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The Microsoft Decision: A new chapter in the ongoing saga of compulsory licensing of IP rights in the EU J. Anthony Chavez Univation Technologies, LLC.

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Presentation on theme: "The Microsoft Decision: A new chapter in the ongoing saga of compulsory licensing of IP rights in the EU J. Anthony Chavez Univation Technologies, LLC."— Presentation transcript:

1 The Microsoft Decision: A new chapter in the ongoing saga of compulsory licensing of IP rights in the EU J. Anthony Chavez Univation Technologies, LLC April 1, 2004

2 2 Microsoft Decision F Microsoft violated EU law by leveraging its near monopoly position in the market for PC operating systems (OS) onto the market for group server operating systems and for media players. F Microsoft abused its market power by deliberately restricting interoperability between Windows PCs and non-Microsoft work group servers, and by tying its Windows Media Player with its Windows operating system.

3 3 Microsoft Decision F Remedies on inoperability and tying F Monitoring Trustee to ensure that: –interface disclosures are complete and accurate –the two versions of Windows are equivalent in terms of performance.

4 4 Interoperability Remedy F Requires Microsoft to: –disclose within 120 days interface documentation, including server-to-server protocols –update with each version of its products. F Not obligated to disclose the Windows source code. F Subject to reasonable remuneration to the extent that information is protected by Microsofts IP. F Designed to enable rival vendors to develop products that can compete on a level playing field.

5 5 Tying Remedy F Requires Microsoft within 90 days to offer to PC manufacturers a version of its Windows operating system without Windows Media Player –also referred to as the code removal remedy

6 6 Microsofts Position F Commission is ordering the broadest compulsory licensing of IP rights since the European Community was founded. F The order with respect to interoperability amounts to a broad compulsory license of Microsofts copyrights, patent rights and trade-secret rights.

7 7 Microsofts Position F The code removal remedy amounts to: –a compulsory license of the Windows trademark and –a broad compulsory license of Microsofts copyrights u Microsofts copyrights provide it with the exclusive right to create adaptations.

8 8 Microsofts Position The order violates the EUs obligations pursuant to its membership in the WTO and its obligations respect the WTO's agreement on Trade Related Aspects of Intellectual Property Rights. u In IMS, the Commission found that its interim decision was fully compatible with TRIPS.

9 9 Commissions Position F The legal underpinnings not in any way novel. F Both parts are based on a consistent pattern of Court jurisprudence. –Interoperability u Commercial Solvents u Télémarketing u Magill –Tying u Hilti (Discussed by Aryeh) u Tetra Pak (Discussed by Aryeh)

10 10 Background F Complaint lodged to the Commission and/or a request by a national court of the Member States for a preliminary ruling from the ECJ under Article 234. F If there a Commission decision, then –Appeal to the Court of First Instance (created in 1989). u 15 members, 3 member panels –Appeal to European Court of Justice u 15 members, 3 member panels F Key decisions on IP balance the broad scope of Article 82 EC with Article 295 EC, which provides that the Treaty "shall in no way prejudice the rules … governing the system of property ownership." F Often the process is long and drawn-out.

11 11 Commercial Solvents, Cases 6/73 and 7/73, [1974] ECR 223 F Italian customer was advised that a raw material used in the manufacture of ethambutol would no longer be sold. F US defendant and its Italian affiliate wanted to use the raw material to manufacture ethambutol in Italy. F Customer filed a complaint with the Commission contending that refusal to supply was an abuse of a dominant position.

12 12 Commercial Solvents F ECJ held that a firm –with a dominant position in the market in raw materials and which, –with the object of reserving such raw material for manufacturing its own derivatives, –refuses to supply a customer, which is itself a manufacturer of these derivatives, and –therefore risks eliminating all competition on the part of this customer, F is abusing its dominant position.

13 13 Télémarketing, Case 311/84, [1985] E.C.R. 3261 F CBEM sought to enjoin the operator of a TV station and its subsidiary from refusing to sell it television time …for telephone marketing operations using a telephone number other than that of the operators subsidiary. F CBEM alleged that the practice was an abuse of a dominant position. F Belgium court requested for a preliminary ruling from the ECJ.

