Handout 9

Seminar 9 (7 December) Intellectual Property and Competition Law

 This session is designed to explore two themes. The first is one of the principal issues when antitrust and IP meet, which is the role of innovation. IP Laws are designed, in part, to facilitate innovation and to offer rewards so as to allow investment. The question is often raised that competition law undercuts (or risks undercutting) this objective.  The first set of readings consider this debate.  The second issue is a more marginal one, and relates to the link with broadcasting markets, where we look at the recent Murphy judgment of the ECJ. This raises issues about the role of intellectual property rights in the internal market.

 Reading (one from each section)

 Antitrust/innovation

 Drexl ‘Anticompetitive Stumbling Stones on the Way to a Cleaner World: Protecting Competition in Innovation Without a Market’ (2012) 8(3) Journal of Competition law and Economics 507

 Ezrachi and Maggiolino ‘European Competition Law, Compulsory Licensing and Innovation’(2012) 8(3) Journal of Competition Law and Economics 595

 Wu ‘Taking Innovation Seriously: Antitrust Enforcement if Innovation Mattered Most’ (2012) 78 Antitrust law Journal 313

 On the Murphy case

 Joined Cases C-403/08 and C-429/08 Football Association Premier League and Others v QC Leisure and Others (4 October 2011)

 Janssen ‘Copyright Licensing Revisited’ (2012) 13 German Law Journal 124

 Kaburakis, Lindholm, and Rodenberg, British Pubs, Decoder Cards, and the Future of Intellectual Property Licensing after Murphy (2011-2012) 18 Columbia Journal of European Law 307

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4 comments on “Handout 9

  1. Jotte says:

    I think the intersection between competition law and IP is most interesting when considering the question how competition law relates to innovation. Generally it is considered that risk takers that innovate deserve some protection against competition via intellectual property rights. On an individual company level such IPR’s will generally not cause competition law concerns but when it comes to industry wide arrangements such as patent pooling or standard setting, the effects on competition will be serious and potential anticompetitive effects can arise. The problem then, essentially is about the relation between competition law and uncertainty. Uncertainty here refers to the circumstance that it is very difficult to estimate future effects when talking about dynamic competition through innovation. In this situation the ‘traditional’ competition law tools and provisions are considered to be insufficiently able to identify and act on potential competitive harm in markets that yet have to develop (there is no market). Claims are sometimes made that an industry standard that is developed is inferior to some other standard and it is only by an accident of history (the first mover advantage) that a particular standard has come to dominate over the industry. Such claims have been made about the success of IBM over Apple mac computers and MS-DOS over other operating systems. In this sense early decisions and policies can have lasting irreversible effects. Once a product standard gains a critical size, network effects reinforce its dominance in the market. Drexl (2012) considers in his contribution that there is a particular role for competition law and competition law enforcers: that competition in innovation will lead to the selection of the best technology, that single firms will be prevented from achieving market dominance, and that access of all future market players to the standardized technology will be guaranteed. Hence, the envisaged role for competition law that is considered by Drexl in sectors where markets are yet to develop and industry wide standardization is at stake would seem to be one of ex ante regulation. However, the article of Drexl is puzzling because the solutions he then suggests are not of a regulatory nature but focus on a re-interpretation of the existing substantive provisions within the 101, 102 and merger control framework. Instead, I would think that the issues highlighted by Drexl should lead to an investigation into potential alternative approaches to the issue of dynamic innovation competition. Specifically with respect to the situation highlighted by Drexl, the search for alternative energy sources, it could be interesting to look at the commitment decision (art. 9 Modernisation Reg) as a relevant tool to use for these types of situations. It could provide the means to gather, at the same time, expertise of the parties, to design the collaboration in a way which minimizes competition concerns and a continued monitoring mechanism to encourage the parties involved to adjust the arrangement in the least anticompetitive way possible (Svetiev 2012). In addition, I think it is important that in situations, where public concerns such as alternative energy sources, are at stake, there is also a role for the representative of the public (the state in most cases) involved in the deliberations. In this way the competition authority could develop into a platform for learning, where pubic and private actors meet to deliberate over the most efficient ways to achieve public goals.

  2. Argyri says:

    Antitrust/innovation:

    Drexl’s point is that competition at the innovation level needs a policy designed to look at the future and not current state of the market – which is very difficult and not what we have today. All the more he emphasizes the fact that ‘competition in innovation’ is actually happening without a market (or before the market). He looks at three areas of enforcement where focusing on the contemporary state of the market is not adequate to address/predict future market failures. The three areas are restrictive agreements, unilateral conduct and merger control. While identifying correctly that competition for future markets is what becomes more important in innovation and that innovation brings out non-price parameters in competition policy, I think that Drexl falls short in proposing a solution forward. I found his article interesting but quite descriptive. He stops in acknowledging that the right antitrust enforcement is very difficult in the dynamic setting of innovation competition. Last, what I found interesting is that he sees a possible contrast between consumer welfare defined by higher level of innovation versus lower prices (p. 526). I am not sure if one is certainly exclusive to the other.

