1. Sted og dato (Indsæt --> Diasnummer) Dias 1 Navn på enhed (Indsæt --> Diasnummer) EU Commercial Law 2011 III.C. Trade in Rights: Tech.-trans agreements and Refusal to License Cases Professor Jens Schovsbo

2. Sted og dato (Indsæt --> Diasnummer) Dias 2 Navn på enhed (Indsæt --> Diasnummer) IPR and Competition Law Throughout history the relationship between IPR and competition law has been going up and down. This has mostly been because courts tended to focus on the means applied in the two systems: “Exclusivity” vs. “Free Market Entry”. It is now generally accepted that the two areas share the same goals of innovation and consumer welfare. This doesn’t mean that tensions cannot occur. But the aim in solving these is to “rebalance” the system not give one system priority over the other one. To competition law “competition” is normally not a goal in itself but a means for advancing consumer welfare. It is the belief that welfare is best secured by a market characterized by workable competition and a good balance between: Static efficiency (price) and Dynamic efficiency (innovation)

3. Sted og dato (Indsæt --> Diasnummer) Dias 3 Navn på enhed (Indsæt --> Diasnummer) International practices vary Often one makes a distinction between the “non-interventionist” U.S. system and the “interventionist” EU system In practice the picture is less clear As far as licensing agreements are concerned the two systems come quite close A major difference lies, however, in the Market Integration objective in EU law which makes the assessment of territorial restrictions very restrictive

4. Sted og dato (Indsæt --> Diasnummer) Dias 4 Navn på enhed (Indsæt --> Diasnummer) IPR and EU Competition law Market integration Inter and intra brand/technology competition Horizontal/vertical effects NB The competition rules in the TFEU only apply to agreements with an ”EU Dimension”. These are agreements which 1) meet the De Minimis Threshold (above 10 pct. for agreements between competitors or 15 % for non-competitors) and 2) are capable of affecting trade between Member States (this includes some agreements which only affect one Member State directly). To other (purely national agreements) the national (harmonized) competition laws apply.

5. Sted og dato (Indsæt --> Diasnummer) Dias 5 Navn på enhed (Indsæt --> Diasnummer) Technology Transfer agreements Licensing of technology is normally said to promote competition by: allowing innovators to earn returns to cover at least part of their research and development costs, leading to a dissemination of technologies, which may create value by reducing the production costs of the licensee or by enabling him to produce new or improved products, combining the licensor's technology with the assets and technologies of the licensee, promoting the coordinated development of technologies that are in a blocking relationship, and removing obstacles to the sale of the licensee’s product.

6. Sted og dato (Indsæt --> Diasnummer) Dias 6 Navn på enhed (Indsæt --> Diasnummer) Article 101 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: … SO: There’s no distinction between retrictions which are prohibited per se and those which are assessed under the “rule of reason”. It’s also woth noticing that the EU competition system is very much drivcen by the European Commissions and that courts (national and the ECJ) have less influence compared to in the U.S. (also no principle of “treble damages” apply).

7. Sted og dato (Indsæt --> Diasnummer) Dias 7 Navn på enhed (Indsæt --> Diasnummer) Article 101(3) 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.

8. Sted og dato (Indsæt --> Diasnummer) Dias 8 Navn på enhed (Indsæt --> Diasnummer) Article 101 and Tech.-Trans Agreements The Starting Point: Case 258/78, Nungesser 53 The first case concerns a so-called open exclusive license or assignment and the exclusivity of the licence relates solely to the contractual relationship between the owner of the right and the licensee, whereby the owner merely undertakes not to grant other licences in respect of the same territory and not to compete himself with the licensee on that territory. On the other hand, the second case involves an exclusive licence or assignment with absolute territorial protection, under which the parties to the contract propose, as regards the products and the territory in question, to eliminate all competition from third parties, such as parallel importers or licensees for other territories. So: “ Open exclusive licenses ” are normally not caught by Art. 81(1). Agreements with “ absolute territorial protection ” on the other hand are caught and are therefore only legal if exempted (which normally wouldn ’ t happen)

9. Sted og dato (Indsæt --> Diasnummer) Dias 9 Navn på enhed (Indsæt --> Diasnummer) Regulation 772/2004 Art. 1 (b) "technology transfer agreement" means a patent licensing agreement, a know-how licensing agreement, a software copyright licensing agreement or a mixed patent, know-how or software copyright licensing agreement, including any such agreement containing provisions which relate to the sale and purchase of products or which relate to the licensing of other intellectual property rights or the assignment of intellectual property rights, provided that those provisions do not constitute the primary object of the agreement and are directly related to the production of the contract products; assignments of patents, know-how, software copyright or a combination thereof where part of the risk associated with the exploitation of the technology remains with the assignor, in particular where the sum payable in consideration of the assignment is dependent on the turnover obtained by the assignee in respect of products produced with the assigned technology, the quantity of such products produced or the number of operations carried out employing the technology, shall also be deemed to be technology transfer agreements;