14 14 Télémarketing F ECJ held that there is an abuse of a dominant position where, –without any objective necessity, –an undertaking holding a dominant position on a particular market –reserves to itself or to an undertaking belonging to the same group an ancillary activity which might be carried out by another undertaking as part of its activities on a neighbouring but separate market, –with the possibility of eliminating all competition from such undertaking.

15 15 Volvo v. Veng, Case 238/87 [1988] ECR I-6211 F Veng imported auto body panels into the UK. F Volvo sought to enjoin importation and marketing. F Veng contended that Volvos refusal to license was an abuse of a dominant position. F The English Court sought a preliminary ruling from the ECJ.

16 16 Volvo v. Veng F ECJ reasoned that –"the right... to prevent third parties from manufacturing and selling or importing... products incorporating the design constitutes the very subject-matter of his exclusive right. –an obligation to license third parties would deprive the owner from the substance of this right, and held – a refusal to grant such a licence cannot in itself constitute an abuse of a dominant position."

17 17 Volvo v. Veng F ECJ also noted: –the exercise of an exclusive right... may be prohibited... if it involves... certain abusive conduct 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...

18 18 Magil Cases C-241-242/91P [1995] ECR I-743 F TV broadcasters refused to license copyrights in program listings to Magil TV Guide Ltd. F Each broadcasters published weekly guides for its programs. F Magil published a comprehensive weekly guide in 1986. F Copyright infringement lawsuits in Ireland and England. –copyrights upheld F Magil lodged complaint with the Commission alleging that refusal to license constituted an abuse of a dominant position and in 1988 Commission compelled a license. F Broadcasters sought to annul the Commissions decision.

19 19 Magil F Decision upheld by CFI (1991) and ECJ (1995). F ECJ held that "...the exercise of an exclusive right by the proprietor may, in exceptional circumstances, involve abusive conduct. F ECJ found that the refusal to license had prevented the appearance of a new product, a comprehensive weekly guide to television programs, and that there was no justification in either market.

20 20 Tierce Ladbroke v. Commission, Case T-504/93 [1997] ECR II-923 F Belgium betting establishment sought access to broadcasts of French horse races. F Relief rejected by Commission and CFI. F CFI held that the refusal to supply must concern a product or service which was either essential for the exercise of the activity in question..., or was a new product whose introduction might be prevented...

21 21 Bronner v. Mediaprint, Case C-7/97 [1998] ECR I-7791 F Publisher of a daily newspaper sought to compel home-delivery service in Austria by another publisher of a daily newspaper. F ECJ noted that there were other ways of distributing daily newspapers and found no basis for relief. F Court held that abuse of a dominant position required that: –the refusal eliminate all competition on the part of the person requesting the service, –such refusal be incapable of being objectively justified, and –the service be indispensable to that person's business. F Decision did not involve intellectual property.

22 22 NDC Health Corp. v. IMS Health Inc., Case C-481-01P(R)1 [2002] ECR 3193 F In Germany, pharmaceutical sales information is aggregated and provided to pharmaceutical companies. F IMS provides a regional sales-data service based on a brick structure known as the 1,860 brick structure. F October 12, 2000 judgement in Frankfurt District Court that IMS enjoyed copyright protection under German copyright law. F October 26, 2000, NDC requested a license from IMS, which was refused. F October 27, 2000 preliminary injunction issued by Frankfurt District Court. (subsequently suspended pending preliminary ruling from ECJ on Article 82 EC).

23 23 NDC v. IMS F Dec. 18, 2000, NDC lodged a complaint with the Commission alleging that IMS's refusal to license constituted an abuse of a dominant position. F July 3, 2001 Commission decision imposed interim protective measures requiring IMS to license its competitors. F Decision found exceptional circumstances –the brick structure had become a defacto industry standard, –refusal to license is likely to eliminate all competition in the relevant market. –use of the structure is indispensable to carrying on business in the relevant market, –refusal to grant licenses was not objectively justified, –refusal constituted an abuse of the dominant position.

