COMPETITION LAW

RECONCILING COMPETITION AND INTELLECTUAL PROPERTY LAW

THE ROLE OF COMPETITION LAW IN REGULATING
INTELLECTUAL PROPERTY RIGHTS

Submitted to

Submitted by:

Mr Shouvik Chatterjee

Bal Krishna Tripathi - 357

Faculty, Law
National Law University

Kunal Gokhale - 366

Rahul Bhandari 374
Sameer S. Raichur- 381

INTRODUCTION
Competition policy and intellectual property rights (IPRs) have evolved
historically as two separate systems of law. Each has its own legislative goals and each
its own methods of achieving those goals. There is a considerable overlap in the goals of
the two systems of law because both are aimed at promoting innovation and economic
growth.1 Yet there are also potential conflicts owing to the means used by each system to
promote those goals. IP laws generally offer a right of exclusive use and exploitation to
provide a reward to the innovator, to provide an incentive to other innovators and to
bring into the public domain innovative information that might otherwise remain trade
secrets. Competition authorities regulate near monopolies, mergers and commercial
agreements with the aim of maintaining effective competition in markets. This regulation
occasionally results in limits being placed on the free exercise of the exclusive rights
granted by IP laws.2
In recent decades, competition authorities and courts have prohibited conduct by
intellectual property owners which was otherwise lawful under intellectual property
rights legislation, because it contravened the rules of competition law. This has occurred
in four main spheres of activity of IP owners. First, cases have been brought by the
competition authorities in the USA, the EU and Japan to place limits on the
anticompetitive commercial conduct of individual owners of IPRs where they protect a
market standard or de facto monopoly. 3 The competition issue presented in these cases
has generally been the IP owners exclusionary conduct towards innovators and potential
competitors on markets which are secondary to and dependent upon an IPR protected
industrial standard or de facto monopoly. The anticompetitive conduct has tended to take
the form of a refusal to deal, refusal to license, refusal to provide proprietorial
software interface codes, or a tie-in or illegal bundling, but the act is prohibited
because it is viewed as an attempt to lever the IP reinforced market power in the
primary market into exclusionary conduct in the secondary market. Secondly, the
1

http://www.angelfire.com/folk/jerry/mydocu/IPRComp.htm
http://www.springerlink.com/content/v56003865388l37r/
3
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=594522
2

competition authorities in the USA, the EU and Japan have created a detailed framework
of regulation for certain terms of bilateral IPR licensing agreements, whether by means
of official guidelines or legislation. Thirdly, the practices of collecting societies, R&D
agreements and patent and technology pools have raised the issue of the appropriate
treatment of cooperation between competitors in IP related fields under the competition
rules. Finally, in the field of mergers and acquisitions, the owners of intellectual property
rights have found that competition authorities have intervened on occasion to limit IPR
owners from acquiring competing technologies4 as well as to require compulsory
licences of IPRs to third parties as a condition of merger approval.
As modern commercial practices involving the use of intellectual property rights
have encountered these forms of second tier regulation by competition authorities,
concerns have been raised about the nature of the accommodation between the two
systems of law. First, to what extent and on what basis do the competition authorities and
the courts have authority to limit the exercise of intellectual property rights in these
ways? If IPRs are granted by laws which have their own elaborate system of checks and
balances, why is it necessary for competition law to add a second layer of legal
regulation to the exercise of IPRs? It appears as if the competition authorities in a
number of jurisdictions take the view that their role is a form of public law regulation
while the exercise of an IPR is essentially the exercise of a private property right.
Certainly, in the USA and the EU, the competition authorities have at times described
IPRs as essentially comparable to any other form of private property for the purposes
of the competition rules.5 To what extent do legislation and judicial decisions support the
competition authorities in that view?
Secondly, despite the use of this description, when competition law is actually
applied to the exercise of IPRs, in these same jurisdictions, concessions are often
consciously made within the competition rules to the unique nature of intellectual
property rights: to their legislative and, in the USA, 6 their constitutional basis as well as
to their contributory role in the process of innovation. Indeed, the compatibility between
the aims of the two systems tends to ensure that the normal exercise of the prerogatives
4

