.98 excessive pricing dominance and abuse and Article 102 TFEU see dominance and abuse and Article 102 TFEU, excessive pricing (royalties) dominance abuse and Article 102 TFEU, collecting societies and price comparisons 6.271–6.272, 6.276–6.277 standardization agreements, FRAND commitment 5.118 standardized technology 9.20, 9.47–9.48, 9.50 see also pricing

481

INDEX excluded restrictions IP licensing and Article 101 TFEU 2.274, 2.375 R&D agreements 5.23, 5.73–5.78 technology licences outside TTBER 4.05, 4.44 TTBER see Technology Transfer Block Exemption (TTBER) and Guidelines, excluded restrictions exclusionary conduct, dominance and abuse and Article 102 TFEU 6.22–6.23, 6.39, 6.227, 6.233 exclusionary power of patents 2.305, 2.315 exclusionary strategy, pharmaceutical sector, Article 102 TFEU 8.285–8.287 exclusive licensing dominance and abuse and Article 102 TFEU 6.222–6.229 IP licensing and Article 101 TFEU, exclusivity see IP licensing and Article 101 TFEU, restrictive clauses, exclusivity IP licensing and Article 101 TFEU, existence/exercise distinction/specific subject matter concepts 2.105, 2.107, 2.122, 2.141 IP licensing and Article 101 TFEU, post-patent-expiry royalties 2.260 IP licensing and Article 101 TFEU, trademark licences 2.326 mergers 7.18, 7.102 pharmaceutical sector and Article 101 TFEU, licensing following research phase 8.97 R&D agreements 5.59 and restrictive clauses see IP licensing and Article 101 TFEU, restrictive clauses, exclusivity Technology Transfer Block Exemption (TTBER) and Guidelines 3.118, 3.184 exhaustion of rights competition and IP law interface, Single Market for IPRs 1.58, 1.91–1.92, 1.96–1.99, 1.103–1.104, 1.111–1.120

IP licensing and Article 101 TFEU, competition restriction effect, trade effects 2.44, 2.72–2.80, 2.104, 2.169 existence/exercise distinction/specific subject matter concepts see IP licensing and Article 101 TFEU, restrictive clauses, existence/ exercise distinction/specific subject matter concepts exploitation and competition and IP law interface 1.08, 1.34, 1.39 dominance and abuse and Article 102 TFEU 6.82–6.87, 6.88–6.95, 6.93, 6.104–6.118, 6.114, 6.119–6.128, 6.131–6.141 IP licensing and Article 101 TFEU 2.02, 2.43, 2.46, 2.113, 2.129, 2.174, 2.177, 2.201, 2.230, 2.258, 2.301, 2.304, 2.313, 2.343 joint exploitation, R&D agreements 5.46, 5.49, 5.51–5.54, 5.56–5.58, 5.59 Technology Transfer Block Exemption (TTBER) and Guidelines 3.09, 3.16, 3.17–3.18, 3.114, 3.120, 3.128, 3.144–3.145, 3.195 Faull, J 2.55, 2.104, 2.209, 2.254, 3.72, 5.25, 6.06, 6.231, 7.08, 9.99 feasibility issues, pharmaceutical sector and Article 101 TFEU 8.77–8.85 feed-on clauses IP licensing and Article 101 TFEU 2.242 Technology Transfer Block Exemption (TTBER) and Guidelines, excluded restrictions 3.168–3.172 fees bearing no reasonable relation to the economic value of the service provided 6.198–6.199 field of use restrictions IP licensing see IP licensing and Article 101 TFEU, restrictive clauses, field of use restrictions Technology Transfer Block Exemption (TTBER) and Guidelines 3.128–3.131 ‘follow on’ innovation 6.42 see also innovation

482

INDEX foreclosure effects mergers, remedies 7.125, 7.129–7.134, 7.141 mergers, substantive test 7.62, 7.67–7.73, 7.75, 7.80 ‘foreground’ IPR and knowhow 5.47–5.52 see also R&D agreements franchises 5.06, 5.09, 5.17–5.20, 7.20–7.21 FRAND (Fair, Reasonable and Non-Discriminatory) terms and dominance and abuse and Article 102 TFEU, excessive pricing (royalties) 6.218 IP licensing and Article 101 TFEU, restrictive clauses, exclusivity 2.144 standardization agreements see standardization agreements, FRAND commitment standardized technology 9.24–9.25, 9.26, 9.32, 9.33, 9.36, 9.45, 9.59–9.61, 9.63, 9.65–9.70, 9.166 and standardized technology, injunctions 9.82–9.84, 9.92–9.93, 9.95–9.101, 9.107, 9.116–9.117, 9.119, 9.125, 9.128, 9.132–9.134, 9.137, 9.139, 9.141–9.142, 9.144–9.158 standardized technology, non-FRAND terms 9.46–9.53, 9.166, 9.755–9.770 technology licences outside TTBER 4.22, 4.24, 4.25 transfer of FRAND and IPCom, standardized technology 9.54–9.55, 9.59 fraud or deceit, consideration of deliberate 6.251–6.252 free movement of goods and services 1.50–1.51, 1.87–1.88, 1.103, 1.111 and IP licensing and Article 101 TFEU 2.44, 2.104, 2.140 free-riding prevention, Technology Transfer Block Exemption (TTBER) and Guidelines 3.120–3.123, 3.243 freedom to operate IP licensing and Article 101 TFEU, field of use restrictions 2.202, 2.205 technology licences outside TTBER 4.38 Technology Transfer Block Exemption (TTBER) and Guidelines 3.18, 3.67, 3.71, 3.170

fundamental rights considerations, standardized technology, injunctions 9.102–9.111, 9.135 generics pharmaceutical sector 8.20, 8.23, 8.24–8.25, 8.27–8.28, 8.31, 8.34 pharmaceutical sector, entry, agreements at time of 8.102–8.104, 8.107, 8.117–8.120 pharmaceutical sector, market definition and dominant position 8.237–8.243, 8.250 pharmaceutical sector, market entry by generic manufacturers 8.261 pharmaceutical sector, patent infringement see pharmaceutical sector, litigation and settlement agreements, patent infringement by generic entrant pharmaceutical sector, pay for delay see pharmaceutical sector, Article 102 TFEU, abuse, pay for delay and generics Technology Transfer Block Exemption (TTBER) and Guidelines, competitors and non-competitors, distinction between 3.75–3.93 geo-blocking competition restriction effect, object restrictions 2.40–2.43 restrictive clauses, exclusivity 2.160–2.172 geographic market dominance and abuse and Article 102 TFEU 6.12, 6.14 Technology Transfer Block Exemption (TTBER) and Guidelines, market share thresholds 3.33–3.34, 3.38, 3.50, 3.59, 3.67 see also market geographical indications 1.16, 1.101 Geradin, D 8.284, 9.144, 9.151 Gerard, D 6.40, 6.42 good faith claims pharmaceutical sector, Article 102 TFEU 8.263–8.266 standardization agreements 5.99, 5.101, 5.106, 5.125–5.132 standardized technology, injunctions 9.72, 9.91, 9.117, 9.121, 9.138, 9.141

483

INDEX Technology Transfer Block Exemption (TTBER) and Guidelines 3.147, 3.148 ‘hold up’ implications standardization agreements 5.97–5.98 standardized technology 9.37 standardized technology, injunctions 9.101 horizontal agreements 5.24–5.28 IP licensing and Article 101 TFEU 2.61 Horizontal Guidelines mergers, substantive test 7.44, 7.84 and R&D agreements 5.30, 5.33, 5.39, 5.42, 5.64, 5.76, 5.78 specialization agreements 5.80–5.81 standardization agreements 5.89, 5.97, 5.99, 5.102–5.106, 5.129, 5.134 standardization agreements, FRAND commitment 5.108, 5.111, 5.114, 5.118, 5.123

grace period, Technology Transfer Block Exemption (TTBER) and Guidelines 3.97 grant back requirements IP licensing and Article 101 TFEU, restrictive clauses, disincentives for licensee to develop/exploit own technology 2.227–2.244, 2.242 IP licensing and Article 101 TFEU, restrictive clauses, patent licences/ knowhow licences 2.306 pharmaceutical sector and Article 101 TFEU, licensing following research phase 8.93–8.97 technology licences outside TTBER, multilateral licences and patent pooling arrangements 4.27 Technology Transfer Block Exemption (TTBER) and Guidelines 3.46 Technology Transfer Block Exemption (TTBER) and Guidelines, excluded restrictions 3.166–3.181 ‘gun-jumping’, mergers 7.08 hardcore restrictions IP licensing and Article 101 TFEU, and consequences of infringement 2.90 R&D see R&D agreements, hardcore restrictions technology licences outside TTBER 4.02 TTBER see Technology Transfer Block Exemption (TTBER) and Guidelines, hardcore restrictions vertical agreements and analogous arrangements 5.11 harm to competition concerns, mergers, substantive test 7.41, 7.48–7.51, 7.55, 7.74–7.81, 7.120 harmonization competition and IP law interface 1.49–1.53, 1.103 exhaustion of rights, international exhaustion/harmonizing initiatives, competition and IP law interface, Single Market for IPRs 1.111–1.120 health and safety concerns dominance and abuse and Article 102 TFEU 6.77

Ibáñez Colomo, P 1.25, 1.34, 2.49, 6.36, 6.74 ‘importance’ test, technology licences outside TTBER 4.27 imports from outside EU 2.74–2.80 incentives competition and IP law interface 1.03, 1.62 and dominance and abuse and Article 102 TFEU 6.18, 6.32, 6.46, 6.81, 6.127, 6.163, 6.165, 6.168, 6.176, 6.178, 6.249 IP licensing and Article 101 TFEU, restrictive clauses 2.142, 2.210, 2.214, 2.217 mergers 7.41, 7.43, 7.56, 7.59, 7.67, 7.70, 7.125, 7.130, 7.147 pharmaceutical sector 8.04–8.05, 8.16, 8.27, 8.96, 8.97, 8.110, 8.116, 8.131, 8.163, 8.185, 8.200 standardization agreements 5.95, 5.119 standardized technology 9.15 standardized technology, injunctions 9.100–9.101, 9.121, 9.137, 9.140 subcontracting 5.143 technology licences outside TTBER 4.40–4.41