    Ezrachi and Maggiolino focus on the effect that compulsory licensing might have to innovation. Compulsory licensing can be seen as a point of contrast between competition law enforcement and IP, as the first interferes to break up a right that the second has afforded. The authors describe EU’s approach as more widening of the application of competition law to intellectual property rights in contrast to the US “hands off” approach. While I understand the merits of the separation of powers rationale behind the US approach (p. 599) I do not necessarily agree with the solution of any of the two systems. To a point I think that the uneasiness is caused by the inefficiencies that strong IP protection causes in the first place. These inefficiencies competition law has then attempted to remedy with methods such as compulsory licensing, which might or might not be the correct response. In the first place, one can argue that the problem needs to be prevented at the level of legislation, indeed using consumer harm as the benchmark for intervention (p. 607).

    I really enjoyed Wu’s article and I buy his argumentation that:
    1. One of the main focuses of competition law must be making exclusion expensive so that the monopolist or oligopolist cannot substitute innovation with exclusion: this is a win-win outcome as both the monopolist/oligopolist have incentive to innovate further and the new entrant(s) have space to innovate.
    2. Oversight of innovation catalysts is key as in antitrust enforcement must focus on abusive behavior of successful platforms or standard-setting models. He also explains patent ambush as a challenge more or less as Drexl does.
    3. Timing becomes extremely relevant in innovation centered antitrust policy.

    If I generalize correctly, where I think that all above authors agree is that if innovation is to be the central objective, we need systematic effects-based competition policy.

    Antitrust/IP:

    If we accept that the two fields are intersecting because they should both aim at protecting and promoting innovation, we need to consider that they have the exact different approach or design to succeed in this goal: competition tries to protect innovation by controlling or preventing monopolies or oligopolies or in general high barriers to entry (e.g. via merger control), while intellectual property is designed to do so by granting monopoly rights. In that sense, competition law looks more at the new competitors/innovations and ideally tries to make sure that they have space in the market. In contrast, traditional IP thinks that granting monopoly rights to innovators is the necessary award, which also makes sure that innovation is adequately incentivized.

    I completely agree with Wu (p. 314) that this is a critical time to discuss the actual relationship between antitrust and innovation, but I would add that it is a critical time to discuss the actual relationship between current intellectual property rules and innovation as well (see for example Boldrin and Levine’s scholarship on whether and to what extent intellectual monopoly actually fosters innovation).

  3. Emma says:

    On the most basic level, there is a clash between competition and intellectual property protection. IP seeks to protect one ‘creator’ thereby granting a (time-limited) monopoly to exploit his or her creation. During this time, the IP holder can reap high profits and, particularly for patents, can slow the development of new products that may seek to integrate the patented creation. This can be seen as being at odds with competition law which promotes access to the market in order to increase consumer choice. However, these two areas definitely intersect, because both agree that innovation is welfare-enhancing, and so both share the common aim of promoting innovation. A major challenge is therefore aligning the ‘protection’ of IP with ‘competition’ so as to increase innovation.

    I liked Wu’s line of thinking that this could be achieved by increasing the incentives to innovate over exclusionary conduct (which hinders competition). A company holding IP has two options to improve his position on the market: he can either innovate, and make sure he is better than all other competitors, or exclude these competitors. From the perspective of the firm, these are interchangeable, both being ways to fend off competition and retain market share. However, from a policy perspective, an exclusionary tactic would certainly be worse for consumers. Wu argues that competition policy should therefore aim at making the exclusionary route less appealing to firms, so that they are inclined towards innovation. This does not seem so far-fetched, but would entail a shift in current antitrust enforcement, away from catching conduct such as price fixing ex-post to a more ex ante oversight.

    On a side note, I tend to agree with Posner (here: http://www.becker-posner-blog.com/2012/09/do-patent-and-copyright-law-restrict-competition-and-creativity-excessively-posner.html – see also the post by Prof Gary Becker) that certain innovators will create even without the (excessively?) high levels of protection offered at the moment.

    I also read the articles by Janssen and Kaburakis, Lindholm, and Rodenberg. From these, apart from technology/innovation and competition, I can see a theme of exclusion. In the Wu article, this is clearly exclusion in the competition sense – ie excluding competitors. From the Murphy case & related literature, I think we see the internal market perception of exclusion – exclusion of citizens of one MS from receiving services from another MS. In this sense, competition is intrinsically linked to opening up the internal market and so where services are restricted territorially by way of private contracts, this is challenged under competition law.