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52004DC0293:EN:NOT
http://www.usdoj.gov/atr/public/speeches/9848.htm
6
http://www.law.northwestern.edu/journals/njtip/v7/n2/njtipv7n2.pdf
5

of intellectual property rights is consistent with the competition rules. The competition
rules applied to IPRs, either explicitly or implicitly, almost inevitably acknowledge a
form of comity between the two systems of law. Yet, the forms of comity developed
within the competition rules in different legal system have tended to differ from system
to system.
A third issue raised by the emergence of an extra layer of regulation of IPRs by
the competition authorities is to what extent could and should the various IPR laws
themselves, the patent, copyright, and design rights laws be reformed in order to reduce
the extent of the external regulatory role now played by competition law. 7 To what
extent does the experience of interface cases suggest that the IP laws can enhance the
nature and degree of comity by embarking upon a process of internal reform? Some
issues of reform that have been considered are: (i) the optimum width and duration of
patent and copyright protection; (ii) the issue whether industrial copyright laws should
provide for compulsory licensing where innovation is improperly obstructed by IP
owners along lines similar to patents; (iii) the extent to which industrial copyright such
as software programs and databases should be subject to interoperability obligations
under IP law; and (iv) the extent to which IP laws can and should acknowledge when the
IPR itself creates a monopoly and place limits on the scope of the IP protection. 8
Underlying these enquiries is perhaps the largest policy issue of all: what is the most
appropriate relationship between competition policy and IPRs in a growing industrial
economy?
If we look at the major legal systems with extensive experience of the
coexistence of the two fields of law, the EU, the USA and Japan, we can see
considerable variation in their chosen forms of accommodation. The major legal systems
have generally accepted that there are cases where the market maintenance concerns of
competition law can prevail over the exercise of IPRs associated with substantial market
power. However, the nature of this accommodation varies considerably with each
system; both in terms of method and where the line is drawn.9 Moreover, the experience
7

http://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1339992_code110134.pdf?
abstractid=1339346&mirid=1
8
http://www.againstmonopoly.org/index.php?chunk=&limit=\
9
http://www.oecd.org/dataoecd/44/28/41165822.pdf.

of these countries makes it plain that the true extent of variation cannot be appreciated by
a cursory examination. To see it clearly and accurately requires a look in some depth.
For example, in Japan, at first sight its competition law gives an extensive legislative
immunity to intellectual property rights; the Japanese Antimonopoly Act exempts
intellectual property rights from the scope of its application. Yet, on closer examination,
the provision has not been interpreted as an overall exemption to all exercises of
intellectual property rights but can be limited in cases of private monopolisation or
undue restraint of trade
In the EU and US, in contrast, there are no explicit legislative immunities in the
competition rules of Articles 81 and 82 of the European Treaty or Sections 1 and 2 of the
Sherman Act. Instead, the general competition rules in both legal systems have been
given judicial and administrative interpretations that result in their application to the
exercise of IPRs in extreme cases. Both systems have created wide general norms of
competition law which if not modified can apply to limit the exercise of IPRs. Yet, on
closer examination, the application of the general competition rules in the US and the EU
has resulted in the evolution of judicial and administrative doctrines which apply special
rules and even self-denying ordinances acknowledging to a considerable extent the sui
generis nature of IPRs, their constitutional foundations in the USA and their legislative
foundations in the EU.10 Sometimes these forms of comity are given expression in
special rules explicitly designated for IPRs. One example is offered by the exceptional
circumstances test devised by the European Court of Justice when applying Article 82
to an issue of abusive refusal to licence by an IP owner. More often, there are powerful
partial immunities or safe havens built into the logic of the general competition rules
when they are applied to the acts of the conduct of the IP owner. Often this is the logical
outcome of the two systems of law pursuing similar aims. For example, both US and EU
competition law make it clear that if a company grows by internal investment in R&D
and IPRs to a position of significant market power that is perfectly lawful under the
competition rules. Moreover, if the owners of IPRs wish to charge high prices for their
successful products protected by IPRs, the risks of investment ex ante will be respected
by the competition rules in each legal system albeit in different ways. The normal
10

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1398845

exercise of IPRs is by judicial doctrine viewed as lawful under the competition rules but
each system has its own line where the exercise of an intellectual property right is not
viewed as normal under the competition rules.11

OBJECTIVE
In this paper, the researchers will make an attempt to study the interaction between
intellectual property rights and competition law by focusing on the manner in which the
former is restricted and regulated in light of the latter. For this purpose, the researchers
will rely primarily on a study of the EC competition law and US Antitrust law. The
creation of a common market arching over separate domestic jurisdictions of individual
member states in the EC is distinct from the US legal regime that deals with a single
jurisdiction, and so, the two will be dealt with separately. In relation to the EC
competition law, the researchers will focus on the application of Articles 81 and 82 in
matters of intellectual property and the manner in which the municipal courts and the
European Court of Justice (ECJ) have interpreted the provisions to restrict certain
practices of IP rights holders as anti-competitive. The researchers will deal with the issue
of licensing agreements as an integral aspect of intellectual property rights and the
manner in which such agreements have been analysed by the courts and the tests
developed to indicate the validity of the same. Also, the researchers will look at the
development and use of the essential facilities doctrine in relation to intellectual
property, especially in relation to the concept of abuse of dominant power as contained
in Article 82. While studying the US legal regime, reliance will be placed on the
Sherman Act, 1 and 2 that prohibit contracts in unreasonable restraint of trade or acts
of monopolization where either the interstate or foreign commerce of the US is involved.
The researchers will also briefly deal with 337 of the Tariff Act of 1930 in view of its
relevance to competition in intellectual property and the 1995 guidelines 12 as providing a
basis for the interface between intellectual property rights and antitrust laws. In
11

