Antitrust liability for refusal to license intellectual property: a comparative analysis and the international setting.

AuthorCoco, Rita

INTRODUCTION I. LEGAL BACKGROUND: OVERLAPS AND DISTINCTIVENESS OF THE EUROPEAN UNION AND UNITED STATES ANTITRUST SYSTEMS II. COMPARING THE ANTITRUST CASE LAW AND POLICY IN THE EUROPEAN UNION AND THE UNITED STATES A. The European Approach 1. The Historic al Hostility Towards IP 2. Antitrust Liability for Refusal to License in "Exceptional Circumstances" and Essential Facility Argument 3. The 2005 Discussion Paper on the Application of Article 82 of the EC Treaty B. The American Approach 1. The Cycles of Antitrust Applied to Intellectual Property 2. IP Rights as Shield from Antitrust, but a Shifting Test Applies to Patents 3. The 2007 DOJ--FTC Report on Antitrust Enforcement and IP Rights III. OPEN ISSUES AND THE INTERNATIONAL SETTING A. The European and American Systems: A Summary B. Open Issues C. The International Setting CONCLUSION INTRODUCTION

Cyclically, with different ups and downs in time, antitrust and intellectual property ("IP") are perceived as complementary, rather than inconsistent, bodies of laws which share the same goals of promoting innovation and enhancing consumer welfare.

Whether this is true or not, potential for conflicts does exist, such as when unilateral refusals to license, sell, use, or share IP rights by dominant firms affect the dynamics of competition. Yet, if and under what conditions this might happen is one of the thorniest facets of the IP and antitrust interface, even though it is crucial in the knowledge-driven economy and global trade in a time of exorbitant IP growth.

On the one hand, the legal monopoly based upon IP laws gives the owner the right to exclude third parties from the protected asset, subject only to the exceptions established for various purposes by the relevant domestic and international laws (e.g., experimental use). On the other hand, when the legal monopoly impacts on market competition, antitrust enforcement can outlaw or limit the exclusivity and serve as the grounds for a compulsory license order.

Three outcomes may result from these conflicting situations: 1) antitrust trumps per se intellectual property, giving ground to an exception to the exclusivity based upon IP laws; 2) IP trumps per se antitrust, justifying anticompetitive behaviors and shielding them from antitrust scrutiny; or 3) antitrust and IP are balanced, the exclusivity being limited depending on specific circumstances to be ascertained case-by-case.

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.

The underlying dilemma is that a broad antitrust intervention, also through a high rate of compulsory licensing orders, may reduce the incentives to invest and thus chill the scientific and technological innovation (a risk apparently more clear in the United States). At the same time, failure to scrutinize anticompetitive behaviors can result in foreclosure of markets to the detriment of consumers, competitors, and the efficiency of the economic system (a risk apparently more clear in the European Union).

Broadening the view to the international dimension, so far rather neglected, gives the occasion to wonder whether there is any bias for the one or the other solution, or simply to figure out alternative options to the classical ex-post antitrust enforcement.

Part I of this Article accounts for the legal background on monopolization claims involving IP rights. Part II provides an overview of the European and American case law and policy. Part III frames the key issues within the international setting, while making proposals on how to go ahead in this field.

  1. LEGAL BACKGROUND: OVERLAPS AND DISTINCTIVENESS OF THE EUROPEAN UNION AND UNITED STATES ANTITRUST SYSTEMS

    The relevant provisions governing antitrust scrutiny of unilateral refusal to license IP in the American and European systems are primarily those addressed to limit conduct by firms which hold (or attempt to gain in the United States) monopoly power (in the United States) or dominant position (in the European Union), subject to certain conditions. These provisions display a high degree of similarity in their wording and rationale, although some discrepancies do exist.