484

INDEX Technology Transfer Block Exemption (TTBER) and Guidelines 3.69, 3.114, 3.119, 3.123, 3.124, 3.139, 3.141, 3.165, 3.166, 3.169, 3.170–3.174, 3.176, 3.179–3.181, 3.193, 3.196 see also disincentives indispensability, dominance and abuse and Article 102 TFEU, case law development 6.110–6.118, 6.121, 6.124, 6.127, 6.128–6.129, 6.134, 6.135, 6.136, 6.140, 6.145, 6.161, 6.163, 6.167, 6.176, 6.178 information access ‘bright line’ approach see ‘bright line’ approach dominance and abuse and Article 102 TFEU, case law development 6.102–6.103, 6.110–6.118, 6.121, 6.124, 6.127, 6.128–6.129, 6.134, 6.135, 6.136, 6.140, 6.145, 6.161, 6.163, 6.167, 6.176, 6.178 mergers, remedies 7.124–7.125, 7.127–7.128, 7.145–7.150 pharmaceutical sector and Article 101 TFEU 8.127, 8.130 pharmaceutical sector, Article 102 TFEU 8.255, 8.257–8.272, 8.278–8.279 pharmaceutical sector, Article 102 TFEU, abuse 8.300–8.301 standardization agreements 5.101 withholding see withholding information see also disclosure infringement consequences see IP licensing and Article 101 TFEU and consequences of infringement injunctions see standardized technology, injunctions innovation competition and IP law interface 1.06–1.11, 1.17, 1.19, 1.55–1.56, 1.67 ‘drastic innovations’, Technology Transfer Block Exemption (TTBER) and Guidelines 3.62 ‘follow on’ innovation, and dominance and abuse and Article 102 TFEU 6.42 mergers, substantive test 7.42–7.61 pharmaceutical sector 8.05–8.06, 8.16, 8.18, 8.28

standardization agreements 5.92–5.93 Technology Transfer Block Exemption (TTBER) and Guidelines 3.31, 3.62 see also patents interbrand competition, IP licensing and Article 101 TFEU, restrictive clauses, non-compete obligations 2.114, 2.136, 2.211 interchangeability, pharmaceutical sector, Article 102 TFEU, dominant position 8.238–8.239, 8.243 Internet of Things 1.64, 1.73, 4.13, 9.06, 9.144 interoperability dominance and abuse and Article 102 TFEU, case law development 6.142–6.170, 6.172, 6.177 and mergers, remedies 7.125, 7.139–7.144, 7.145 standardization agreements 5.89, 5.90 interstate trade 2.66–2.67, 2.69, 2.78, 2.79, 2.81, 2.84–2.87 interventionist approach, competition and IP law interface 1.37–1.39 intrabrand exclusivity, IP licensing and Article 101 TFEU, non-compete obligations 2.114, 2.211 IP licensing and Article 101 TFEU 2.01–2.346 anticompetitive effect 2.04, 2.12, 2.13, 2.31, 2.39, 2.49, 2.52, 2.54–2.55, 2.98, 2.139–2.140, 2.157, 2.160, 2.168, 2.178–2.180, 2.195, 2.201, 2.246, 2.264, 2.290, 2.293, 2.307, 2.315, 2.344 collusion 2.12, 2.13, 2.218 competitive advantage 2.223, 2.229, 2.328 concerted practices 2.05, 2.07, 2.09–2.12 concurrence of wills 2.08, 2.12, 2.13 distributors 2.24, 2.27–2.28, 2.62, 2.168 excluded restrictions 2.274, 2.375 and exploitation 2.02, 2.43, 2.46, 2.113, 2.129, 2.174, 2.177, 2.201, 2.230, 2.258, 2.301, 2.304, 2.313, 2.343 and free movement of goods and services 2.44, 2.104, 2.140 horizontal agreements 2.61

485

INDEX knowhow 2.110, 2.214, 2.222, 2.224, 2.234, 2.235, 2.245, 2.277, 2.283, 2.301–2.310, 2.313, 2.316, 2.321, 2.329 market power 2.51, 2.115, 2.125, 2.143–2.144, 2.146, 2.151, 2.173, 2.178–2.179, 2.193, 2.212, 2.255, 2.305 mergers and joint ventures 2.14 monopoly concerns 2.109, 2.259, 2.279–2.280, 2.305, 2.332 national markets 2.41, 2.46, 2.105, 2.139, 2.156, 2.167 non-assertion agreements 2.295 non-exclusive grant back obligations 2.241–2.243 non-exclusive licences 2.107, 2.149, 2.233 non-software copyright 2.111–2.112, 2.330, 2.345 patent expiry 2.259, 2.266, 2.277, 2.280, 2.281 prohibitions 2.05 proportionality context 2.54, 2.56, 2.166, 2.179, 2.189, 2.194, 2.222, 2.277, 2.294 and Resale Price Maintenance (RPM) 2.90, 2.197 software copyright 2.172, 2.329 sole licensing 2.144, 2.167 and Technology Transfer Block Exemption (TTBER) and Guidelines see Technology Transfer Block Exemption (TTBER) and Guidelines, and IP licensing and Article 101 TFEU termination of agreement 2.234, 2.260, 2.261, 2.264–2.265, 2.269, 2.271–2.273, 2.276–2.277, 2.317 third party involvement 2.02, 2.102, 2.104, 2.131, 2.134, 2.144, 2.148, 2.150, 2.159, 2.161, 2.166, 2.173, 2.205, 2.213–2.214, 2.219, 2.222–2.223, 2.252, 2.274, 2.315, 2.319 understandings, agreements and ‘gentlemen’s agreements’ 2.07–2.08 unilateral conduct 2.06, 2.12–2.13

IP licensing and Article 101 TFEU, competition restriction effect 2.31–2.87 ancillary restraints 2.53–2.58 ancillary restraints, assessment 2.54–2.56 ancillary restraints, restrictive covenant on sale of a business 2.53 ‘balancing’ of efficiencies against anticompetitive effects 2.55–2.57 effects restrictions 2.47–2.52 effects restrictions, counterfactual identification 2.48 effects restrictions, factors, relevant 2.51–2.52 IP licensing and Article 101 TFEU, competition restriction effect, de minimis effect 2.59–2.65, 2.107 and block exemption regulations 2.65 and parallel agreements 2.62 safe harbour exemption 2.64–2.65 small- and medium-sized enterprises 2.63 IP licensing and Article 101 TFEU, competition restriction effect, object restrictions 2.32–2.46, 2.197 ‘bright line’ approach and information exchange 2.33 copyright exhaustion issues 2.45–2.46 and effect restrictions, distinction between 2.35–2.37 expansion 2.35–2.36 and geo-blocking 2.40–2.43 and novelty 2.39–2.41 and parallel trade 2.34, 2.40–2.41 safe harbour exemption 2.32 IP licensing and Article 101 TFEU, competition restriction effect, trade effects 2.66–2.87 entry barrier and doctrine of exhaustion, imports from outside EU 2.74–2.80 entry barriers 2.70, 2.72–2.80 entry barriers, height of barrier 2.81–2.87 entry barriers, height of barrier, and interstate trade 2.84–2.87 entry barriers, height of barrier, patent validity consideration 2.81–2.83 exhaustion of rights 2.44, 2.72–2.80, 2.104, 2.169 licensing arrangements 2.69–2.70 and National Competition Authorities 2.68 territories outside EU 2.71

486

INDEX IP licensing and Article 101 TFEU, consequences of infringement 2.88–2.101 administrative infringement proceedings 2.89 and block exemptions 2.93, 2.97, 2.99, 2.100, 2.101 ‘exception’ or ‘defence’ for infringing agreements 2.94–2.101, 2.114, 2.117 hardcore restrictions 2.90 hotel bookings and Most Favoured Nation provisions 2.90 individual exemptions 2.96–2.97, 2.98 modernization package 2.98 and National Competition Authorities 2.89, 2.91 priority sectors 2.90 self-assessment 2.93, 2.99 Technology Transfer Guidelines 2.92 IP licensing and Article 101 TFEU, restrictive clauses 2.102–2.346 IP licensing and Article 101 TFEU, restrictive clauses, copyright/design right licences 3.329–3.346 broadcasting rights 2.335, 2.337–2.343 and collecting societies 2.332–2.338 downstream foreclosure concerns 2.342, 2.344 joint selling issues 2.335, 2.341, 2.343, 2.346 market sharing concerns 2.336–2.337 sports broadcasting 2.339–2.343 IP licensing and Article 101 TFEU, restrictive clauses, disincentives for licensee to develop/exploit own technology 2.219–2.244 arbitration 2.240 competition issues 2.219, 2.222–2.223, 2.230, 2.232, 2.235, 2.238, 2.241, 2.243 and disclosure 2.222 grant back requirements 2.227–2.244 grant back requirements, feed-on clauses 2.242 improvements, decisions on 2.236–2.240 joint research projects 2.222–2.223 market share threshold 2.241 mutual cross-licensing obligations 2.243 and patent licensing 2.223–2.225 and sub-licensing 2.127, 2.228, 2.233–2.235, 2.244, 2.323, 2.340

and Technology Transfer Block Exemption (TTBER) 2.225–2.228 and Technology Transfer Guidelines 2.241, 2.243 utilizing licensed technology 2.224 IP licensing and Article 101 TFEU, restrictive clauses, downstream restrictions on prices or customers 2.195–2.199 ‘by object’ restriction 2.197 market sharing agreements, issues with 2.198 IP licensing and Article 101 TFEU, restrictive clauses, exclusivity 2.129–2.173 and ancillary restraints doctrine 2.136 and competition law 2.151–2.173 copyright 2.135–2.140 copyright and performance or broadcasting rights 2.135, 2.139–2.140, 2.154–2.159, 2.163–2.165 downstream market 2.143–2.150 e-commerce sector and cross-border limitations 2.171–2.173 and geo-blocking clauses 2.160–2.172 incentives 2.142 manufacturing 2.142–2.144 manufacturing, reciprocal sole licensing 2.144 manufacturing, and substitutable technology 2.143 market integration risk 2.133–2.134 parallel trade issues 2.132 procompetitive rationale 2.130 sales restrictions and downstream competition 2.145–2.150 sales restrictions and downstream competition, and parallel importers 2.150 territorial 2.129–2.132, 2.147–2.148, 2.152–2.159 trademarks 2.138, 2.157 IP licensing and Article 101 TFEU, restrictive clauses, existence/exercise distinction/ specific subject matter concepts 2.104–2.128 block exemptions 2.110, 2.114, 2.117–2.123 and ‘Christmas Message’ 2.105 competition effect 2.104–2.106, 2.109, 2.114–2.115, 2.119, 2.121, 2.125 exclusive licensing 2.105, 2.107, 2.122

487

INDEX German model influence 2.105 notification process 2.106, 2.110 patent licensing block exemption 2.110 royalties payments 2.109 and safe harbour accessibility 2.118, 2.124 trademark licences 2.111, 2.112 Vertical Agreements Block Exemption (VABE) 2.113 IP licensing and Article 101 TFEU, restrictive clauses, field of use restrictions 2.200–2.210 competition law issues 2.201–2.206, 2.209–2.210 cross-licensing issues 2.203–2.204 customer restriction 2.206, 2.210 entry barriers 2.205 exclusive licensing between competitors 2.205 ‘freedom to operate’ arrangements 2.202, 2.205 incentives 2.210 and royalties 2.201 technical attributes of the product 2.207–2.209 Technology Transfer Guidelines 2.202–2.203 IP licensing and Article 101 TFEU, restrictive clauses, no challenge clauses 2.282–2.299, 2.318–2.320 ancillary restraints doctrine 2.293 competition issues 2.282, 2.285, 2.290–2.292, 2.295, 2.297–2.298 IP licensing and Article 101 TFEU, restrictive clauses, non-compete obligations 2.211–2.218 and block exemption regulation 2.216–2.217 incentives 2.214, 2.217 interbrand competition ban 2.114, 2.136, 2.211 intrabrand exclusivity 2.114, 2.211 and Technology Transfer Block Exemption (TTBER) 2.218 and third-party technologies, limiting use of 2.214–2.215 IP licensing and Article 101 TFEU, restrictive clauses, patent licences 2.301–2.310, 2.322 block exemptions 2.302–2.303 ‘Christmas Notice’ 2.301 and disclosure 2.305

exclusionary power of patents 2.305, 2.315 exclusive grant back and assignment provisions 2.306 post-expiry obligations 2.307 ‘show-how’ and production processes 2.309 IP licensing and Article 101 TFEU, restrictive clauses, post-patent-expiry royalties 2.257–2.281 arbitration 2.271 and block exemption 2.261–2.262, 2.268–2.269 competition issues 2.267, 2.270–2.271 Court of Justice rules 2.263–2.273, 2.276 exclusive licensing 2.260 history 2.259–2.262 ‘layered’ royalty payment structure 2.277, 2.281 Supplementary Protection Certificate (SPC) 2.258 Technology Transfer Guidelines 2.257, 2.274–2.276 US approach 2.278–2.281 IP licensing and Article 101 TFEU, restrictive clauses, royalty payments on unpatented/ partially patented products 2.245–2.256 downstream market 2.249, 2.255 post-expiry royalties 2.255 ‘reach through’ licences 2.253, 2.254, 2.256 and Technology Transfer Guidelines 2.250–2.251, 2.254 IP licensing and Article 101 TFEU, restrictive clauses, trademark licences 2.138, 2.157, 2.181, 2.189, 2.211, 2.212, 2.311–2.328 ancillary trademark licences 2.314 block exemption 2.321 delimitation agreements 2.324–2.328 exclusive licensing 2.326 no challenge clause 2.318–2.320 IP licensing and Article 101 TFEU, restrictive clauses, tying and bundling 2.174–2.194 downstream markets 2.185, 2.188, 2.189 licensed technology exploitation 2.180–2.181 procompetitive or anticompetitive effects 2.178–2.180, 2.185, 2.191 quality control provisions 2.181–2.190, 2.193 and royalties 2.179 and trademarks 2.181, 2.189