http://www.clasf.org/CompLRev/Issues/Vol1Issue2Article1.pdf.
The 1995 Antitrust Guidelines for the Licensing of Intellectual Property, issued by the US Department
of Justice and Federal Trade Commission, stresses on the fact that for the purpose of antitrust analysis,
intellectual property should be regarded as essentially comparable to any other form of property. See
Elhavge, E. & Geradin, D., Global Competition Law & Economics, Hart Publishing, 2007, pp 201.
12

conclusion, the researchers will look at the provisions of the Monopolies and Restrictive
Trade Practices Act, 1969 and the Competition Act, 2002 that are relevant to the
regulation of intellectual property rights and the manner in which the principles and
theories developed in the EC and US jurisdiction may be applied in the Indian legal
regime.
COMPATIBILITY BETWEEN THE TWO SYSTEMS OF LEGAL REGULATION

Even without a legislative immunity for IPRs, the case law interpreting the competition
legislation in the countries studied demonstrates that the competition rules create certain
self-denying ordinances to ensure that there is an extensive reconciliation between the
two systems of legal regulation. This is entirely to be expected since, within each legal
system, the different means used by intellectual property rights legislation and
competition law operate in many ways in conjunction rather than in conflict with each
other. IP laws, such as patent and copyright laws, confer an exclusive right to exploit an
invention or creation commercially for a limited period as an incentive to creation and
innovation. These rights are essentially negative rights; they prevent copying of the
protected innovations.13 They do not ensure profitability but if the IPR is combined with
a successful product, the legal exclusivity provides a stimulus to innovation by acting
both as a reward to the inventor/creator and as an incentive to innovation more generally.
In the case of patents, without the protection of exclusivity, firms may choose to keep
their innovative ideas secret as opposed to disclosing them in their patent claims. This
stimulus to the spread of information is also a stimulus to innovation resulting in new
products and processes entering existing markets and creating new markets. In these
ways, intellectual property rights can actually enhance the forces of competition.
Moreover, each IP law, as well as competition policy, strikes its own balance between
protecting early innovators and protecting the claims of follow on innovators. IP laws,
such as patent and copyright laws, strike an internal balance between the rewards for

13

http://www.iprcommission.org/papers/word/govt_response/govt_response.doc.

the improvements on earlier invention by later innovators, and the rewards to early
innovators for the technological foundation they provide to later innovators.14
As Merges and Nelson have pointed out: Ultimately it is important to bear in mind that
every potential inventor is also a potential infringer. Thus a strengthening of property
rights will not always increase incentives to invent; it may do so for some pioneers, but
it will also greatly increase an improvers chances of becoming enmeshed in
litigation.15
In copyright, the idea/expression dichotomy operates to ensure that copyright contributes
to common knowledge while protecting the originator or creator from copying the
expression of his or her work. In other words, IP laws usually attempt to strike a balance
between providing sufficient incentives to innovation by the creator/inventor and
avoiding the protection of any single innovation operating as a disincentive to
cumulative follow on innovation.
At the same time, the basic doctrines of modern competition law work in conjunction
with IP laws by acknowledging their positive role in the process of innovation in at least
five major respects. 16

First and foremost, both the US and the EU competition laws accept that the
achievement of an economic monopoly by means of investment R&D and
intellectual property rights is a legitimate course of conduct for a firm, a form of
competition on the merits.

Secondly, and relatedly, both EU competition law and US antitrust law

acknowledge that the pricing of IPRs, even by dominant firms, must include a
return which adequately reflects the reward/incentive function of IPRs as well as
the ex ante investment risks of their owners.

14

http://www.essex.ac.uk/economics/discussion-papers/papers-text/dp581.pdf.
http://www.iprcommission.org/papers/word/final_report/chapter6wordfinal.doc.
16
http://www.iprcommission.org/papers/text/conferences/day_2.txt
15

Thirdly, the competition laws in both systems in most cases give recognition to
the right of IPR owners to prevent copying even if the exercise of this right
denies access to markets to competitors.

Fourthly, the competition laws in both systems no longer automatically assume

that the legal monopoly conferred by IP laws, such as patent and copyright
legislation, automatically amounts to an economic monopoly or even confers
market power. That issue is left to be established empirically.