10. Sted og dato (Indsæt --> Diasnummer) Dias 10 Navn på enhed (Indsæt --> Diasnummer) Article 2: Exemption Pursuant to Article 101(3) of the Treaty and subject to the provisions of this Regulation, it is hereby declared that Article 101(1) of the Treaty shall not apply …

11. Sted og dato (Indsæt --> Diasnummer) Dias 11 Navn på enhed (Indsæt --> Diasnummer) Article 3 Market-share thresholds 1. Where the undertakings party to the agreement are competing undertakings, the exemption provided for in Article 2 shall apply on condition that the combined market share of the parties does not exceed 20 % on the affected relevant technology and product market. 2. Where the undertakings party to the agreement are not competing undertakings, the exemption provided for in Article 2 shall apply on condition that the market share of each of the parties does not exceed 30 % on the affected relevant technology and product market.

12. Sted og dato (Indsæt --> Diasnummer) Dias 12 Navn på enhed (Indsæt --> Diasnummer) “The Relevant Market” Necessary to determine market strength Both important to Article 101 and 102 Overall assessment aimed at finding out whether goods or technologies are inter-changeable (“substitutes”): Demand side substitution (consumers/users) Supply side substitution (producers) Price tests: To what extend does a change of the price of product/technology A affect the demand for product/technology B? Question: How does the presence of a patent affect this assessment/ How about a trade mark?

13. Sted og dato (Indsæt --> Diasnummer) Dias 13 Navn på enhed (Indsæt --> Diasnummer) Territorial restrictions and ”active” and ”passive” sales The question is: To what extend should parties to a license agreement be allowed to prevent the sale of products to customers outside their respective territories? We know from Nungesser that “absolute territorial protection” is not allowed. But in practice the position is more nuanced. An important distinction: “Passive” sales are sales where the licensee responds to requests from buyers from the territory of other licensees or the licensor. “Active” sales are sales where the buyer has done something actively to sell his products in other territories.

14. Sted og dato (Indsæt --> Diasnummer) Dias 14 Navn på enhed (Indsæt --> Diasnummer) Hardcore restrictions, Article 4 and ”active” and ”passive” sales 1. Where the undertakings party to the agreement are competing undertakings, the exemption provided for in Article 2 shall not 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: (c)(iv) the restriction, in a non-reciprocal agreement, of active and/or passive sales by the licensee and/or the licensor into the exclusive territory or to the exclusive customer group reserved for the other party, 2. Where the undertakings party to the agreement are not competing undertakings, the exemption provided for in Article 2 shall not 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: (b) the restriction of the territory into which, or of the customers to whom, the licensee may passively sell the contract products, except …: SO

15. Sted og dato (Indsæt --> Diasnummer) Dias 15 Navn på enhed (Indsæt --> Diasnummer) Summing Up Tech.-trans agreements are normally permissible (often, however, because they are exempted from the prohibition in Article 101(1)) Agreements which provides for “absolute territorial protection” are not allowed (and exemptions cannot be expected) and Parallel Importation cannot be blocked completely Question: How does this add up with principle of Regional Exhaustion?

16. Sted og dato (Indsæt --> Diasnummer) Dias 16 Navn på enhed (Indsæt --> Diasnummer) Refusal to License Cases: The question whether or not the holder of IPR who has market power can unilaterally refuse to licence its IPR lies at the heart of the tension between IPR and competition law. A broad application of competition law to force right holders to licence could be said to basically require them to give up exactly what the IPR legislation has allowed them to do: Exclude. However: When looked upon from the common goals perspective the question is rather: How do one make sure that the IPR protection is working also in situations where the right holder has market power.

17. Sted og dato (Indsæt --> Diasnummer) Dias 17 Navn på enhed (Indsæt --> Diasnummer) Article 102 of the TFEU 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 insofar 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. “ Dominance ” and “ misuse ”.

18. Sted og dato (Indsæt --> Diasnummer) Dias 18 Navn på enhed (Indsæt --> Diasnummer) “ Dominance ” and “ misuse ” 27/76, United Brands: Dominance 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, its customers and ultimately of the consumers ”. Normally a market share of around 40 pct. Which has been held for some time is considered to be “ dominant ” NB: Article 82 does not outlaw a company from becoming big. It ’ s only the abuse of market power which is prohibited.

19. Sted og dato (Indsæt --> Diasnummer) Dias 19 Navn på enhed (Indsæt --> Diasnummer) The Indispensability Test Courts may impose on right holders an obligation to licence IPR which are “indispensable” for carrying on a particular business provided that the following three cumulative conditions are satisfied: 1) the refusal is preventing the emergence of a new product for which there is a potential consumer demand, 2) the refusal is unjustified, and 3) the refusal is such as to exclude any competition on a secondary market. Developed in Magill and IMS.