488

INDEX IP licensing and Article 101 TFEU, undertakings 2.15–2.30 economic 2.15–2.16, 2.17 economic, exclusions 2.16 independent, and autonomy 2.17–2.18 principal/agent agreements and Vertical Guidelines 2.19–2.30 principal/agent agreements and Vertical Guidelines, agency activities and resellers, distinction issues 2.29 principal/agent agreements and Vertical Guidelines, and platform economy 2.30 principal/agent agreements and Vertical Guidelines, risk assessment 2.21–2.24, 2.26 IP system abuse see dominance and abuse and Article 102 TFEU, IP system abuse and competition law implications Iversen, E 5.116, 6.07, 9.23 Jacob, R 8.15, 8.17 joint exploitation, R&D agreements 5.46, 5.49, 5.51–5.54, 5.56–5.58, 5.59 see also exploitation joint price fixing, standardization agreements 5.101 see also price fixing joint research projects 2.222–2.223 see also R&D joint selling issues 2.335, 2.341, 2.343, 2.346 joint ventures IP licensing and Article 101 TFEU 2.14 mergers 7.11, 7.22–7.26 mergers, ancillary restrictions 7.99, 7.112–7.118 specialization agreements 5.79, 5.81 see also mergers Jones, C 7.08, 7.120 killer acquisitions, mergers 7.05, 7.29, 7.89 knowhow IP licensing and Article 101 TFEU 2.110, 2.214, 2.222, 2.224, 2.234, 2.235, 2.245, 2.277, 2.283, 2.301–2.310, 2.313, 2.316, 2.321, 2.329

mergers 7.52, 7.89, 7.96, 7.98, 7.102, 7.105, 7.108, 7.111, 7.114–7.115, 7.124–7.125, 7.137 pharmaceutical sector and Article 101 TFEU 8.44, 8.77, 8.80–8.81, 8.85 R&D agreements 5.09–5.10, 5.12, 5.17–5.19, 5.20, 5.29, 5.37, 5.41, 5.44, 5.46, 5.47–5.58, 5.140 Technology Transfer Block Exemption (TTBER) and Guidelines 3.05, 3.24–3.25, 3.132, 3.134, 3.190–3.191, 3.192 ‘layered’ royalty payment structure 2.277, 2.281 ‘legitimate commercial conduct’ effect, dominance and abuse and Article 102 TFEU 6.233, 6.245 Levine, D 1.18, 8.06 litigation agreements, pharmaceutical sector see pharmaceutical sector, litigation and settlement agreements lump sum payments pharmaceutical sector and Article 101 TFEU 8.91 standardized technology 9.56 Technology Transfer Block Exemption (TTBER) 2.250 MA see Marketing Authorizations (MAs) market access cross-licensing risks and unblocking market access, technology licences outside TTBER, settlement agreements 4.35, 4.38–4.39 and dominance and abuse and Article 102 TFEU 6.192 generic manufacturers, pharmaceutical sector 8.261 Technology Transfer Block Exemption (TTBER) and Guidelines, competitors and non-competitors, distinction between 3.70, 3.79–3.93 see also entry barriers; new entrants market definition issues pharmaceutical sector, Article 102 TFEU, dominant position 8.220–8.223, 8.226–8.236

489

INDEX pharmaceutical sector, Article 102 TFEU, dominant position and generics 8.237–8.243, 8.250 market integration competition and IP law interface 1.25 IP licensing and Article 101 TFEU, restrictive clauses, exclusivity 2.133–2.134 pharmaceutical sector 8.11–8.13 market power dominance and abuse and Article 102 TFEU 6.06, 6.12, 6.15–6.16, 6.76, 6.214, 6.290 IP licensing and Article 101 TFEU 2.51, 2.115, 2.125, 2.143–2.144, 2.146, 2.151, 2.173, 2.178–2.179, 2.193, 2.212, 2.255, 2.305 mergers 7.02, 7.04, 7.92, 7.152–7.153 pharmaceutical sector 8.48, 8.250 R&D agreements 5.32, 5.78, 5.102, 5.120 standardized technology 9.37, 9.89, 9.155 technology licences outside TTBER, settlement agreements 4.25, 4.39, 4.40–4.41 Technology Transfer Block Exemption (TTBER) and Guidelines 3.09, 3.27, 3.38 market reports, dominance and abuse and Article 102 TFEU, case law development 6.130, 6.131–6.141, 6.145, 6.153, 6.159, 6.160, 6.161, 6.167, 6.172, 6.176 market share threshold IP licensing and Article 101 TFEU, restrictive clauses, disincentives for licensee to develop/exploit own technology 2.241 R&D agreements 5.60–5.64 technology licences outside TTBER 4.07–4.09 TTBER see Technology Transfer Block Exemption (TTBER) and Guidelines, market share thresholds market sharing agreements IP licensing and Article 101 TFEU, copyright/design right licences 2.336–2.337

IP licensing and Article 101 TFEU, downstream restrictions on prices or customers 2.198 pharmaceutical sector, Article 102 TFEU 8.137, 8.176–8.177, 8.245–8.246 technology licences outside TTBER, settlement agreements 4.36–4.37 Marketing Authorizations (MAs) deregistration of MA, pharmaceutical sector, Article 102 TFEU, abuse, AstraZeneca 8.275 national regulatory procedures, manipulation of national regulatory procedures relating to MAs, pharmaceutical sector, Article 102 TFEU, abuse, AstraZeneca 8.255, 8.259, 8.273–8.276, 8.279 pharmaceutical sector 8.21, 8.43, 8.112, 8.122, 8.126, 8.155, 8.169 markets competitive strength of participants, and dominance and abuse 6.11–6.16 geographic see geographic markets national see national markets markets/customers allocation, TTBER see Technology Transfer Block Exemption (TTBER) and Guidelines, hardcore restrictions, markets/customers allocation mergers 7.01–7.154 and advertising 7.18–7.19, 7.146–7.147, 7.150 competition and IP law interface 1.29–1.32, 1.56 concentrations 7.14–7.26 concentrations, acquisition of a licence 7.17–7.20 concentrations, change of control 7.15–7.17 downstream market 7.62, 7.125, 7.127, 7.134 effective competition 7.44, 7.84, 7.119, 7.122, 7.136–7.137, 7.140, 7.148 EU Merger Regulation 7.09–7.10, 7.11–7.14, 7.17, 7.22, 7.27–7.29, 7.31–7.32, 7.36, 7.39, 7.96, 7.119, 7.120 European Economic Area (EEA) 7.12 exclusive licensing 7.18, 7.102 franchises 7.20–7.21 future effects on competition 7.04

490

INDEX ‘gun-jumping’ (unauthorized steps to approval) 7.08 incentives 7.41, 7.43, 7.56, 7.59, 7.67, 7.70, 7.125, 7.130, 7.147 IP licensing and Article 101 TFEU 2.14 joint ventures 7.11, 7.22–7.26 killer acquisitions 7.05, 7.29 knowhow 7.52, 7.89, 7.96, 7.98, 7.102, 7.105, 7.108, 7.111, 7.114–7.115, 7.124–7.125, 7.137 market power 7.02, 7.04, 7.92, 7.152–7.153 national level jurisdiction 7.08 and pharmaceutical sector 8.34 self-assessment 7.104 termination of agreement 7.69, 7.116 third party involvement 7.04, 7.25, 7.46, 7.54, 7.67, 7.81, 7.124–7.125, 7.127, 7.134, 7.135, 7.144, 7.148, 7.150 ‘transaction value’ threshold 7.31–7.34 turnover thresholds 7.27–7.38 turnover thresholds, undertakings that might evolve into significant players 7.35–7.38 unilateral conduct 7.04, 7.120 Union Dimension Concentrations 7.06, 7.27 see also joint ventures mergers, ancillary restrictions 7.96–7.118 confidentiality clauses 7.111, 7.118 direct relation and necessity assessment 7.96–7.97 exceptional circumstances 7.98 joint ventures 7.99, 7.112–7.118 licence agreements 7.100–7.104 non-compete obligations 7.105–7.111, 7.114–7.118 partial transfer of rights 7.101 post-termination provision and ‘blue pencil’ test 7.116 simple or exclusive licences of patents 7.102 territorial limitations 7.103, 7.117 and transfer of customer loyalty 7.108 mergers, Big Data concerns 7.89–7.95 and competitive advantage 7.90 entry barriers 7.94 and ‘killer acquisitions’ 7.89 ‘privacy-related concerns 7.91–7.93, 7.95

and standard essential patents 7.89 mergers, remedies 7.119–7.150 commitments in lieu of divestment 7.123 and competitive market structures 7.120 competitively sensitive information concerns 7.127–7.128 data access 7.145–7.150 dispute resolution through arbitration 7.127 entry barrier reduction 7.124, 7.129–7.134 foreclosure concerns 7.125, 7.129–7.134, 7.141 and interoperability 7.125, 7.139–7.144, 7.145 licence agreements 7.122–7.134 monitoring requirements 7.127–7.128 re-branding 7.135–7.138 structural remedies, divestitures 7.120, 7.122–7.124, 7.137 mergers, substantive test 7.39–7.88 degradation of R&D capability 7.63 efficiencies assessment 7.84–7.85 foreclosure effects 7.62, 7.67–7.73, 7.75, 7.80 future competitive strength, consideration of 7.64 harm to competition concerns 7.41, 7.48–7.51, 7.55, 7.74–7.81, 7.120 Horizontal Merger Guidelines 7.44, 7.84 innovation concerns 7.42–7.61 innovation concerns, procedural issues 7.83–7.85 innovation concerns, stifling issues 7.56–7.59, 7.65–7.73 input foreclosure 7.62 non-horizontal (vertical) concerns 7.62–7.82 prices of overlapping products 7.60–7.61 R&D agreements 7.47–7.55, 7.63 and significant impediment to effective competition (SIEC) 7.39 minimum commitment obligations, dominance and abuse and Article 102 TFEU, unfair licences 6.196–6.197 misuse of divisional patents, pharmaceutical sector see under pharmaceutical sector, Article 102 TFEU, abuse modernization, competition and IP law interface 1.46–1.53, 1.103