Finally, in their analysis of IP licensing agreements both systems of competition

policy work with the presumption that the licensing of IPRs is in general procompetitive in its effects.

Nevertheless, modern competition policy, does act in reserve to prevent the excesses of
private property owners in order to maintain effective competition on, and access to,
markets,17 operating as a second tier of regulation of intellectual property rights.
It is also worth noting that the Agreement on Trade Related Intellectual Property Rights
(TRIPS) spells out at various points that there is a role for competition policy to
supplement the intellectual property rights policy of the Treaty. In formal terms, it does
not require such laws. It permits them. For example, Article 8 (2) TRIPS states that
Appropriate measures, provided they are consistent with the provisions of this
Agreement, may be needed to prevent the abuse of intellectual property rights by right
holders Article 8 also makes it clear that in principle Member States may enact
legislation to prevent practices by the right holder that adversely affect the international
transfer of technology. Moreover, in Article 40, the TRIPS agreement specifies the types
of licensing practices or conditions relating to intellectual property rights which restrain
competition and impede the transfer and dissemination of technology including
exclusive grant-back conditions, coercive package licensing and clauses preventing
challenges to the validity of the IPR. Nevertheless, as this note and the following studies

17

http://www.oecd.org/dataoecd/9/22/43067294.pdf.

will show, it is wise not to have a system of IPR legislation which is unaccompanied by
a system of competition law.18
INTELLECTUAL PROPERTY LAW AND COMPETITION LAW EU PERSPECTIVE
With regards to the European Union, the interface between IP law and
competition law is best understood by a study of the provisions of the EC Treaty that
seek to restrict the rights conferred upon an IP holder, in the interests of free trade and
fair competition in the market. There are essentially three such categories of provisions:
(a) Article 81 of the EC Treaty that is applicable to anti-competitive agreements, (b)
Article 82 of the Treaty that deals with the issue of abuse of dominant position, and (c)
provisions relating to the free movement of goods with the common market of the EU.
ARTICLE 81 ANTI-COMPETITIVE AGREEMENTS
Article 81 of the EC Treaty seeks to prohibit anti-competitive agreements and
in the context of IP law, this refers to licensing or assignment agreements that fall within
the criteria specified by the provision.19 It is interesting to note that the concept of
licensing and assignment are quite different in IP law. While the former refers only to an
18

http://www.patentoffice.nic.in/research_studies/mohanty_report_oct_mar_2008.pdf.
Article 81 of the Treaty states: 1. The following shall be prohibited as incompatible with the common
market: all agreements between undertakings, decisions by associations of undertakings and concerted
practices which may affect trade between Member States and which have as their object or effect the
prevention, restriction or distortion of competition within the common market, and in particular those
which:
(a) directly or indirectly fix purchase or selling prices or any other trading conditions;
(b) limit or control production, markets, technical development, or investment;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them
at a competitive disadvantage;
(e) make 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.
2. Any agreements or decisions prohibited pursuant to this article shall be automatically void.
3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:
- any agreement or category of agreements between undertakings,
- any decision or category of decisions by associations of undertakings,
- any concerted practice or category of concerted practices,
which contributes to improving the production or distribution of goods or to promoting technical or
economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:
(a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of
these objectives;
(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of
the products in question.
19

10

agreement for the transfer of certain interests arising out of the rights held by the IP
owner, the latter is an agreement for the transfer of such rights in entirety. Therefore, in a
licensing agreement the IP owner retains his rights and transfers only the interests, while
in assignment the right itself is transferred. However, this distinction is of no importance
in competition law, since both licensing and assignment agreements are treated in a
similar manner and are subject to the same tests as laid down in article 81.
Licensing agreements usually contain certain standard provisions and clauses that
relate to the manner and extent to which rights (or interests) are being transferred by the
IP holder to the licensee. These clauses would address the issue of (a) territoriality, i.e.,
the territories in which the licensee can exercise his right under the agreement, (b)
exclusivity, granting the licensee exclusive rights (even against the IP holder) to exploit
the intellectual property in question, (c) quantum of royalty to be paid to the IP holder,
(d) non-competition clause, (e) no-challenge clause, etc. Previously, the Commission
would more often than not, allow the various terms of IP licensing agreements and
would rarely deem any such provision to be invalid or anti-competitive since it was
believed that the IP licensing agreement was essentially an extension of the exclusive
rights of the IP holder and thus, valid in law. 20 However, the landmark case of Consten
and Grundig v. Commission21, marked a perceptible change as the assignment of
trademark and an exclusive distribution agreement between a German producer and a
French distributor, that was sought to be relied upon by the distributor to block imports
from Germany into France, was held to be invalid as per Article 81 and not within the
scope of protection in Article 81.3.22
One of the most important cases on the issue of applicability of Article 81 to IP licensing
agreements, is LC Nungesser KG and Kurt Eisele v. Commission23 (popularly known as
the Maize Seed Case). This case dealt with the grant of an exclusive license to
20