20. Sted og dato (Indsæt --> Diasnummer) Dias 20 Navn på enhed (Indsæt --> Diasnummer) “Exceptional circumstances” T-201/04 Microsoft 691... the Community judicature considers that the fact that the holder of an intellectual property right can exploit that right solely for his own benefit constitutes the very substance of his exclusive right. Accordingly, a simple refusal, even on the part of an undertaking in a dominant position, to grant a licence to a third party cannot in itself constitute an abuse of a dominant position within the meaning of Article 82 EC. It is only when it is accompanied by exceptional circumstances... that such a refusal can be characterised as abusive and that, accordingly, it is permissible, in the public interest in maintaining effective competition on the market, to encroach upon the exclusive right of the holder of the intellectual property right by requiring him to grant licences to third parties seeking to enter or remain on that market....

21. Sted og dato (Indsæt --> Diasnummer) Dias 21 Navn på enhed (Indsæt --> Diasnummer) Joined cases C-241 and 242/91 P, Magill 7 At the material time, no comprehensive weekly television guide was available on the market in Ireland or in Northern Ireland. Each television station published a television guide covering exclusively its own programmes and claimed, under Irish and United Kingdom legislation, copyright protection for its own weekly programme listings in order to prevent their reproduction by third parties. 8 9 ITP, RTE and BBC practised the following policy with regard to the dissemination of programme listings. They provided their programme schedules free of charge, on request, to daily and periodical newspapers … 10 Magill TV Guide Ltd ("Magill") attempted to publish a comprehensive weekly television guide but was prevented from doing so by the appellants and the BBC, which obtained injunctions prohibiting publication of weekly television listings.

22. Sted og dato (Indsæt --> Diasnummer) Dias 22 Navn på enhed (Indsæt --> Diasnummer) Joined cases C-241 and 242/91 P, Magill 52 among the circumstances taken into account by the court of first instance in concluding that such conduct was abusive was, first, the fact that there was, according to the findings of the court of first instance, no actual or potential substitute for a weekly television guide offering information on the programmes for the week ahead. 55 second, there was no justification for such refusal either in the activity of television broadcasting or in that of publishing television magazines. 56 third, and finally, as the court of first instance also held, the appellants, by their conduct, reserved to themselves the secondary market of weekly television guides by excluding all competition on that market (see the judgment in joined cases 6/73 and 7/73 commercial solvents v commission [1974] ecr 223, paragraph 25) since they denied access to the basic information which is the raw material indispensable for the compilation of such a guide. 57 in the light of all those circumstances, the court of first instance did not err in law in holding that the appellants' conduct was an abuse of a dominant position within the meaning of article 86 of the treaty.

23. Sted og dato (Indsæt --> Diasnummer) Dias 23 Navn på enhed (Indsæt --> Diasnummer) Case 418/01, IMS Health 4 IMS provides data on regional sales of pharmaceutical products in Germany to pharmaceutical laboratories formatted according to the brick structure. Since January 2000, it has provided studies based on a brick structure consisting of 1 860 bricks. 7 After leaving his post in 1998, a former manager of IMS created Pharma Intranet Information AG (‘PII’), whose activity also consisted in marketing regional data on pharmaceutical products in Germany formatted on the basis of brick structures. At first, PII tried to market structures consisting of 2 201 bricks. On account of reticence manifested by potential clients, who were accustomed to structures consisting of 1 860 or 2 847 bricks, it decided to use structures of 1 860 or 3 000 bricks, very similar to those used by IMS.

24. Sted og dato (Indsæt --> Diasnummer) Dias 24 Navn på enhed (Indsæt --> Diasnummer) Case 418/01, IMS Health 52 Accordingly, the answer to the first question must be that the refusal by an undertaking which holds a dominant position and owns an intellectual property right in a brick structure indispensable to the presentation of regional sales data on pharmaceutical products in a Member State to grant a licence to use that structure to another undertaking which also wishes to provide such data in the same Member State, constitutes an abuse of a dominant position within the meaning of Article 82 EC where the following conditions are fulfilled: – the undertaking which requested the licence intends to offer, on the market for the supply of the data in question, new products or services not offered by the owner of the intellectual property right and for which there is a potential consumer demand; – the refusal is not justified by objective considerations; – the refusal is such as to reserve to the owner of the intellectual property right the market for the supply of data on sales of pharmaceutical products in the Member State concerned by eliminating all competition on that market.

25. Sted og dato (Indsæt --> Diasnummer) Dias 25 Navn på enhed (Indsæt --> Diasnummer) Summing Up on Article 102 The EC-treaty does not affect the existence of national IPR but may limit the ways these rights are being exercised.

26. Sted og dato (Indsæt --> Diasnummer) Dias 26 Navn på enhed (Indsæt --> Diasnummer) Overall conclusion on competition law and IPR To companies who are entering into IPR licensing agreements in the EU the competition rules are often very important Agreements aimed at partitioning the Internal Market are generally prohibited: Long Live the Parallel Importer! Companies holding very strong market positions should also beware of competition law

27. Sted og dato (Indsæt --> Diasnummer) Dias 27 Navn på enhed (Indsæt --> Diasnummer) Thank you for your attention! Feel free to contact me at: jens.schovsbo@jur.ku.dk