491

INDEX monopoly concerns dominance and abuse and Article 102 TFEU 6.12, 6.40, 6.54, 6.98–6.99, 6.113, 6.281, 6.295 IP licensing and Article 101 TFEU 2.109, 2.259, 2.279–2.280, 2.305, 2.332 pharmaceutical sector 8.176, 8.264, 8.269 most favoured nation provisions 2.90, 3.139 multilateral licences, technology licences outside TTBER see technology licences outside TTBER, multilateral licences and patent pooling arrangements National Competition Authorities (NCAs) 2.68, 2.89, 2.91, 3.50, 8.29 national courts, standardized technology, injunctions 9.112–9.122, 9.134, 9.140, 9.143, 9.144–9.158 national markets IP licensing and Article 101 TFEU 2.41, 2.46, 2.105, 2.139, 2.156, 2.167 and pharmaceutical sector 8.02, 8.10, 8.12–8.13, 8.22, 8.112, 8.221 see also markets national patent offices dominance and abuse and Article 102 TFEU 6.237, 6.241–6.256 pharmaceutical sector, Article 102 TFEU 8.255, 8.257–8.272, 8.278–8.279 national regulatory procedures, pharmaceutical sector, Article 102 TFEU 8.255, 8.259, 8.273–8.276, 8.279 new business models 1.55–1.56 new entrants dominance and abuse and Article 102 TFEU 6.232, 6.240–6.256 Technology Transfer Block Exemption (TTBER) and Guidelines 3.124, 3.146 see also entry barriers; market access new product, dominance and abuse and Article 102 TFEU, case law development 6.158–6.163 Nikolic, I 9.03, 9.58 Nikpay, A 2.55, 2.104, 2.209, 2.254, 3.72, 5.25, 6.06, 6.231, 7.08, 9.99

no challenge clauses IP licensing see IP licensing and Article 101 TFEU, restrictive clauses, no challenge clauses R&D agreements 5.74–5.75 technology licences outside TTBER, multilateral licences and patent pooling arrangements 4.28 technology licences outside TTBER, settlement agreements 4.33, 4.42–4.46 Technology Transfer Block Exemption (TTBER) and Guidelines 3.46 Technology Transfer Block Exemption (TTBER) and Guidelines, excluded restrictions 3.182–3.191 non-assertion agreements IP licensing and Article 101 TFEU 2.295 technology licences outside TTBER 4.34, 4.38, 4.45 Technology Transfer Block Exemption (TTBER) and Guidelines 3.09, 3.16 non-compete obligations mergers, ancillary restrictions 7.105–7.111, 7.114–7.118 and restrictive clauses see IP licensing and Article 101 TFEU, restrictive clauses, non-compete obligations technology licences outside TTBER, multilateral licences and patent pooling arrangements 4.26–4.27 non-competition law initiatives, standardized technology 9.159–9.166 non-competitor agreements, and TTBER see Technology Transfer Block Exemption (TTBER) and Guidelines, hardcore restrictions, and agreements between non-competitors non-disclosure of patents standardization agreements 5.127 standardized technology 9.45 non-discriminatory terms see FRAND (Fair, Reasonable and Non-Discriminatory) terms non-essential technology, technology licences outside TTBER 4.18–4.20

492

INDEX output restriction, Technology Transfer Block Exemption (TTBER) and Guidelines 3.112–3.114 outsourcing arrangements pharmaceutical sector and Article 101 TFEU 8.44, 8.100 R&D agreements 5.35, 5.78 standardized technology 9.60, 9.68 overenforcement concerns, dominance and abuse and Article 102 TFEU 6.31, 6.35, 6.39–6.40

non-exclusive grant back obligations IP licensing and Article 101 TFEU 2.241–2.243 technology licences outside TTBER 4.27 Technology Transfer Block Exemption (TTBER) 3.169–3.171 non-exclusive licences IP licensing and Article 101 TFEU 2.107, 2.149, 2.233 Technology Transfer Block Exemption (TTBER) and Guidelines 3.168–3.172, 3.175, 3.184–3.185 non-FRAND terms, standardized technology 9.46.53, 9.75 see also FRAND terms non-marketing clause, pharmaceutical sector, patent infringement by generic entrant 8.196–8.197 non-software copyright, IP licensing and Article 101 TFEU 2.111–2.112, 2.330, 2.345 ‘normal’ competition, dominance and abuse and Article 102 TFEU 6.41, 6.44, 6.62–6.63, 6.70, 6.74, 6.77 novelty, and IP licensing and Article 101 TFEU 2.39–2.41 ‘object or effect’ distinction, and dominance and abuse and Article 102 TFEU 6.43–6.55 objective justification, standardized technology, injunctions 9.94–9.95, 9.97–9.98, 9.100 objects restrictions IP licensing and Article 101 TFEU see IP licensing and Article 101 TFEU, competition restriction effect, object restrictions pharmaceutical sector, patent infringement by generic entrant 8.137–8.138, 8.144, 8.156–8.164, 8.175, 8.178–8.181, 8.189–8.190, 8.198, 8.199, 8.204, 8.205 standardization agreements 5.100–5.101 ‘off-label’ tactic, pharmaceutical sector and Article 101 TFEU 8.121–8.126 Ohlhausen, M 1.11, 1.18 originator products, pharmaceutical sector 8.04, 8.18, 8.24–8.27

Padilla, J 6.293, 9.144 parallel agreements and IP licensing and Article 101 TFEU, de minimis effect 2.62 IP licensing and Article 101 TFEU, exclusivity 2.132, 2.150 IP licensing and Article 101 TFEU, object restrictions 2.34, 2.40–2.41 pharmaceutical sector and Article 101 TFEU 8.110–8.116 partial transfer of rights, mergers, ancillary restrictions 7.101 passive sales restrictions, Technology Transfer Block Exemption (TTBER) and Guidelines, and agreements between non-competitors 3.140–3.158 patent competition and IP law interface, patent protection 1.39, 1.62, 1.99, 1.100 dominance and abuse and Article 102 TFEU, divisional patents 6.259 dominance and abuse and Article 102 TFEU, patent misuse 6.237, 6.239–6.256 dominance and abuse and Article 102 TFEU, patent wars 6.07 dominance and abuse and Article 102 TFEU, patented inventions 6.13–6.17, 6.20 dominance and abuse and Article 102 TFEU, unmeritorious patents 6.257–6.258 IP licensing and exclusionary power of patents 2.305 IP licensing, patent validity consideration 2.81–2.83 IP licensing, patents as State granted ‘monopolies’ 2.109

493

INDEX IP licensing, post-patent-expiry royalties see IP licensing and Article 101 TFEU, restrictive clauses, post-patent-expiry royalties IP licensing, restrictive clauses see IP licensing and Article 101 TFEU, restrictive clauses, patent licences IP licensing, royalty payments on unpatented/partially patented products see IP licensing and Article 101 TFEU, restrictive clauses, royalty payments on unpatented/partially patented products mergers, ancillary restriction, simple or exclusive licences 7.102 mergers, third party access to patents 7.124–7.125, 7.127 non-disclosure see non-disclosure of patents pharmaceutical sector 8.04, 8.17–8.20, 8.34 pharmaceutical sector, blocking patents 8.302–8.303 pharmaceutical sector, compound patents 8.18, 8.139, 8.155, 8.165, 8.171, 8.211, 8.213, 8.239 pharmaceutical sector, divisional see pharmaceutical sector, Article 102 TFEU, abuse, Teva/Copaxone and misuse of divisional patents pharmaceutical sector, generics 8.237–8.243, 8.250 pharmaceutical sector, patent infringement by generic entrant, process patent 8.139, 8.149, 8.151, 8.160–8.161, 8.168, 8.171–8.174 pharmaceutical sector, post-expiry royalties 8.82–8.85 pharmaceutical sector, process patents 8.237–8.243 pharmaceutical sector, secondary patents 8.20 pharmaceutical system, misuse of patent system 8.288–8.290 standardization agreements, essential patents 5.105 standardization agreements, FRAND commitment, value assessment 5.112

standardization agreements, patented technology access 5.85–5.86, 5.92–5.93 standardized technology, transfer and privateering 9.60–9.64 Technology Transfer Block Exemption (TTBER) and Guidelines 3.24 Technology Transfer Block Exemption (TTBER) and Guidelines, and geographical scope 3.67 Technology Transfer Block Exemption (TTBER) and Guidelines, patent validity 3.65–3.93 Technology Transfer Block Exemption (TTBER) and Guidelines, pre-existing patent rights 3.71–3.73 see also copyright; innovation; trademarks patent ambush dominance and abuse and Article 102 TFEU 6.260–6.265 standardization agreements 5.126–5.128 standardized technology 9.35–9.45 Patent Assertion Entity (PAE) 9.56–9.70 patent cliff, pharmaceutical sector 8.30 patent expiry IP licensing and Article 101 TFEU 2.259, 2.266, 2.277, 2.280, 2.281 pharmaceutical sector, Article 102 TFEU 8.57, 8.61, 8.63, 8.64, 8.71, 8.82, 8.84, 8.155, 8.171, 8.213, 8.237, 8.277 patent infringement by generic entrant see pharmaceutical sector, litigation and settlement agreements, patent infringement by generic entrant patent pools and dominance and abuse and Article 102 TFEU, excessive pricing (royalties) 6.218 standardized technology 9.57 technology licences outside TTBER see technology licences outside TTBER, multilateral licences and patent pooling arrangements pay for delay arrangements and generics see pharmaceutical sector, Article 102 TFEU, abuse, pay for delay and generics

494

INDEX pharmaceutical sector, patent infringement by generic entrant 8.48, 8.135, 8.136–8.190, 8.194–8.205, 8.206–8.209, 8.210 Technology Transfer Block Exemption (TTBER) and Guidelines 3.74–3.93 ‘per system’ licences, dominance and abuse and Article 102 TFEU, unfair licences 6.196, 6.197 pharmaceutical sector 8.01–8.321 arbitration 8.50, 8.64, 8.110 and competition law 1.63, 8.06–8.08, 8.11–8.14, 8.32–8.36 compound patents 8.18, 8.139, 8.155, 8.165, 8.171, 8.211, 8.213, 8.239 compulsory licensing 8.275 distribution channels 8.23–8.24, 8.99, 8.103 dominance and abuse and Article 102 TFEU 6.253–6.256 effective competition 8.20, 8.215, 8.246 entry barriers 8.34 EU single market integration 8.11–8.13 and generics 8.20, 8.23, 8.24–8.25, 8.27–8.28, 8.31, 8.34 and generics, delaying entry tactics 8.31 health service (or insurer) as purchaser 8.23–8.24 incentives 8.04–8.05, 8.16, 8.27, 8.96, 8.97, 8.110, 8.116, 8.131, 8.163, 8.185, 8.200 innovation incentives 8.05–8.06, 8.16, 8.18, 8.28 market integration 8.11–8.13 market power 8.48, 8.250 Marketing Authorisations (MAs) 8.21, 8.43, 8.112, 8.122, 8.126, 8.155, 8.169 and mergers 8.34 monopoly concerns 8.176, 8.264, 8.269 and National Competition Authorities (NCAs) 8.29 and national markets 8.02, 8.10, 8.12–8.13, 8.22, 8.112, 8.221 novel drug, lack of definition 8.25–8.26 originator products 8.04, 8.18, 8.24–8.27 patent cliff 8.30 patents 8.04, 8.17–8.20, 8.34