In the 1960s, the Commission had stated that certain limiting terms in IP licensing agreements would
nonetheless be valid and not fall within Article 81 of the Treaty. This view was articulated in the so-called
Christmas Notice. See Colston C., Middleton K., Modern Intellectual Property Law, Routledge
Cavendish, 2005, pp 85 available at http://books.google.co.in/books?id=4yyNCkV6MvAC.
21
[1966] 1 CMLR 418
22
In this case, Grundig, a German manufacturer of electrical goods appointed Consten as its exclusive
distributor in France and also assigned the GINT trademark to Consten to support its exclusivity in France.
The ECJ, agreeing with the Commission, held that the assignment was distortive of competition as it
conferred absolute territorial protection upon the distributor enabling it to prevent parallel imports in the
Community. See note 8.
23
[1983] 1 CMLR 278.

11

commercially exploit a modified variety of maize seed. The licensee, Eisele, was a
German resident and he sought to enforce his right in the German Courts to block
parallel imports. The ECJ in this case, created a unique distinction between open and
closed licenses. Closed licenses were defined by the courts as the agreements that not
only grant exclusive marketing rights to the licensee but also seek to restrict third
parties, by prohibiting them from distributing the product in that territory. Therefore,
closed licenses according to the court were violative of Article 81. Open licenses
however, only confer rights upon the licensee and do not restrict third party rights, and
are therefore, allowed by the law.24 The researchers would like to point out that the
understanding of closed and open licenses as presented by the ECJ in this case is
flawed in as much that an exclusive license would necessarily be a closed license as it
would always restrict third parties from exploiting the product in the territory in which
licensee is granted exclusive rights. Thus, the application of this principle would mean
that an exclusive license would always be in violation of Article 81. However, the
Commission and the ECJ have subsequently applied this principle in a number of cases
as they move towards a more restrictive reading of IP licensing terms in light of
competition law requirements. In the case of Velcro SA v. Aplix SA25, it was held that if
the licensing agreements relates to a technology that is not novel, then even an open
license would not be valid. Also, in Tetra Pak v. Commission26 the court ruled that the
Maize Seed doctrine would not be applicable when a dominant undertaking takes over an
important technology. Thus, a greater stress on competition meant that there was a
resultant stifling of the freedom of IPR protection.
While these cases focused primarily on the restrictive territoriality clauses in the
IP licensing agreements, the landmark case of Windsurfing International v.
Commission27, brought attention to the fact that even non-territorial restraints in the
licensing agreement may be held to be invalid and anti-competitive. In this case, a US
company that developed windsurfing equipment had given granted a number of licenses
in relation to its patents in Germany. The Commission while deliberating upon the scope
24

See Furse, M., Competition Law of the EC & UK, 6th Edition, Oxford University Press, 2008, pp 439,
440.
25
[1989] 4 CMLR 157
26
[1990] ECR II-309
27
[1986] 3 CMLR 489

12

of the patent claim, held that various restrictive clauses in the licensing agreement such
as the requirement to fit the rigs only to the boards approved by the licensor, not sell the
rigs individually but sell them as part of the entire equipment, not challenge the validity
of the IP licensed, were violative of Article 81 of the Treaty. 28
It is important to note that there have been exceptions created for certain classes
of agreements in the EU, such as, Technology Transfer Agreements. There exist specific
regulations that deal with such agreements and the general provisions of Article 81 do
not apply in respect of these agreements. One such regulation is the Block Exemption
Regulation 772/2004 that creates exceptions for agreements relating to transfer of
technology. The reason for creating these special regulations was identified in the
regulation itself, as necessary to improve economic efficiency and be pre-competitive. 29
By virtue of Article 4 of the Regulation, the licensor may make restrictions in the
agreement based on the type of use of the product and also impose territorial restrictions
to a certain extent. Thus, these clauses, which would otherwise be invalid, are granted
validity by the regulation. However, in instances where the regulation does not apply, the
general provisions of the Treaty would prevail.
It is also important to note that different forms of Intellectual Property often merit
different degrees of protection in terns of the validity of licensing agreements with
regard to competition law. In the Campari decision30, the Commission distinguished
between the application of Article 81 to licensing agreements for trademarks and patents
by stating: Although a non-competitive clause in a licensing agreement concerning
industrial property rights, based on the result of a creative activity would constitute a
barrier to technical and economic progress, this is not the case with the licensing
agreements being considered here (i.e., trademark licensing agreements).

