Beyond refusal to deal: a cross-atlantic view of copyright, competition, and innovation policies

• Author: Ariel Katz and Paul-Erik Veel
• Position: Respectively, Associate Professor, Innovation Chair Electronic Commerce, Faculty of Law, University of Toronto; and Adjunct Professor, Faculty of Law, University of Toronto
• Pages: 139-184

BEYOND REFUSAL TO DEAL: A CROSS-ATLANTIC

VIEW OF COPYRIGHT, COMPETITION, AND

INNOVATION POLICIES

A

RIEL

K

ATZ

P

AUL

-E

RIK

V

EEL

*

Commentators have long perceived a tension between antitrust law and in-

tellectual property (IP) law. Even if the two bodies of law pursue the same

long-term goals, such as innovation and consumer welfare,

1

their methods and

immediate aims appear at times to conflict. Broadly speaking, IP law aims to

create limited, legally sanctioned, zones of exclusivity; by providing innova-

tors with supracompetitive returns for their innovations ex post, it seeks to

encourage them to research and develop those innovations ex ante.

2

By con-

trast, antitrust law aims to facilitate the operation of competitive markets by

putting checks on firms possessing market power; it thereby seeks to ensure

that these firms do not use their market power to exclude rivals and stifle

competition. While both legal regimes may be directed toward a common end,

careful calibration of legal doctrine is necessary to ensure that neither re-

gime’s proximate purpose overwhelms that common end.

* Respectively, Associate Professor, Innovation Chair Electronic Commerce, Faculty of Law,

University of Toronto; and Adjunct Professor, Faculty of Law, University of Toronto.

1

For example, Marina Lao has observed:

Much has changed in the last twenty years in the antitrust approach to intellectual

property. Prior to the 1980s, the predominant view of the antitrust and intellectual

property laws was that they conflict because the former protects competition while the

latter permits monopoly. Courts and academics alike considered intellectual property

rights as exceptions to the antitrust law that must be narrowly construed. The notion

that the two bodies of law are diametrically opposed has since given way to the per-

spective that they are complementary, not conflicting, because they share the common

goal of promoting innovation and maximizing consumer welfare.

Marina Lao, Unilateral Refusals to Sell or License Intellectual Property and the Antitrust Duty to

Deal, 9 C

ORNELL

J.L. & P

UB

. P

OL

’

Y

193, 193 (1999).

2

We use the terms “zones of exclusivity” and “supracompetitive returns” rather than “mo-

nopolies” and “market power” to avoid the confusion and controversy about what the latter terms

mean or should mean in the antitrust context. See generally Ariel Katz, Making Sense of Non-

sense: Intellectual Property, Antitrust, and Market Power, 49 A

RIZ

. L. R

EV

. 837 (2007).

139

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NTITRUST

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OURNAL

[Vol. 79

Different jurisdictions can and do reach different conclusions about that

calibration. These differences can be both general (e.g., what subject matter

can be protected, or the term of protection) and specific. This article focuses

on a specific legal issue that has generated a great deal of controversy: when,

if ever, an IP holder’s unilateral refusal to license its IP right may trigger

antitrust liability. Many view the United States and the European Union as

having adopted very different approaches to this question. Conventional wis-

dom holds that EU competition law is far more willing than U.S. antitrust law

to override firms’ unilateral decisions whether to license their intellectual

property rights (IPRs) in the interest of promoting competition.

3

This conven-

tional wisdom stems from a line of cases over the last two decades holding

that owners of IPRs that possessed a dominant position in a market and re-

fused to license IPRs to others in particular circumstances abused their domi-

nant position in violation of EU competition law. In those cases, the courts

regarded a mandate to license the IPRs as an appropriate remedy. Although

controversial in the European Union itself, these cases appear even more con-

troversial to many American commentators. Generally, these commentators

have charged that imposing antitrust liability on such refusals to license un-

dercuts a fundamental constituent of IPRs: the right to exclude others. Impos-

ing liability in these circumstances thereby undermines the very incentives for

investment and innovation that IPRs seek to provide, and likely reduces long-

run social welfare, which both antitrust and IP laws seek to promote.

Thus, for example, in response to the decision in the Microsoft case,

4

the

U.S. Assistant Attorney General for the Antitrust Division took the unusual

step of publicly criticizing the ruling of the European Court of First Instance

(CFI). In a press release issued only hours after the CFI handed down its

3

See, e.g., Rita Coco, Antitrust Liability for Refusal to License Intellectual Property: A Com-

parative Analysis and the International Setting, 12 M

ARQ

. I

NTELL

. P

ROP

. L. R

EV

. 1, 3 (2008) (“A

comparative analysis of the current European and American systems—the two most mature for

both antitrust and IP—shows that the former tends to downplay IP rights in favor of competition,

whereas the latter tends to curtail the imperative of competition to preserve the exclusivity based

upon IP rights. Yet these are only trends, and on the whole the two systems are still largely

unsettled on the matter.”); Katarzyna A. Czapracka, Where Antitrust Ends and IP Begins—On

the Roots of the Transatlantic Clashes, 9 Y

ALE

J.L. & T

ECH

. 44, 47 (2007) (“There have been

virtually no decisions condemning a unilateral refusal to license of a valid intellectual property

right (IPR) in the United States. By contrast, in the European Union, IP may be treated as an

essential facility and courts and competition authorities may request that a dominant company

shares its IP with competitors.”); Eleanor M. Fox, A Tale of Two Jurisdictions and an Orphan