Pharma Sector Enquiry and Report 8.29–8.35, 8.49, 8.118, 8.132, 8.133, 8.273, 8.279 product price regulation 8.22, 8.34 R&D expenditure 8.15–8.16 reference pricing 8.22 secondary patents 8.20 specific subject matter concept 8.132, 8.160 sub-licensing 8.96 supplementary protection certificates (SPCs) 8.04 termination of agreement 8.53–8.55, 8.57, 8.60–8.61, 8.63, 8.65–8.66, 8.68–8.69, 8.76, 8.77–8.85, 8.87, 8.89–8.92 third party involvement 8.62, 8.97, 8.104, 8.117, 8.201, 8.270, 8.272 unilateral conduct 8.54, 8.110 pharmaceutical sector and Article 101 TFEU 8.38–8.130 ancillary restraints doctrine 8.129, 8.183 block exemptions 8.45–8.47, 8.105, 8.109 co-marketing and co-promotion 8.98–8.109 generic entry, agreements at time of 8.102–8.104, 8.107, 8.117–8.120 generic entry, agreements at time of, reverse payments 8.118, 8.159 generic entry, agreements at time of, value transfer 8.119 knowhow 8.44, 8.77, 8.80–8.81, 8.85 outsourcing arrangements 8.44, 8.100 parallel trade 8.110–8.116 parallel trade, products for sale by distributors 8.112, 8.114–8.116 parallel trade, Stock Management Programmes (SMPs) 8.112–8.113 parallel trade, and supply shortages 8.110 prices, agreements to coordinate higher 8.121–8.130, 8.183 prices, agreements to coordinate higher, collusion 8.121 prices, agreements to coordinate higher, and misleading information provision 8.127, 8.130 prices, agreements to coordinate higher, ‘off-label’ tactic 8.121–8.126 prices, agreements to coordinate higher, and TTBER application 8.130

495

INDEX R&D and product development 8.41–8.47 R&D and product development, business models, variations in 8.42 R&D and product development, joint research and/or development agreements 8.44–8.45 R&D and product development, safety and efficacy testing 8.43 safe harbours 8.47 Technology Transfer Block Exemption (TTBER) and Guidelines 8.48, 8.53, 8.62, 8.94, 8.97, 8.130 pharmaceutical sector and Article 101 TFEU, licensing following research phase 8.48–8.97 and competition law 8.49–8.50 grant back obligations 8.93–8.97 grant back obligations, exclusive licensing of improvements 8.97 pharmaceutical sector and Article 101 TFEU, licensing following research phase, royalty payments, post-expiry royalties 8.52–8.92 commercial feasibility issues 8.77–8.85 competition implications 8.68–8.76, 8.87–8.89 early decisions 8.53–876 Genentech v Hoechst case 8.64–8.72, 8.76 lump sum consideration 8.91 Ottung v Klee (first Court case) 8.57–8.76, 8.84 patent licence 8.82–8.85 ‘reach through’ licences 8.74 risk reduction 8.75, 8.76, 8.78, 8.86–8.88, 8.90, 8.92 technology value assessment 8.70, 8.72–8.75, 8.84 up-front payments 8.73, 8.79 pharmaceutical sector, Article 102 TFEU 8.214–8.321 patent expiry 8.57, 8.61, 8.63, 8.64, 8.71, 8.82, 8.84, 8.155, 8.171, 8.213, 8.237, 8.277 pharmaceutical sector, Article 102 TFEU, abuse 8.253–8.321 blocking patents, Switzerland and Novartis/ Eli Lilly 8.302–8.303

Boehringer Ingelheim and misuse of patent system 8.288–8.290 Pfizer Italy and divisional patents 8.280–8.284, 8.294 Reckitt Benckiser, UK and exclusionary strategy 8.285–8.287 Spain CNMC and Merck Sharp and Dohme misuse of legal procedures/ withholding information 8.300–8.301 pharmaceutical sector, Article 102 TFEU, abuse, AstraZeneca 8.254–8.279 anticompetitive conduct assessment 8.277 and ‘competition on the merits’ 8.269–8.271 deregistration of MA 8.275 liability risk reduction 8.272 manipulation of national regulatory procedures relating to MAs 8.255, 8.259, 8.273–8.276, 8.279 market entry by generic manufacturers 8.261 misleading information to national patent offices 8.255, 8.257–8.272, 8.278–8.279 presumption of innocence consideration 8.278 reasonableness and good faith claim 8.263–8.266 significant exclusionary effect after patent expiry 8.277 supplementary protection certificates (SPCs) 8.255, 8.258–8.261 transparency 8.256, 8.263, 8.264, 8.269, 8.272 pharmaceutical sector, Article 102 TFEU, abuse, pay for delay and generics 8.304–8.321 Paroxetine 8.309–8.321 Paroxetine, contract-oriented strategy effects 8.312, 8.314–8.316, 8.320 Paroxetine, efficiency gains, consideration of 8.317–8.320 Servier 8.305–8.308 pharmaceutical sector, Article 102 TFEU, abuse, Teva/Copaxone and misuse of divisional patents 8.291–8.299 artificially extending patent protection 8.291 denigration and disparagement campaign 8.297–8.299

496

INDEX systematically spreading misleading information about a competing product 8.292–8.296 pharmaceutical sector, Article 102 TFEU, dominant position 8.215–8.252 Anatomical Therapeutic Classification (ATC) 8.216–8.236 competitive pressure effects 8.230–8.235 doctor inertia issues 8.230–8.231 IPRs in pharma 8.244–8.252 IPRs in pharma, high market shares as evidence of dominance 8.245–8.246 IPRs in pharma, and relevant technology market 8.249 market definition in generics, Paroxetine and the relevance of patents 8.237–8.243, 8.250 market definition in generics, Paroxetine and the relevance of patents, and interchangeability 8.238–8.239, 8.243 market definition in generics, Paroxetine and the relevance of patents, and price competition 8.242 market definition issues 8.220–8.223, 8.226–8.236 market sharing agreements 8.137, 8.176–8.177, 8.245–8.246 price differentials and price movements, reliance on 8.224–8.225 process patents 8.237–8.243 pharmaceutical sector, litigation and settlement agreements, patent infringement by generic entrant 8.131–8.213 agreement/factual specific issues 8.182–8.185 ‘by effects’ analysis 8.163, 8.189, 8.198, 8.205 ‘by object’ analysis 8.137–8.138, 8.144, 8.156–8.164, 8.175, 8.178–8.181, 8.189–8.190, 8.198, 8.199, 8.204, 8.205 Cephalon 8.206–8.209 Cephalon, side deals 8.207–8.209 competition on the merits 8.159 counterfactual effects 8.191–8.193 entry barriers 8.147–8.149, 8.159, 8.176–8.177 factual considerations 8.169–8.170 Lundbeck 8.136–8.164, 8.175, 8.194

as market sharing agreements 8.137, 8.176–8.177 non-marketing clause 8.196–8.197 Paroxetine 8.141, 8.143, 8.146, 8.149, 8.158, 8.165–8.190 patent/settlement specific issues 8.178–8.181 ‘pay for delay’ cases 8.48, 8.135, 8.136–8.190, 8.194–8.205, 8.206–8.209, 8.210 potential competition test 8.145–8.155, 8.168–8.170 potential competition test, subjective assessment 8.154 potential counter-arguments/scope of the patent 8.186–8.188 process patents 8.139, 8.149, 8.151, 8.160–8.161, 8.168, 8.171–8.174 Servier 8.194–8.205 Servier, litigation costs 8.200–8.202 value transfer 8.183–8.185, 8.208 platform economy, IP licensing and Article 101 TFEU, undertakings 2.30 post-patent-expiry royalties see IP licensing and Article 101 TFEU, restrictive clauses, post-patent-expiry royalties potential competition test, pharmaceutical sector, patent infringement by generic entrant 8.145–8.155, 8.168–8.170 pre-existing patent rights, Technology Transfer Block Exemption (TTBER) and Guidelines 3.71–3.73 presumption of innocence consideration, pharmaceutical sector, Article 102 TFEU 8.278 price factors competition and IP law interface 1.05 dominance and abuse and Article 102 TFEU 6.35, 6.38, 6.82 dominance and abuse and Article 102 TFEU, collecting societies 6.266–6.285 dominance and abuse and Article 102 TFEU, rebates 6.67 downstream restrictions see IP licensing and Article 101 TFEU, restrictive clauses, downstream restrictions on prices or customers excessive see excessive pricing mergers, overlapping products 7.60–7.61

497

INDEX pharmaceutical sector and Article 101 TFEU 8.22, 8.34, 8.121–8.130, 8.183 pharmaceutical sector, Article 102 TFEU, dominant position 8.224–8.225, 8.242 R&D agreements, hardcore restrictions 5.70 Resale Price Maintenance (RPM) 2.90, 2.197 see also royalties price fixing standardization agreements 5.101 Technology Transfer Block Exemption (TTBER) and Guidelines, hardcore restrictions 3.103–3.111, 3.136–3.139 principal/agent agreements 2.19–2.30 priority sectors, IP licensing and Article 101 TFEU 2.90 privacy-related concerns, mergers, Big Data concerns 7.91–7.93, 7.95 privateering, standardized technology 9.60–9.64 process patents pharmaceutical sector, Article 102 TFEU, dominant position 8.237–8.243 pharmaceutical sector, patent infringement by generic entrant 8.139, 8.149, 8.151, 8.160–8.161, 8.168, 8.171–8.174 product development, pharmaceutical sector and Article 101 TFEU and R&D 8.41–8.47 product market definition, standardized technology, injunctions 9.85–9.87, 9.89–9.90 product price regulation, pharmaceutical sector 8.22, 8.34 see also price factors production of contract products, Technology Transfer Block Exemption (TTBER) and Guidelines 3.15, 3.17, 3.23, 3.32, 3.119 products compatible with specific technology, and Technology Transfer Block Exemption (TTBER) and Guidelines 3.38 proportionality context dominance and abuse and Article 102 TFEU 6.59, 6.71–6.73, 6.77, 6.78, 6.79 IP licensing and Article 101 TFEU 2.54, 2.56, 2.166, 2.179, 2.189, 2.194, 2.222, 2.277, 2.294 Technology Transfer Block Exemption (TTBER) and Guidelines 3.98, 3.171

quality control provisions, tying and bundling 2.181–2.190, 2.193 R&D agreements 5.29–5.78 and Article 101(1) TFEU 5.37, 5.40, 5.52 and block exemption (R&DBE) 5.30, 5.39–5.41, 5.44, 5.48–5.49, 5.51–5.52, 5.60–5.64, 5.75, 5.78 ‘blue sky’ research projects 5.33, 5.78 and collaboration 5.33–5.41, 5.44–5.59, 5.62–5.72, 5.75–5.78 competition concerns 5.38 and competitive relationship in innovation 5.31–5.33 downstream market 5.71 excluded restrictions 5.23, 5.73–5.78 excluded restrictions, no challenge obligations 5.74–5.75 exclusive licensing 5.59 exemption 5.43, 5.46 and Horizontal Guidelines 5.30, 5.33, 5.39, 5.42, 5.64, 5.76, 5.78 joint research projects 2.222–2.223 knowhow 5.09–5.10, 5.12, 5.17–5.19, 5.20, 5.29, 5.37, 5.41, 5.44, 5.46, 5.47–5.58, 5.140 market power 5.32, 5.78, 5.102, 5.120 market share thresholds and duration 5.60–5.64 mergers, substantive test 7.47–7.55, 7.63 outsourcing arrangements 5.35, 5.78 pharmaceutical sector and Article 101 TFEU and product development 8.41–8.47 pharmaceutical sector and expenditure 8.15–8.16 spillover effect 5.38 Technology Transfer Block Exemption (TTBER) and Guidelines 3.46, 3.132–3.134 termination of agreement 5.75 third party involvement 5.30, 5.59, 5.67, 5.76, 5.78 R&D agreements, access to results of collaboration and to IPR 5.44–5.59 ‘foreground’ IPR and knowhow 5.47–5.52 joint exploitation 5.46, 5.49, 5.51–5.54, 5.56–5.58, 5.59