31

Further, in

the Coditel Case32, it was held that absolute territorial protection in cases of licensing of
performances would not be a violation of Article 81, since the subject matter of a
performance right is the right to profit from it each time it is shown.
28

See Furse, M., Competition Law of the EC & UK, 6th Edition, Oxford University Press, 2008, pp 439,
440.
29
See Recital (5) of the Regulation.
30
(1978) OJ L70/69
31
See Furse, M., Competition Law of the EC & UK, 6th Edition, Oxford University Press, 2008, pp 441.
32
[1981] 2 CMLR 362

13

ARTICLE 82 ABUSE OF DOMINANT POSITION

As has been stated earlier, competition law does not seek to prohibit any
undertaking from attaining a dominant position but rather aims at preventing any abuse
of such dominant position.33 There are primarily five ingredients to Article 82 of the EC
Treaty: (a) there must be abuse of some form, (b) by one or more undertaking, (c) in a
dominant position, (d) within the common market or a substantial part of it, (e) the abuse
must actually or potentially affect trade between the member states. Article 82 lists
certain examples of what may constitute an abuse, and although refusal to deal does not
feature within the examples, it has been held in a number of cases such as the
Commercial Solvents Corp. v. Commission34 and United Brands v. Commission35, that
refusal to deal falls within the scope of article 82.36 Refusal to deal may either be a
refusal to supply in cases of actual physical property or refusal to license, in cases of
intellectual property. In this paper, the researchers will focus on the latter aspect of
refusal to deal.
The observations of the Commission in relation to the application of Article 82 can be
best illustrated by a study of the case series dealing with the same. Through the course of
these cases the Commission has tried to lay down certain guidelines to establish
circumstances when a refusal to license would amount to an abuse under article 82. First
in the line of cases, are the Volvo Case37 and the Renault Case38. Both these cases dealt
with essentially the same fact situation, where Volvo and Renault had design rights on
33

Article 82 states: Any abuse by one or more undertakings of a dominant position within the common
market or in a substantial part of it shall be prohibited as incompatible with the common 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 other 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.
34
[1974] ECR 223
35
[1978] ECR 207
36
See Abuse of Dominant Position & IPR, Estelle Derclaye in Competition, Regulation & the New
Economy, ed. Cosmo Graham, Fiona Smith, Hart Publications, Oxford, 2004, pp- 56-57
37
AB Volvo v. Erik Weng (UK) Ltd. [1988] ECR 6211
38
[1988] ECR 6039

14

certain car body panels, and refused to license the same to independent repairers. The
court referred to the case of Parke Davis v. Probel39, to state that mere exercise of an IP
right would not under normal circumstances constitute and abuse under article 82. Thus,
there would have to be present certain exceptional circumstances when the exercise of
the right would amount to an abuse.40 Next came the case of Magill41. In this case, the
individual radio and television broadcasters had copyright over their own program
schedules and refused to license the same to Magill, who wanted to publish a
comprehensive weekly guide, spanning all broadcasting stations. The Commission for
the first time identified certain conditions when a refusal to license would become an
abuse; (a) when there is prevention of the appearance of a new product which the IPR
holder did not offer and for which there was potential consumer demand, (b) the refusal
is not justified, and (c) the IPR holder reserves for himself a secondary market. On the
basis of these tests, the Commission went on to conclude that the refusal to license the
broadcast listings was indeed an abuse under article 82. Subsequently, in Ladbroke42
when the French societies that held copyright over pictures of horse races, refused to
license them to a Belgian Bookmaker, for rebroadcast, the Court elaborated upon the
Magill test but came to a different result. This case sowed the seeds for the introduction
of the Essential Facilities Doctrine as it stated that refusal to license would lead to an
abuse when such refusal was in relation to a product or service for which there was no
actual or potential substitute. Later in the case of Oscar Bronner v. Mediaprint43, the
Commission held that the refusal to supply distribution services was not an abuse on the
basis of a tripartite test, namely, (a) the refusal to supply must lead to the elimination of
all competition in the market, (b) the refusal cannot be objectively justified, (c) the
service is such that there exists not actual or potential substitute for the same. Thus, the
essential facilities doctrine was adopted more wholly in this instance. The next case

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[1968] ECR 55
In this case, the court did not specify the nature of such exceptional circumstances but gave certain
examples of the same, such as, refusal to supply spare parts to repairers, fixing prices of spare parts at
unreasonably high levels. The refusal to license design rights was not deemed to be an abuse under article
82.
41
RTE and Independent Television Productions v. Commission cases C 241 and 242/91P [1995] 4 CMLR
418
42
Tierce Ladbroke v. Commission [1997] ECR II-923
43
[1998] ECR 7791
40