    I find the Murphy judgment very interesting and hope we can discuss it in the seminar. This not least because it deals with very real problems and could influence the way in which licensing agreements are made in future in other industries. I think the circumstances of the case could be transferred to digital music or books, but I would be interested to hear other views on this. In these industries also, there are territorial grants of rights and users of the services providing the digital content are required to comply with the terms of service of the content provider (iTunes, Amazon etc). These agreements contain clauses whereby the user undertakes not to access the store of one state when he/she is in another (i.e. if I am in Italy, I agree not to access the iTunes.co.uk store). Since I don’t have an Italian credit card, this effectively excludes me from purchasing music ‘legally’ since I am prohibited by the terms of the agreement from accessing my home store, and unable to set up an account without an Italian bank card (I will either use the ‘grey’ market, or worse, the ‘black’ market). The location of the user can be verified by the content provider on the basis of the user’s IP address. Recently, rumour has it that this contract term was actually followed through by Amazon. In that circumstance, a user had bought a Kindle using the Amazon.co.uk store, and had it shipped to a UK address and registered it on the .co.uk store since she lived in the UK at that time. She subsequently moved to Norway, but continued to buy digital books from the .co.uk store. Amazon closed her account and deleted all of her purchases, proving not least that you can’t ‘own’ digital content. The most popular theory for this was that she broke the residence clause of the Amazon ToS (other theories exist, such as that her Kindle was second hand, but that’s another story…). I therefore find such clauses, which are frequent, difficult to reconcile with the Murphy ruling. This highlights the bigger impact of IP protection, in the form of territorial grants of rights, on all digital content industries.

  4. Chloé says:

    Competition law and intellectual property law interacts in an interesting manner: in some circumstances, they constitute two conflicting fields of law whereas in other circumstances, they constitute two mutually supportive fields of law. Competition rules may indeed hinder the promotion and development of innovation. In order not to face the risks of competition law proceedings, undertakings may be deterred from investing to foster innovation and may be tempted to license their IPR instead of protecting their meritorious innovation. Vice versa, intellectual property may hinder the developments of competition in a given market. An IP holder could for example abuse of its IPR by excluding its competitors or by deterring potential competitors to enter the market. In the latter case, it is interesting to note that the limitations of IPR by competition rules could facilitate new entries or could avoid the exclusion of competitors from the market and hence could trigger innovation. In that regard, competition and intellectual property could be regarded as two complementary fields of law. Limitations of and control over the use of IPR by competition law can facilitate the creation of competitive markets and at the same time promote and foster innovation. As Ezrachi and Maggiolino interestingly put it, dominant undertakings subjected to ongoing competitive pressure and thus to ongoing risks of new entries “are likely to continually innovate in order to maintain their market position”. These two fields of law have therefore, inter alia, a common goal which is to promote and protect innovation and thus could be merely seen as two bodies of law reinforcing each other. However, “their competing attempts to foster innovation” (Ezrachi and Maggiolino) through for example, very different and sometimes conflicting methods, can lead to opposing results i.e. a reinforcement of one field and simultaneously, a weakening of the other.

    With regard to limitations by competition rules of IPR and control over its use, what I found very interesting is the uncertainty surrounding the legal and analytical framework built by the Commission and the Court of Justice. According to me, drawing a line between the anticompetitive results of innovation practices conducted by an undertaking or the use of IPR and uncompetitive results is a very difficult task to conduct since it is based on predictions and hypothesis i.e. the existence of potential competitors, the possible appearance of a new market etc. As Drexl explained, “…protecting competition in innovation is a very difficult task for competition law enforcers. Competition in innovation, by definition, is about the future. Hence, in the relevant cases, competition law enforcers will regularly have to make predictions on future and often uncertain developments”. In this respect, I think that the tests developed by the Commission and the Court of Justice regarding the use of IPR, are not very well-suited. The weakening following the Microsoft case of the indispensability test and the requirement of the elimination of all competition in the secondary market, leads to a lack of legal certainty as well as to a certain margin of error. In addition, the 2008 Guidance allows the Commission to measure consumer harm on blurry criteria. In particular, the possibility to base its finding on an undertaking’s intention “to produce new or improved goods or services for which there is potential consumer demand or is likely to contribute to technical development” represents a vague and subjective assessment.
    The distinction proposed by Ezrachi and Maggiolino in order to explore the possible chilling effect on innovation between the analysis of the effects of the condemnation of the refusal and the use of compulsory licensing as the remedy of choice, could be relevant. However, I don’t see how this could be done in practice since it requires an analysis a posteriori i.e. after a compulsory licensing has been imposed or after the undertaking being condemned.
    On the contrary, I agree with Argyri and Emma as regards Wu’s line of argumentation. The distinction between undertakings’ intention to conduct exclusionary practices and undertaking’s intention to innovate is very interesting. In this sense, it requires a modification of perspective: one must rather look at the dominant undertaking’s intention than at potential consumer harm or future exclusion of competitors.

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