498

INDEX joint exploitation, limits to 5.56–5.58 obligations to supply 5.59 pre-conditions relating to access to IPR 5.44–5.45, 5.56–5.58 and specialization in manufacture 5.46, 5.48, 5.52, 5.59 R&D agreements, hardcore restrictions 5.65–5.72 active and passive sales/sales to resellers 5.71–5.72 output or sales 5.68–5.69 pricing or royalties 5.70 and specialization 5.69 raw materials, dominance and abuse and Article 102 TFEU, case law development 6.96–6.101, 6.124, 6.145 re-branding, mergers, remedies 7.135–7.138 ‘reach through’ licences IP licensing and Article 101 TFEU 2.253, 2.254, 2.256 pharmaceutical sector and Article 101 TFEU 8.74 reciprocal and non-reciprocal agreements, distinction between, Technology Transfer Block Exemption (TTBER) and Guidelines 3.20, 3.40, 3.41–3.42, 3.43 reference pricing, pharmaceutical sector 8.22 see also price factors refusal to deal dominance and abuse and Article 102 TFEU 6.88–6.95, 6.93, 6.104–6.118, 6.119–6.128 dominance and abuse and Article 102 TFEU, case law development 6.130, 6.131–6.141, 6.145, 6.153, 6.159, 6.160, 6.161, 6.167, 6.172, 6.176 refusal to licence, dominance and abuse and Article 102 TFEU, case law development 6.164–6.168 refusal to supply, dominance and abuse and Article 102 TFEU, case law development 6.174–6.175 remedies, and mergers see mergers, remedies Resale Price Maintenance (RPM), and IP licensing and Article 101 TFEU 2.90, 2.197 research and development see R&D

resellers IP licensing and Article 101 TFEU, undertakings 2.29 R&D agreements 5.71–5.72 vertical agreements and analogous arrangements 5.02, 5.14, 5.15–5.16 restrictive clauses, Article 101 TFEU see IP licensing and Article 101 TFEU, restrictive clauses reverse payments, pharmaceutical sector and Article 101 TFEU 8.118, 8.159 risk assessment IP licensing and Article 101 TFEU, undertakings 2.21–2.24, 2.26 pharmaceutical sector and Article 101 TFEU 8.75, 8.76, 8.78, 8.86–8.88, 8.90, 8.92 pharmaceutical sector, Article 102 TFEU 8.272 technology licences outside TTBER 4.03–4.06, 4.07, 4.15, 4.17–4.20, 4.28, 4.36–4.37, 4.38–4.40, 4.42 technology licences outside TTBER, multilateral licences and patent pooling arrangements 4.14, 4.15, 4.17, 4.18–4.20 technology licences outside TTBER, settlement agreements 4.38–4.39 royalties dominance and abuse and Article 102 TFEU, unfair licences 6.204–6.206 IP licensing and Article 101 TFEU, restrictive clauses, existence/exercise distinction/specific subject matter concepts 2.109 IP licensing and Article 101 TFEU, restrictive clauses, field of use restrictions 2.201 IP licensing and Article 101 TFEU, restrictive clauses, tying and bundling 2.179 IP licensing, payments on unpatented/ partially patented products see IP licensing and Article 101 TFEU, restrictive clauses, royalty payments on unpatented/partially patented products

499

INDEX IP licensing, post-patent-expiry royalties see IP licensing and Article 101 TFEU, restrictive clauses, post-patent-expiry royalties pharmaceutical sector see pharmaceutical sector and Article 101 TFEU, licensing following research phase, royalty payments, post-expiry royalties R&D agreements, hardcore restrictions 5.70 standardization agreements 5.95, 5.97 standardization agreements, FRAND commitment 5.119–5.123 standardized technology 9.37–9.39, 9.46–9.50, 9.63 technology licences outside TTBER, multilateral licences and patent pooling arrangements 4.22, 4.24 Technology Transfer Block Exemption (TTBER) and Guidelines, hardcore restrictions 3.105–3.111 see also price factors safe harbour IP licensing and Article 101 TFEU, competition restriction effect, de minimis effect 2.64–2.65 IP licensing and Article 101 TFEU,, competition restriction effect, object restrictions 2.32 IP licensing and Article 101 TFEU, restrictive clauses, existence/exercise distinction/specific subject matter concepts 2.118, 2.124 pharmaceutical sector and Article 101 TFEU 8.47 standardization agreements 5.99, 5.103, 5.129 standardization agreements, FRAND commitment 5.108, 5.111 standardized technology, injunctions 9.83, 9.138, 9.141, 9.155 technology licences outside TTBER, multilateral licences and patent pooling arrangements 4.16, 4.20 Technology Transfer Block Exemption (TTBER) and Guidelines, market share thresholds 3.96–3.97, 3.99

sales restrictions IP licensing and Article 101 TFEU, restrictive clauses, exclusivity 2.145–2.150 Technology Transfer Block Exemption (TTBER) and Guidelines, hardcore restrictions, markets/customers allocation 3.120–3.123, 3.124 Schellingerhout, R 6.263, 9.35 Schmidt, H 1.11, 1.62, 2.108 Scott Morton, F 7.52, 9.56 secondary patents, pharmaceutical sector 8.20 sectoral variations, competition and IP law interface 1.61–1.68 self-assessment IP licensing and Article 101 TFEU 2.93, 2.99 mergers 7.104 separate products regarded as single product, dominance and abuse and Article 102 TFEU 6.187–6.188, 6.190–6.191 settlement agreements, technology licences outside TTBER see technology licences outside TTBER, settlement agreements Shapiro, C 3.65, 9.56 short-termism issues, dominance and abuse and Article 102 TFEU 6.07, 6.08, 6.290 ‘show-how’ and production processes, IP licensing and Article 101 TFEU 2.309 see also know-how ‘shrink wrap’ licences 5.15 side deals, pharmaceutical sector, patent infringement by generic entrant 8.207–8.209 single customer supply obligations, Technology Transfer Block Exemption (TTBER) and Guidelines 3.126–3.127, 3.153 small- and medium-sized enterprises 2.63 software licensing dominance and abuse and Article 102 TFEU 6.145, 6.196 exhaustion of rights, international exhaustion/harmonizing initiatives, software licensing, competition and IP law interface, Single Market for IPRs 1.117–1.119

500

INDEX IP licensing and Article 101 TFEU 2.172, 2.329 vertical agreements and analogous arrangements 5.15–5.16 sole licencing see exclusive licensing spare parts dominance and abuse and Article 102 TFEU 6.104–6.109, 6.114, 6.116, 6.178 Technology Transfer Block Exemption (TTBER) and Guidelines 3.125, 3.152 specialization agreements 5.79–5.83 Article 101 TFEU 5.83 block exemption (SBE) 5.81–5.82 Horizontal Guidelines 5.80–5.81 joint ventures 5.79, 5.81 R&D agreements 5.46, 5.48, 5.52, 5.59 R&D agreements, hardcore restrictions 5.69 subcontracting 5.79, 5.80 specific subject matter concept competition and IP law interface, Single Market for IPRs 1.100–1.104 dominance and abuse and Article 102 TFEU 6.14, 6.84–6.85, 6.87, 6.92, 6.106, 6.117, 6.193 IP licensing and Article 101 TFEU see IP licensing and Article 101 TFEU, restrictive clauses, existence/exercise distinction/specific subject matter concepts pharmaceutical sector 8.132, 8.160 standardized technology 9.76 spillover effect, R&D agreements 5.38 sports broadcasting 2.339–2.343 see also broadcasting rights standard essential patent (SEP) dominance and abuse and Article 102 TFEU 6.238, 6.250, 6.262 mergers, Big Data concerns 7.89 standardization agreements 5.105 standardized technology 9.14, 9.24, 9.28, 9.36, 9.51, 9.53, 9.56–9.60, 9.69, 9.71, 9.73–9.76, 9.159–9.166

standardized technology, injunctions 9.84, 9.95–9.97, 9.107–9.109, 9.114–9.115, 9.119, 9.121, 9.125–9.126, 9.128–9.130, 9.132–9.133, 9.135–9.142, 9.144, 9.151, 9.155–9.157 standardization agreements 5.84–5.135 Article 101 TFEU 5.89–5.99, 5.100, 5.103, 5.133–5.135 ‘by effect’ restrictions 5.102–5.106 ‘by effect’ restrictions, and essential patents 5.105 ‘by effect’ restrictions, and ‘soft safe harbour’ 5.103 ‘by object’ restrictions 5.100–5.101 collaboration agreement and safe harbour 5.99 collectively set standards and individually owned IPRs, overlapping issues 5.87 collusion 5.101 companies’ changes in direction, effects of 5.96 competition law risks 5.91–5.92, 5.103, 5.134 downstream market 5.94, 5.96, 5.101 EU Member benefits 5.89–5.91 good faith disclosure 5.99, 5.101, 5.106, 5.125–5.132 good faith disclosure, ‘blanket declaration’ acceptance 5.131 good faith disclosure, ‘patent ambush’ avoidance 5.126–5.128 good faith disclosure, and safe harbour 5.129 Horizontal Guidelines 5.89, 5.97, 5.99, 5.102–5.106, 5.129, 5.134 incentives 5.95, 5.119 information exchange as cover for joint price fixing 5.101 innovation concerns 5.92–5.93 interoperability 5.89, 5.90 and licensing ‘hold up’ 5.97–5.98 licensing negotiations and ‘hold out’ 5.97–5.98 non-disclosure of patents 5.127 patented technology access 5.85–5.86, 5.92–5.93 and royalties 5.95, 5.97 safe harbour 5.99, 5.103, 5.108, 5.111, 5.129