15

flowing directly from the Bronner test is IMS Health Inc. v. Commission44. In this case,
IMS Health (IMS) provided services of data collection pertaining to pharmaceutical
sales and prescriptions. In pursuance of its business, it created an 1860 brick structure,
which segmented Germany into sales blocks. The purpose of the brick structure was to
partition zones or bricks that divide Germany into the maximum number of geographical
units that permit data collection without the ability to match the data to a specific
pharmacy, as this would contravene German data protection rules. The 1860 brick
structure soon developed into a de facto industry standard and came to be widely used by
German pharmaceutical companies to analyze sales trends, measure market shares, and
gauge the performance of sales representatives. IMS claimed copyright over its brick
structure and successfully brought actions before German courts against competitors
using the structure. During the course of these national proceedings, one competitor,
NDC Health (NDC), complained to the Commission and alleged that IMSs refusal to
license the brick structure amounted to an abuse under Article 82. The Commission
applied the three-step test that had been laid down in the Bronner judgment and found in
favor of NDC and imposed a compulsory license on IMS. On appeal however, the Court
of First Instance, overruled the decision of the Commission. The CFI held that the only
other case where compulsory license had been issued was the Magill case and in the
opinion of the CFI, the facts of the IMS case were different from that of Magill and so
the compulsory license should not be granted. Thus, the court sought to establish that the
standard of exceptional circumstances to constitute abuse was very high and should
remain so.
Finally, one of the most recent cases dealing with the issue at hand is the case of
Microsoft Corporations v. Commission45. Here, the issue was Microsofts refusal to
provide certain codes necessary for interoperability information to its competitors, who
claimed that the withholding of such codes by Microsoft amounted to excluding
competitors in the market for developing server systems compatible with Microsoft
operating systems. The Commission overrode objections raised by Microsoft and ruled
that such codes should be made available to other players. Indeed, the court also argued
that the disclosure of protocols and not source codes would not infringe any IP rights of
44
45

[2002] 4 CMLR 2
[2005] 4 CMLR 18

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Microsoft and any financial damage that they suffered would not be of much
significance in view of their market strength. Thus, while the series of cases discussed
above seek to stress on the importance of protecting the rights of the IP holder, by
maintaining a high threshold of exceptional circumstances when exercise of such rights
would be an abuse under article 82; this case, in certain respects is a step in a backward
direction as it seeks to curb IP holder rights to a greater extent than is necessary.

INTELLECTUAL PROPERTY LAW AND ANTITRUST US PERSPECTIVE

The fundamental premise of US Antitrust laws is present in 1 and 2 of the
Sherman Act. 1 seeks to prohibit every contract, combination or conspiracy in
restraint of trade and 2 is aimed at the prohibition of monopolies or attempt at
monopolies. As has already been discussed in this paper, the grant of IP rights does not
necessarily translate into a monopoly and so 2 of the Sherman Act would not be
violated by the exercise of such rights by the IP holder under normal circumstances.
Such rights would also include the right to license the IPR.
As early as 1926, in the case United States v. General Electric 46, the US Supreme
Court upheld the right of the IP owner to license his rights and even recognized the
validity of certain restrictive clauses in the licensing agreement. In this case, General
Electric had patent over the making, using and vending of modern electric bulbs using
tungsten filaments and had licensed the right of making such bulbs to certain licensees.
However, in the licensing agreement GE had sought to enforce provisions for limiting
the sale and price of the bulbs by the licensees. The court justified the agreement on the
grounds that the patentee has a right to make a profit from his invention and could thus
lawfully restrict the sales of the licensees in order to himself, sell the products at a
greater profit. Therefore, in this case the court opted for a very broad view of the IP right
in its relation to antitrust practices.47
However, subsequently, the opinion of the court started changing, as it did in the
EC; primarily in relation to restrictive licensing agreements and patent pooling
agreements. The courts started functioning on the premise that because the policy of free
46

272 US 476 (1926)

See Elhavge, E. & Geradin, D., Global Competition Law & Economics, Hart Publishing, 2007, pp 193,
194.
47

