1. © A. Kur Old Topic, New Concerns? – The Control of Secondary Markets by Asserting IP Rights Annette Kur, MPI Munich

2. © A. Kur What are we talking about? Imagine a technically highly sophisticated device (e.g. a computer tomograph used for diagnostic purposes in a hospital) whose maintenance and repair are very costly The manufacturer of the device will have an interest to exclude others from competing on the secondary market for maintenance and repair services Several strategies can be used (possibly cumulatively) in order to secure exclusivity, in particular –contractual ties –invoking of IP rights, e.g. in computer programs steering and monitoring the technical interface This presentation deals with strategies of the second type only

3. © A. Kur Relevance of the issue The impact of companies asserting control over secondary markets is a familiar topic of the economic and legal (antitrust) debate The discussion regularly involves the IP/competition law interface; see the following remarks on previous ECJ jurisprudence As the means developed to control market interfaces become more sophisticated, the debate may gain new momentum in the high tech era Typical examples are diagnosis software and exchange parts such as printer cartouches (the “Lexmark“ problem) Similar problems may accrue in the patent/biotech area (complementary patents for herbicide/genetically protected plants; T-GURTs)

4. © A. Kur If there‘s a problem – where‘s the solution? The economic debate (particularly in the USA) seems to be split about the positive/negative effects of secondary market control From a European, pro-competitive point of view, control of secondary markets is regularly considered to pose a problem under primary EU law The following routes can be considered for a solution –application of the competition rules, Art. 82 EC –specific “internal“ limitations of IP rights –regulatory measures within the relevant technical field Of these, application of competition rules is the most problematic one

5. © A. Kur The IP/competition interface in the light of ECJ jurisprudence, I Repeated attempts have been undertaken in the past to restrain the market power conferred by IP rights through application of competition law, albeit with very limited success The general rule is that to deny licensing as such cannot be labelled “abuse“, even when the proprietor holds a dominant position (Volvo/Veng) An adverse result can only ensue in presence of additional factors (Magill) These factors must apply cumulatively (IMS Health). In particular, they require that by denying access to protected subject matter, the offering of a new product, for which substantial consumer demand exists, is rendered impossible.

6. © A. Kur The IP/competition interface in the light of ECJ jurisprudence, II The criteria established in IMS Health have been criticised as unclear and overly restrictive The argument has been made that the IMS Health criteria should be simplified and streamlined so as to allow competition law to interfere –when access to the protected subject matter is indispensable for competition on the relevant market, and –when this will not distort the aim of dynamic competition However, this might arguably give rise to a constitutional problem (division of power): A competition agency interfering with conduct that is simply invoking the exclusivity inherent in an IP right that was validly acquired under pertinent law would seem to disrespect a decision which was made by, and lies in the sole competence of, the legislature.

7. © A. Kur A preferable solution: designing and applying IP laws properly, I In view of the problems connected with application of competition law, the solution should preferably be sought within IP law proper It is symptomatic that problems with free competition typically accrue where the right is “weak“, or the gounds for protection are doubtful anyhow One solution might therefore be to deny protection where problems might ensue (see e.g. the American Lexmark-case) The solution might work where protection is claimed for purely informational data (e.g. process monitoring protocols generated by diagnosis software) However, it cannot be applied where European law has established a unitary, low threshold (e.g. for software)

8. © A. Kur A preferable solution: designing and applying IP laws properly, II Where it is not possible to modulate the threshold for protection, specific limitations may be needed to encompass competition interests One prominent example for that legal technique is the ‘repairs clause‘ proposed by the Commission with regard to design protection of spare parts However, the example also shows that limitations of that kind – i.e. access to protected subject matter motivated by competition policy reasons – tend to be the object of fierce political debates and resistance by those who want to keep IP protection “pure“ There is even an international edge to this: the three- step test in Art. 26.2 TRIPS has been invoked against the proposed repairs clause

9. © A. Kur A preferable solution: designing and applying IP laws properly, III In the software directive, the problems addressed here were taken into account at least to some extent The mandatory limitation in favour of reverse engineering (Art. 6) allows for the development of interoperable software In addition, protected software may be used (copied) for the purpose of error correction (Art. 5), either by the authorized user or by a third party authorized by him However, the existing limitations may not be sufficient, and are not completely water-tight, e.g. in case of (partial) abrogation In addition, TPMs might pose a problem (though not very likely in Europe) In case of enhanced problems, clarification or reinforcement of limitations may be needed

10. © A. Kur Alternative solution: Technical specifications A different type of solution has been implemented in directive 2002/26/EC on waste electrical and electronic equipment (WEEE): Manufacturers of such equipment shall not prevent, through specific design features or manufacturing processes, that electronic waste is re- used Although the clause primarily aims to protect the environment, it is also efficiently barring attempts to lock up the products concerned – which include copy machines and laser printers - against supply of exchangeable parts by third parties

11. © A. Kur Conclusion There is no “perfect solution“ for the issue considered here, but the area is certainly one where awareness and constant monitoring are required