24 24 NDC v. IMS F Commission found that likelihood of irreparable harm to the public and balance of hardships justified interim measures. –Damage which could no longer be remedied by the decision to be adopted upon the conclusion of the administrative procedure. F Measures suspended by President of the CFI. –serious dispute on the correctness of the fundamental legal conclusion underpinning the Commissions decision and balance of interests favored suspending the execution of the decision before the main action. F President of the ECJ rejected an appeal. F Frankfurt District Court requested a preliminary ruling from ECJ. F August 13, 2003, Commission withdrew its interim measures decision.

25 25 NDC v. IMS F In July 2001, Frankfurt District Court requested a preliminary ruling from ECJ. F October 2, 2003 opinion by the Advocate General proposed a new standard: no objective justifications for the refusal and use of the intangible asset is essential for operating on a secondary market with the consequence that such refusal …would ultimately eliminate all competition on that market. –Provided that use does not merely duplicate goods or services already offered on the secondary market. F On the nature of the secondary market: sufficient that it is possible to identify a market in upstream inputs, even where the market is a potential one only.

26 26 Back-up

27 27 Focus of Presentation F EU Precedent on Compulsory Licensing F –Commercial Solvents –Télémarketing –Volvo v. Veng –Magill –Tierce Ladbroke v. Commission –Bronner v. Mediaprint –NDC/IMS –Intel v. Via

28 28 Competition Law / Intellectual Property Interface F Key decisions balance the broad scope of Article 82 EC with Article 295 EC. F Article 295 EC provides that the Treaty "shall in no way prejudice the rules in Member States governing the system of property ownership."

29 29 Broad Scope of Article 82 F Any abuse by one or more undertakings of a dominant position... shall be prohibited as incompatible with the common market... F Such abuse may, in particular, consist in: –(a)... imposing... unfair trading conditions; –(b) limiting production, markets or technical development...; –(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; –(d) making... 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.

30 30 Intel v. Via F Sept. 2001 two patent infringement actions against Via relating to x86 CPUs and compatible chipsets. F The decision notes that between 1998-2000 Intel had 80% of the sales of x86 CPUs and 75% of the chipsets. F Prior licenses and litigation between the parties. F Via alleged that Intel offered a new license that was limited to chipsets compatible to Pentium IV CPUs and required Via to grant Intel broad patent rights. F Via disputed the validity of the patents, infringement and raised defenses under Articles 81 and 82 and UK Competition Act.

31 31 Intel v. Via F Via contended that refusal to license was abusive: –part of plan to withdraw from marketing certain products and force consumers to adopt a new more expensive technology, –Intels patent rights relate to an industry standard, –competitors cannot otherwise access the x86 processor market, and –the exercise of those rights unjustifiably prevents the marketing by Via of a unique product.

32 32 Intel v. Via F Trial Court granted summary judgement for Intel rejecting the defenses. F After noting the ingredients of computer technology, patent infringement and Articles 81 and 82 EC Treaty make a somewhat indigestible dish, the English Court of Appeal reversed. F Court of Appeals rejected contention that Magil and IMS state the only circumstances of what constitutes exceptional circumstances under Article 82 and noted that it was arguable that the ECJ will assimilate its jurisprudence...more closely with that of the essential facilities doctrine applied in the United States.

33 33 Intel v. Via F Court of Appeals held that Via had real prospects of success on two separate grounds –Intel's refusal to grant a patent license was an abuse of its dominant position under Article 82; –Intel's infringement claim was an unlawful attempt to compel Via to enter into a cross-license contrary to Article 81(1). F Reference to ECJ cannot be made until determination of whether patents are valid and infringed. F Intel did not appeal to the House of Lords.

34 34 Intel v. Via F Whether (and if so, when) the owner of an intellectual property right who is in a dominant position for the purposes of Article 82 is obliged not to exercise that right so as to exclude others from the market or a substantial part of the market. F Whether the owner of an intellectual property right (whether dominant or not) may lawfully exercise his right to license it on terms which either distort competition or are wider than necessary to define the extent to which his exclusive right has been surrendered. Whether it is a defense to an action for infringement of a patent that its enforcement would enable the owner of the patent to act in breach of Articles 81 or 82.

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