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and open competition embodied in the Sherman Act is a powerful one, once the owner
decides to transfer a part of his rights to the property, may of the antitrust rules
applicable to other agreements will come into play. 48 In United States v. New Wrinkle49,
the court ruled against price-fixing mechanisms in patent pooling agreements. Here, two
manufacturers of wrinkle finish enamels combined to form a new entity (New Wrinkle)
and assigned several patents to the new entity. The agreement also specified the
minimum prices at which the products would be sold. The court held the agreement to be
in violation of the Sherman Act both in purpose and in result. Previously in the case of
United States v. Line Material50, the court had struck down a cross-licensing agreement
between two firms for granting each other royalty free licenses, but which sought to fix
the resale price of the products sold to the other licensees. Differentiating the case from
the GE decision, the court had held that while cross-licensing agreements were not per se
invalid, the inclusion of the price fixing provision rendered it unlawful. Thus, the court
came to the conclusion that while the GE decision remains valid it does not apply to
situations where a group of patentees act in concert to fix the price to their advantage.51
Through the 1970s the US courts and agencies followed a strict position of
disallowing restrictive licensing agreements, categorizing them as anticompetitive in
design and effect. The policy led to the formulation of the nine no-nos of patent
licensing, which were the nine types of restrictions that would normally be challenged as
per se violative of the Sherman Act. However, with time this position changed as it
became apparent that the purposes of antitrust law and intellectual property law, were
indeed, consistent. In 1995, the Department of Justice and the Federal Trade
Commission jointly issued the Antitrust Guidelines for the Licensing of Intellectual
Property (commonly known as IP Guidelines) that dealt with the antitrust aspects of IP
licensing agreements. These guidelines reflect the position of the law in the US and have
been used in number of instances to resolves disputes in this issue.
48

See Joelson, M., An International Antitrust Primer, 3rd Edition, Kluwer International Law, 2006, pp
182.
49
342 US 371 (1952)
50
333 US 287 (1948). Also see United States v. United States Gypsum Co. 333 US 364 (1948). In this case,
the court invalidated a licensing agreement in which the defendant had incorporated price fixing
restrictions.
51
See Hovenkamp H., etc, IP and Antitrust: An Analysis of Antitrust Principles Applied to Intellectual
Property Law, Aspen Publishers Online available at http://books.google.co.in/books?id=camWcufG5z4C

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Preliminarily, these guidelines state that the Department will approve the
delineation of relevant market and the measurement of market share in the
intellectual property area in the same way that it treats such questions under Section
1 of the 1992 Horizontal Merger Guidelines. When complicating factors preclude the
delineation of a relevant market in which the licensed technology competes, the
Department may focus its attention on effects in the associated goods markets both
downstream and upstream. The guidelines also define the horizontal and vertical
aspect of licenses involving intellectual property. A licensing arrangement has a
horizontal component if it involves the acquisition of rights to technologies that are
economic substitutes for the technologies that the licensee owns or controls. When a
licensing arrangement affects the activities that are in a complementary relationship,
the license arrangement has a vertical component. Some examples given by the
guidelines for a vertical relationship are when the licensee and licensor stand in a
buyer-seller relationship or operate at different levels of the chain of production and
distribution. According to the guidelines, there are three types of licensing
arrangements that may raise antitrust concerns and therefore might be viewed as
restraints on competition. They include the restriction on collateral or competing
goods or technologies, contractual provisions that penalize licensees for dealing with
suppliers of substitute technologies, and acquisitions of intellectual property that
lessen competition in a relevant antitrust market. The guidelines delineate three
views that the Department will take when analyzing a licensing restraint. In addition
to the time tested per se and rule of reason analyses, the Department has created a
Safety Zone. Among the restraints that have been held per se unlawful are naked
price-fixing, output restraints, and market division among horizontal competitors, as
well as, certain group boycotts and resale price maintenance. If there is no
efficiency-producing integration of economic activity and the restraint is one that
is usually scrutinized with per se treatment, the Department will challenge the
restraint under the per se rule. Otherwise, licensing arrangements will be afforded the
rule of reason analysis. Under the rule of reason analysis, the Department states
that it will first inquire as to whether the restraint has an anti-competitive effect and,
if so, whether the restraint is reasonably necessary to achieve pro-competitive

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benefits that outweigh those anti-competitive effects. The guidelines also create a
safety zone stating that the Department will not challenge a restraint in a licensing
agreement if (a) the restraint is not of a type that normally warrants condemnation
under the per se rule and (b) the licensor and its licensees collectively account for no
more than 20% of each relevant market affected by the restraint.52
CONCLUSION
In India, there exists barely any jurisprudence on the relationship between
competition and IP law. 15 of the MRTP Act 1969 that talks about the restriction of the
application of orders made under the Act, excludes patents from its scope but does not
specify about other IPRs. 3 (5) of the Competition Act 2002 grants the power to
impose reasonable conditions for protecting the rights of the IP holder. However, there
have been no case laws in India that have sought to apply, explain or indeed, expand the
scope of these minimalist provisions. It would appear therefore, that in the event of a
dispute the courts would have to rely on the principles developed in the EC and US
jurisprudence.

52

See Elhavge, E. & Geradin, D., Global Competition Law & Economics, Hart Publishing, 2007, pp 200203. Also see http://library.findlaw.com/1999/Aug/1/128019.html

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