501

INDEX substitute technologies 5.101 technology licences outside TTBER 4.30 transparency 5.128, 5.132 unilateral conduct 5.84, 5.108 standardization agreements, FRAND commitment 5.99, 5.106, 5.107–5.124, 5.127, 5.135 arbitration 5.122 benefits of 5.114 competition law assessment of standardization arrangement 5.123 conduct during negotiations to conclude a licence 5.108–5.109, 5.111 European Telecommunications Standards Institute (ETSI) 5.110, 5.111, 5.130 excessive pricing issues 5.118 and Horizontal Guidelines 5.108, 5.111, 5.114, 5.118, 5.123 and Institute of Electrical and Electronics Engineers (IEEE) 5.111 patent disputes 5.117 patents, value assessment issues 5.112 royalty identification 5.119–5.123 standardized technology 9.01–9.166 anticompetitive behaviour concerns 9.11–9.13, 9.18, 9.20 arbitration 9.16, 9.83, 9.99 Article 101 TFEU infringement 9.65–9.68 Article 102 TFEU for unfair licensing practices 9.37, 9.52–9.53 benefits of standardization 9.09 compulsory licensing 9.33, 9.116 downstream market 9.126–9.127, 9.131 EU Commission Green Paper 9.10–9.11, 9.13–9.14, 9.17–9.22, 9.24 European Telecommunications Standards Institute (ETSI) 9.10, 9.12, 9.22–9.23, 9.24–9.26, 9.54–9.55, 9.59, 9.61, 9.146–9.147, 9.149 excessive pricing 9.20, 9.47–9.48, 9.50 FRAND licences and terms 9.24–9.25, 9.26, 9.32, 9.33, 9.36, 9.45, 9.59–9.61, 9.63, 9.65–9.70, 9.166 history 9.05–9.29 incentive to develop new products 9.15 Internet of Things 9.06

legislative and regulatory development 9.31–9.158 lump sum payments 9.56 market power 9.37, 9.89, 9.155 non-competition law initiatives and SEPs 9.159–9.166 non-FRAND terms and Qualomm 9.46–9.53 non-FRAND terms and Qualomm, royalties 9.46–9.50 outsourcing arrangements 9.60, 9.68 patent ambush and Rambus 9.35–9.45 patent ambush and Rambus, ‘hold up’ power, use of 9.37 patent ambush and Rambus, non-disclosure of patents 9.45 patent ambush and Rambus, royalty rates 9.37–9.39 Patent Assertion Entity (PAE) 9.56–9.70 patent pools 9.57 patent transfer and privateering 9.60–9.64 royalty rates 9.63 specific subject matter concept 9.76 standard essential patent (SEP) 9.14, 9.24, 9.28, 9.36, 9.51, 9.53, 9.56–9.60, 9.69, 9.71, 9.73–9.76, 9.159–9.166 Standards Development Organisations (SDOs) 9.08, 9.18, 9.22, 9.33, 9.90 termination of agreement, terminate on challenge 9.95 third party involvement 9.32, 9.38, 9.55, 9.67, 9.68, 9.98, 9.100–9.101, 9.132, 9.140, 9.155 transfer of FRAND and IPCom 9.54–9.55, 9.59 standardized technology, injunctions 9.71–9.158 and abuse 9.91–9.111, 9.119–9.142 and abuse, objective justification 9.94–9.95, 9.97–9.98, 9.100 Article 101 TFEU 9.156 and Article 102 (TFEU) 9.77, 9.82, 9.84, 9.95, 9.102, 9.123, 9.125, 9.127, 9.136, 9.140, 9.144, 9.149 competition defence, ability to raise 9.132–9.143 counter-offers 9.138–9.140, 9.141 court access and exercise of IPR 9.123–9.131

502

INDEX discrimination and right to a licence 9.144–9.158 dominant position abuse 9.78–9.80, 9.85–9.90, 9.135 dominant position abuse, and bargaining power 9.88 EU Commission investigations 9.78–9.111 exceptional circumstances 9.82 and FRAND terms 9.82–9.84, 9.92–9.93, 9.95–9.101, 9.107, 9.116–9.117, 9.119, 9.125, 9.128, 9.132–9.134, 9.137, 9.139, 9.141–9.142, 9.144–9.158 fundamental rights considerations and court access 9.102–9.111, 9.135 good faith negotiations 9.72, 9.91, 9.117, 9.121, 9.138, 9.141 and Google/MMI 9.71–9.72, 9.85–9.90, 9.123 hold up’ and ‘hold out’ implications 9.101 incentives for a potential licensee to act willingly 9.100–9.101, 9.121, 9.137, 9.140 national courts 9.112–9.122, 9.134, 9.140, 9.143, 9.144–9.158 non-FRAND terms 9.75 product market definition 9.85–9.87, 9.89–9.90 safe harbour 9.83, 9.138, 9.141, 9.155 and standard essential patent (SEP) 9.84, 9.95–9.97, 9.107–9.109, 9.114–9.115, 9.119, 9.121, 9.125–9.126, 9.128–9.130, 9.132–9.133, 9.135–9.142, 9.144, 9.151, 9.155–9.157 Technology Transfer Guidelines 9.85 unfair terms, imposing 9.73–9.158 Standards Development Organisations (SDOs) 9.08, 9.18, 9.22, 9.33, 9.90 stifling issues, mergers and innovation 7.56–7.59, 7.65–7.73 Stock Management Programmes (SMPs), pharmaceutical sector and Article 101 TFEU 8.112–8.113 Stothers, C 1.87, 6.132 structural remedies, divestitures, mergers 7.120, 7.122–7.124, 7.137

sub-licensing IP licensing and Article 101 TFEU, disincentives for licensee to develop/ exploit own technology 2.127, 2.228, 2.233–2.235, 2.244, 2.323, 2.340 pharmaceutical sector 8.96 subcontracting 5.136–5.145 Article 101(1) TFEU, restrictions outside 5.139–5.142 bilateral arrangements 5.139 and block exemption regime 5.137 and grant backs in technology transfer agreements 5.143 Horizontal Guidelines 5.137 incentives 5.143 IPR or related rights 5.139 restrictions in vertical subcontracting arrangement 5.140 severable and non-severable improvements 5.142–5.145 specialization agreements 5.79, 5.80 and Technology Transfer Block Exemption (TTBER) and Guidelines 3.19 third party involvement 5.140 vertical agreements and analogous arrangements 5.10 substantive test, mergers see mergers, substantive test substitute technologies IP licensing and Article 101 TFEU, exclusivity 2.143 standardization agreements 5.101 technology licences outside TTBER arrangements 4.17 see also technology supplementary protection certificate (SPC) dominance and abuse and Article 102 TFEU 6.243–6.244, 6.246, 6.250 IP licensing and Article 101 TFEU, post-patent-expiry royalties 2.258 pharmaceutical sector 8.04, 8.255, 8.258–8.261 technical attributes of product, IP licensing and Article 101 TFEU, field of use restrictions 2.207–2.209 technological change effects 1.64–1.65, 1.67

503

INDEX technology digital 1.57–1.59 disincentives for licensee to develop/exploit own technology see IP licensing and Article 101 TFEU, restrictive clauses, disincentives for licensee to develop/ exploit own technology licensed technology exploitation, IP licensing and Article 101 TFEU, tying and bundling 2.180–2.181 patented technology access, standardization agreements 5.85–5.86, 5.92–5.93 pharmaceutical sector, value assessment 8.70, 8.72–8.75, 8.84 standardized see standardized technology substitute see substitute technologies technology transfer agreements 5.03, 5.05, 5.14 technology licences outside TTBER 4.01–4.46 and Article 101 TFEU 4.02–4.03, 4.05–4.06, 4.08, 4.10, 4.16–4.17, 4.34, 4.41–4.46 excluded restrictions 4.05, 4.44 financial inducement 4.45 freedom to operate 4.38 and hardcore provisions 4.02 incentives 4.40–4.41 market share threshold, exceeding 4.07–4.09 market share threshold, exceeding, as failsafe measure 4.08 non-assertion agreements 4.34, 4.38, 4.45 risk assessment 4.03–4.06, 4.07, 4.15, 4.17–4.20, 4.28, 4.36–4.37, 4.38–4.40, 4.42 third party involvement 4.11, 4.18, 4.21, 4.33 technology licences outside TTBER, multilateral licences and patent pooling arrangements 4.10–4.30 agreements between pool and licensees 4.21–4.30 anti-competitive risk reduction 4.15 collusion risk 4.14 and Covid pandemic 4.13 efficiency impact 4.29–4.30 FRAND terms 4.22, 4.24, 4.25 ‘importance’ test 4.27 and Internet of Things 4.13

invalid or unnecessary patents, risk of shielding 4.28 no challenge obligations 4.28 non-compete obligations 4.26–4.27 non-discriminatory terms 4.25 non-essential technology risk and collective bundling 4.18–4.20 non-exclusive grant back obligations 4.27 patent pool creation and operation 4.15–4.20 royalty payments 4.22, 4.24 as safe harbour 4.16, 4.20 and standardization 4.30 substitute technologies, risks from 4.17 terminate on challenge obligations 4.19, 4.28, 4.31 transaction cost reduction 4.13 and transparency 4.29, 4.30 technology licences outside TTBER, settlement agreements 4.31–4.46 cross-licensing risks and unblocking market access 4.35, 4.38–4.39 dispute resolution 4.34–4.35 and efficiency 4.31 and entry barriers 4.33 market power 4.25, 4.39, 4.40–4.41 market sharing and manipulation concerns 4.36–4.37 no challenge clauses 4.33, 4.42–4.46 pharmaceutical sector 4.32–4.33 unilateral discontinuance of litigation 4.33–4.34 Technology Transfer Block Exemption (TTBER) and Guidelines 3.01–3.196 application 3.05–3.11 and Article 101 TFEU 3.07–3.09, 3.11, 3.27, 3.31, 3.36, 3.45, 3.48–3.49, 3.51, 3.68, 3.73, 3.97, 3.123, 3.147–3.148, 3.151, 3.154, 3.163–3.164, 3.171, 3.189, 3.194–3.195 cartels 3.107, 3.124 collusion 3.107 competition and IP law interface 1.08, 1.16, 1.37 competitive relationship changes 3.159–3.162 and disclosure 3.73, 3.132, 3.134, 3.192 downstream markets 2.196–2.197, 3.44, 3.98, 3.107, 3.158, 3.168, 3.173–3.174

504

INDEX effective competition 3.31, 3.64 exemptions 3.22–3.26 exploitation 3.09, 3.16, 3.17–3.18, 3.114, 3.120, 3.128, 3.144–3.145, 3.195 freedom to operate 3.18, 3.67, 3.71, 3.170 grant back obligations 3.46 health and safety concerns 3.147, 3.148 incentives 3.69, 3.114, 3.119, 3.123, 3.124, 3.139, 3.141, 3.165, 3.166, 3.169, 3.170–3.174, 3.176, 3.179–3.181, 3.193, 3.196 and innovation, competition in 3.31 key term definitions 3.14–3.21 knowhow 3.05, 3.24–3.25, 3.132, 3.134, 3.190–3.191, 3.192 lump sum payments 2.250 manufacture/production of contract products 3.09 market power issues 3.09, 3.27, 3.38 and National Competition Authorities 3.50 new entrants 3.124, 3.146 no challenge clauses 3.46 non-application of block exemption to networks of agreements 3.51 non-assertion agreements 3.09, 3.16 non-exclusive grant back obligations 3.169–3.171 non-exclusive licences 3.168–3.172, 3.175, 3.184–3.185 patents 3.24 pharmaceutical sector and Article 101 TFEU 8.48, 8.53, 8.62, 8.94, 8.97, 8.130 production of contract products 3.15, 3.17, 3.23, 3.32, 3.119 proportionality context 3.98, 3.171 provisions 3.12–3.57 relationship with other block exemptions 3.56–3.57 relevant markets 3.20 settlement agreements 3.16 spare parts 3.125, 3.152 standardized technology, injunctions 9.85 and subcontracting 3.19 technical development or R&D 3.46 technological research tools 3.17

third party involvement 3.48, 3.103–3.104, 3.122, 3.125, 3.132–3.133, 3.134, 3.138, 3.166, 3.173, 3.178, 3.189, 3.192 withdrawal of benefit of block exemption 3.48–3.50 Technology Transfer Block Exemption (TTBER) and Guidelines, competitors and non-competitors, distinction between 3.58–3.94 blocking positions 3.64–3.94 ‘drastic innovations’ as non-competitive 3.62 generic companies 3.75–3.93 market entry strategy consideration 3.70, 3.79–3.93 non-competitor examples 3.61–3.62 patent rights and IP blocking positions 3.61, 3.63 patent validity and infringement issues 3.65–3.93 patents and geographic (national) scope 3.67 ‘pay for delay’ litigation in pharmaceutical sector 3.74–3.93 and pre-existing patent rights 3.71–3.73 Technology Transfer Block Exemption (TTBER) and Guidelines, excluded restrictions 3.09, 3.45–3.46, 3.163–3.196 grant back obligations 3.166–3.181 grant back obligations, non-exclusive licences and ‘feed on’ rights 3.168–3.172 grant back obligations, ‘severable’ and ‘non-severable’ improvements 3.175–3.181 limiting developments outside the licence and competition restraints 3.192–3.196 limiting developments outside the licence and competition restraints, licence termination option 3.196 no challenge provisions 3.182–3.191 no challenge provisions, and exclusive licensing agreements 3.184 no challenge provisions, and licensed knowhow 3.190–3.191 no challenge provisions, terminate on challenge provisions 3.184–3.187, 3.190