Case: Antitrust, Intellectual Property, and Refusals to Deal, 28 F

ORDHAM

I

NT

’

L

L.J. 952 (2005);

Melanie J. Reichenberger, The Role of Compulsory Licensing in Unilateral Refusals to Deal:

Have the United States and European Approaches Grown Further Apart After IMS?, 31 J. C

ORP

.

L. 549, 550 (2006) (“The interface between intellectual property and antitrust laws has always

been an interesting one, especially when comparing the differing approaches within the interna-

tional community. Most recently, it seems that the United States and the European Community

approaches to dealing with unilateral refusals to deal have grown further apart.”).

4

Case T-201/04, Microsoft Corp. v. Comm’n, 2007 E.C.R. II-3601.

2013]

B

EYOND

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EFUSAL TO

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EAL

141

decision, he expressed the concern that “the standard applied . . . by the CFI,

rather than helping consumers, may have the unfortunate consequence of

harming consumers by chilling innovation and discouraging competition.”

5

For some critics, Microsoft and similar decisions signal an unhealthy Euro-

pean appetite for interventionist regulation at odds with the fundamental prin-

ciples of a free economy

6

or manifest a protectionist trade policy that

disadvantages foreign firms doing business in Europe.

7

For others, the deci-

sions reflect a myopic approach that favors the short-term benefits of competi-

tion over the long-term benefits of innovation.

8

Under these accounts, a

serious rift, perhaps a chasm, exists between the European Union and the

United States: the United States supposedly protects IP rights more vigor-

ously, does not exhibit the same regulatory appetite as the European Union,

and embraces a superior long-term pro-IP and pro-innovation approach. Even

commentators who approve the use of antitrust to compel IP owners to license

in appropriate cases share the view that, on this point, Europe and the United

States clearly diverge.

9

In this article, we argue that, at least in the context of copyright law, this

analysis of trans-Atlantic differences is incomplete and potentially mislead-

ing. By focusing on only one aspect of antitrust doctrine—here, unilateral

refusals to license—the conventional wisdom neglects other important dimen-

sions of the two jurisdictions’ competition and innovation laws. We maintain

that any comparative analysis of the respective jurisdictions’ innovation-

friendliness must also consider (1) as a matter of legal substance, the exis-

tence of doctrines internal to intellectual property law that limit IPRs to facili-

tate both traditional and innovative competition

10

and (2) as a matter of legal

5

Press Release, U.S. Dep’t of Justice, Assistant Att’y Gen. for Antitrust, Thomas O. Barnett,

Issues Statement on European Microsoft Decision (Sept. 17, 2007), available at http://www.

justice.gov/atr/public/press_releases/2007/226070.pdf.

6

See e.g., Fran¸cois-Henri Briard, A Costly and Suspect Offensive, I

NT

’

L

H

ERALD

T

RIB

., Apr.

28, 2007, at 4.

7

See Daniel F. Spulber, Competition Policy and the Incentive to Innovate: The Dynamic

Effects of Microsoft v. Commission, 25 Y

ALE

. J.

ON

R

EG

. 247, 283–84 (2008).

8

See id. at 285–98; see also Briard, supra note 6.

9

Beatriz Conde Gallego, Unilateral Refusal to Licence Indispensable Intellectual Property

Rights—US and EU Approaches,in R

ESEARCH

H

ANDBOOK ON

I

NTELLECTUAL

P

ROPERTY AND

C

OMPETITION

L

AW

215 (Josef Drexl ed., 2008); Fran¸cois L´evˆeque, Innovation, Leveraging and

Essential Facilities: Interoperability Licensing in the EU Microsoft Case, 28 W

ORLD

C

OMPETI-

TION

71, 72 (2005); Fox, supra note 3, at 952. But see Angelo Castaldo & Antonio Nicita,

Essential Facility Access in Europe: Building a Test for Antitrust Policy, 3 R

EV

. L. & E

CON

. 83

(2007); Antonio Nicita & Giovanni B. Ramello, Property, Liability and Market Power: The

Antitrust Side of Copyright, 3 R

EV

. L. & E

CON

. 767 (2007) (suggesting that antitrust liability

might be available in both jurisdictions).

10

We use the term “innovative competition” to denote innovations that compete with the

copyrighted work. Innovative competition is distinct from perfectly substitutive competition (i.e.,

identical or near-identical works) and from innovations that may not compete at all with the