    Article 82 (formerly 86) EC Treaty (1) prohibits abuses of dominant position by one or (rarely) more undertakings affecting trade among member states; [section] 2 of the Sherman Act (2) condemns any monopolization, or attempted monopolization, and conspiracy to monopolize any part of the trade or commerce among states by a firm with market power. (3)

    Crucial, and often critical, for the enforcement of both provisions is the monopoly power or dominant position analysis, referred to concrete relevant (product and geographical) markets, (4) whereby a wide range of contending arguments are available to both parties based on the economic analysis. Yet the possession of monopoly power or dominant position is not unlawful per se, (5) since a "conduct" element is required: Article 82 EC Treaty lists, as examples, four categories of likely abuses of dominant position, (6) whereas Sherman Act [section] 2 only relies on precedent to capture anticompetitive behaviors.

    As for the differences, relevant for this analysis (7) is that Sherman Act [section] 2 outlaws monopolization and attempted monopolization, i.e., behaviors intended to create or maintain monopoly power, whilst Article 82 EC Treaty only envisages abuses of an existing dominant position. Understandably, because any firm tends structurally towards gaining monopoly profits, the meaning of actual and attempted monopolization and the weight and length of the underlying intent have been the subject of much dispute since the origin of the Sherman Act. (8)

    On the whole, both Article 82 EC Treaty and [section] 2 of the Sherman Act aim to regulate the market power concentration and pursue the goal of discouraging firms from engaging in anticompetitive conduct based upon monopoly power, resulting among others in competitors being driven out of the market, hindered in their activity, or discouraged from entering.

    Besides specific differences based on monopolization laws, one must point out the "structural" distinctiveness of the E.U. and U.S. systems in the fields of antitrust and IP themselves. First and foremost, the nature of the laws and rights at stake must be emphasized. In the United States, both IP and antitrust are primarily matters for federal laws and enforcement, (9) while IP rights--at least patents and copyrights--enjoy constitutional grounds. (10) Here, moreover, patent and copyright misuse doctrines, (11) resulting from the common law and for patents also from statutory provisions, limit the improper use of exclusive rights when they are used to extend the "scope" beyond the exclusivity granted by the law. With direct relevance in this context, Congress cut back misuse doctrine as applied to patents with the Patent Misuse Amendment Act of 1988, exempting expressly the case of refusal to license from the area of misuse. (12) Even if the provision is internal to the IP system, it may affect antitrust claims, as it actually did in some cases.

    In contrast, the E.U. system faces an inconvenient divergence: intellectual property is still in no small part a matter for national laws, especially for patents, (13) and IP rights are enforced mostly on a national basis, (14) while competition is primarily a matter of Community law and enforcement, especially in the modernization era entered into since Reg. (EC) 1/2003. Moreover, the EC Treaty does not endorse any appraisal for patents or other IP rights; rather, it only considers IP rights, in general, as "justified" restrictions or similar to free movements of goods and services among member states. (15) Lastly, not even a patent or copyright misuse doctrine (statutorily or judicially created) is available as an internal instrument of the IP system, beyond antitrust intervention. (16)

    A second landmark difference is the nature of antitrust claims: normally private in the United States, (17) and likely involving infringement of IP rights, whereas generally public in the European Union, both at European and national levels. (18) Federal agencies in the United States undertake only "major" antitrust litigation, such as in the case brought against Microsoft in the nineties, (19) so that public antitrust enforcement is but a small part of the system. The European Commission ("Commission"), national antitrust agencies and courts and the European Court of Justice ("ECJ") and the Court of First Instance ("CFI") have been, so far, the main if not the only watchdog of European competition laws. Consequently, the enforcement of European competition law is centralized--so that the coherence is more easily pursued--whereas antitrust laws and policy in the United States are split amidst different courts (and residual agencies). Moreover, most private U.S. antitrust cases are settled confidentially among the parties, so that the terms of the agreement cannot be known. (20) In turn, the differences in the kind of enforcement reflect on important procedural issues affecting, for example, the burden of proof (plaintiff vis a vis antitrust agencies (21)), the interests being enforced (public vis a vis private), and may well determine the final outcome of cases. It may also affect the consistency and reliability of the comparison, because the figures of cases compared are not consistent.

    Finally, in the United States antitrust claims that involve patents may end up, depending on the circumstances, before the Court of Appeals for the Federal Circuit, specifically empowered with appellate jurisdiction on patent litigation, (22)...

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