505

INDEX Technology Transfer Block Exemption (TTBER) and Guidelines, hardcore restrictions 3.39–3.44, 3.96, 3.102–3.158 agreement between competitors (actual or potential) 3.40–3.42, 3.58, 3.68–3.69 and agreements between competitors 3.102–3.134 output restriction 3.112–3.114 price fixing 3.103–3.111 price fixing, reciprocal cross-licences 3.107 price fixing, and royalty obligation 3.105–3.111 reciprocal and non-reciprocal agreements, distinction between 3.20, 3.40, 3.41–3.42, 3.43 Technology Transfer Block Exemption (TTBER) and Guidelines, hardcore restrictions, and agreements between non-competitors 3.135–3.158 captive use limitation 3.152 manufacture of dangerous products 3.147–3.149 passive sales restrictions on licensee 3.140–3.158 price fixing, indirect 3.136–3.139 quantity limitations 3.142 sales at the wholesale level only 3.154 sales into reserved territories/customer groups and market share threshold 3.144–3.151 sales to authorized distributors only 3.155–3.158 single customer supply obligations 3.153 Technology Transfer Block Exemption (TTBER) and Guidelines, hardcore restrictions, markets/customers allocation 3.115–3.134 cross-licensing 3.116 exceptions 3.117 production restrictions 3.119 restrictions protecting parties from each other 3.119–3.123 sales restrictions and free-riding prevention 3.120–3.123 sole licences 3.118

Technology Transfer Block Exemption (TTBER) and Guidelines, hardcore restrictions, markets/customers allocation, restrictions protecting licensees from each other 3.124–3.131 captive use restrictions 3.125 field of use restrictions 3.128–3.131 research restrictions or licensee’s use of its own technology 3.132–3.134 sales restrictions 3.124 single customer supply obligations 3.126–3.127 Technology Transfer Block Exemption (TTBER) and Guidelines, and IP licensing and Article 101 TFEU and consequences of infringement 2.92 copyright/design right licences 2.329–2.330, 2.345 disincentives for licensee to develop/exploit own technology 2.225–2.228, 2.241, 2.243 exclusivity 2.141, 2.152 existence/exercise distinction/specific subject matter concepts 2.110–2.113, 2.114–2.116, 2.118–2.119, 2.124–2.127 field of use restrictions 2.202–2.203 no challenge clauses 2.295–2.296, 2.299 non-compete obligations 2.218 patent licences/knowhow licences 2.307, 2.310 post-patent-expiry royalties 2.257, 2.274–2.276 royalty payments on unpatented/partially patented products 2.250–2.251, 2.254 trademark licences 2.312–2.313 Technology Transfer Block Exemption (TTBER) and Guidelines, market share thresholds 3.27–3.38, 3.42, 3.58, 3.144–3.151 application 3.52–3.55 and ‘break through’ products 3.38 and competition 3.27, 3.38, 3.97–3.99 geographic market 3.33–3.34, 3.38, 3.50, 3.59, 3.67 grace period 3.97 licensor’s market share on technology market 3.53

506

INDEX and market structure consideration 3.36 new technologies without any sales generation, zero market share 3.97 potentially applicable 3.100–3.101 and products compatible with specific technology 3.38 safe harbour 3.96–3.97, 3.99 share calculation 3.35–3.36 use of 3.95–3.101 termination of agreement IP licensing and Article 101 TFEU 2.234, 2.260, 2.261, 2.264–2.265, 2.269, 2.271–2.273, 2.276–2.277, 2.317 mergers 7.69, 7.116 pharmaceutical sector 8.53–8.55, 8.57, 8.60–8.61, 8.63, 8.65–8.66, 8.68–8.69, 8.76, 8.77–8.85, 8.87, 8.89–8.92 R&D agreements 5.75 standardized technology, termination on challenge 9.95 technology licences outside TTBER, termination on challenge 4.19, 4.28, 4.31 Technology Transfer Block Exemption (TTBER) and Guidelines, termination on challenge 3.184–3.187, 3.190 territorial exclusivity, IP licensing and Article 101 TFEU 2.129–2.132, 2.147–2.148, 2.152–2.159 territorial limitations, mergers, ancillary restrictions 7.103, 7.117 third party involvement competition and IP law interface 1.41, 1.90, 1.96, 1.99, 1.105, 1.107 dominance and abuse and Article 102 TFEU 6.14, 6.15, 6.19, 6.69, 6.84, 6.88, 6.102, 6.105, 6.142, 6.165, 6.169, 6.195, 6.196, 6.213, 6.223, 6.295 IP licensing and Article 101 TFEU 2.02, 2.102, 2.104, 2.131, 2.134, 2.144, 2.148, 2.150, 2.159, 2.161, 2.166, 2.173, 2.205, 2.213–2.214, 2.219, 2.222–2.223, 2.252, 2.274, 2.315, 2.319

mergers 7.04, 7.25, 7.46, 7.54, 7.67, 7.81, 7.124–7.125, 7.127, 7.134, 7.135, 7.144, 7.148, 7.150 pharmaceutical sector 8.62, 8.97, 8.104, 8.117, 8.201, 8.270, 8.272 R&D agreements 5.30, 5.59, 5.67, 5.76, 5.78 standardized technology 9.32, 9.38, 9.55, 9.67, 9.68, 9.98, 9.100–9.101, 9.132, 9.140, 9.155 subcontracting 5.140 technology licences outside TTBER 4.11, 4.18, 4.21, 4.33 Technology Transfer Block Exemption (TTBER) and Guidelines 3.48, 3.103–3.104, 3.122, 3.125, 3.132–3.133, 3.134, 3.138, 3.166, 3.173, 3.178, 3.189, 3.192 vertical agreements and analogous arrangements 5.09, 5.19, 5.20 trade effects, IP licensing and Article 101 TFEU see IP licensing and Article 101 TFEU, competition restriction effect, trade effects trademark competition and IP law interface 1.100, 1.103, 1.105–1.106 dominance and abuse and Article 102 TFEU 6.17, 6.235 IP licensing and and restrictive clauses see IP licensing and Article 101 TFEU, restrictive clauses, trademark licences vertical agreements and analogous arrangements 5.13, 5.17–5.18 see also copyright; patents ‘trailing edge’ products 6.200–6.201 transaction cost reduction, technology licences outside TTBER 4.13 ‘transaction value’ threshold, mergers 7.31–7.34 transfer of FRAND, standardized technology 9.54–9.55, 9.59 transparency dominance and abuse and Article 102 TFEU 6.241, 6.246 pharmaceutical sector, Article 102 TFEU 8.256, 8.263, 8.264, 8.269, 8.272 standardization agreements 5.128, 5.132 technology licences outside TTBER 4.29, 4.30

507

INDEX TTBER see Technology Transfer Block Exemption (TTBER) and Guidelines turnover thresholds, mergers 7.27–7.38 tying dominance and abuse and Article 102 TFEU 6.182–6.193 dominance and abuse and Article 102 TFEU, case law development 6.142–6.170, 6.172, 6.177 IP licensing see IP licensing and Article 101 TFEU, restrictive clauses, tying and bundling UK, Competition and Markets Authority (CMA) 1.25, 7.78, 7.79–7.81, 8.133 unfair licensing and Article 102 TFEU see dominance and abuse and Article 102 TFEU, unfair licences dominance and abuse and Article 102 TFEU 6.194–6.206 standardized technology 9.52 standardized technology, injunctions 9.73–9.158 unilateral conduct competition and IP law interface 1.36, 1.39 dominance and abuse and Article 102 TFEU 6.24–6.25, 6.47, 6.83, 6.96, 6.174, 9.24–9.25 IP licensing and Article 101 TFEU 2.06, 2.12–2.13 mergers 7.04, 7.120 pharmaceutical sector 8.54, 8.110 standardization agreements 5.84, 5.108 technology licences outside TTBER, settlement agreements 4.33–4.34 Union Dimension Concentrations, mergers 7.06, 7.27 up-front payments, pharmaceutical sector and Article 101 TFEU 8.73, 8.79 US antitrust regime and over-intervention 6.32, 6.33 essential facilities doctrine 6.98 IP licensing and Article 101 TFEU, post-patent-expiry royalties 2.278–2.281

value assessment dominance and abuse and Article 102 TFEU, excessive pricing (royalties) 6.208–6.211, 6.215–6.217 pharmaceutical sector and Article 101 TFEU, licensing following research phase, royalty payments 8.70, 8.72–8.75, 8.84 standardization agreements, FRAND commitment 5.112 value transfer pharmaceutical sector and Article 101 TFEU, generic entry 8.119 pharmaceutical sector, patent infringement by generic entrant 8.183–8.185, 8.208 vertical agreements and analogous arrangements 5.02–5.21 and Article 101 TFEU 5.14, 5.16, 5.19 copyright protected works 5.14, 5.16 effectiveness considerations 5.06, 5.08 franchising arrangements 5.06, 5.09, 5.17–5.20 and hardcore or excluded restrictions 5.11 IPR provisions 5.06–5.12 knowhow licensing 5.17–5.18 mergers, substantive test 7.62–7.82 resellers 5.02, 5.14, 5.15–5.16 ‘shrink wrap’ licences 5.15 software licences 5.15–5.16 subcontracting arrangements 5.10 technology transfer agreements comparison 5.03, 5.05, 5.14 third party involvement 5.09, 5.19, 5.20 trademarks 5.13, 5.17–5.18 use or sale (including resale) of contract goods or services 5.06, 5.09 Vertical Agreements Block Exemption (VABE) 5.03–5.06, 5.08–5.11, 5.14, 5.16, 5.18–5.19 Vertical Agreements Block Exemption (VABE) 2.113, 5.03–5.06, 5.08–5.11, 5.14, 5.16, 5.18–5.19 see also block exemptions Vestager, M 1.27, 1.67, 1.72, 6.40, 7.36, 7.77, 8.208 vexatious or abusive litigation, dominance and abuse and Article 102 TFEU, unfair licences 6.202–6.203

508

INDEX vexatious trademark oppositions, dominance and abuse and Article 102 TFEU, IP system abuse 6.232, 6.235, 6.239 Weinert, L 7.08, 7.120 Whish, R 2.98, 5.03, 5.25, 7.08 willingness to act, standardized technology, injunctions 9.100–9.101, 9.121, 9.137, 9.140

withdrawal of benefit of block exemption, Technology Transfer Block Exemption (TTBER) and Guidelines 3.48–3.50 see also block exemptions withholding information dominance and abuse and Article 102 TFEU 6.143 pharmaceutical sector, Article 102 TFEU, abuse 8.300–8.301 see also information

509