AIPPI Congress Report 4: The business of IP – IP and competition

When IP does battle with competition - fur goes
a flying

Yesterday, participants at AIPPI’s 2017 Congress enjoyed a lively and far-ranging discussion about the intersection of intellectual property and competition at Panel Session IV: The business of IP – IP and competition. Clare Cunliffe reports:

The panel was chaired by Erick Ficks (a Stockholm-based Partner and Head of Roschier's Intellectual Property, Brand Protection, Marketing & Consumer, and Public Procurement practices division). The panel members were Annabelle Bennett AO SC (a retired judge of the Federal Court of Australia), Damian Wasserbauer of Wasserbauer IP, a specialists in patent strategy, litigation, prosecution, and licensing, and Christian Vollrath of the European Commission’s enforcement commission (appearing in a private capacity).

The panel explained that the interface between intellectual property and competition has been apparent for a long time. The interface exists because intellectual property and competition pursue the same objective, of incentivising innovation. Specific aspects of that objective are safeguarded by competition law, where one player in the market possesses market power, or where there is collusion between players in the market. The basic principles of the interface are therefore well established, although new situations arise with the development of new technology. The panel observed that competition law does not treat cases involving intellectual property any differently to other cases. That is to say, the existence of intellectual property rights does not dictate the outcome of litigation. The most significant consideration in every case is whether the intellectual property holder is dominant in the market.

The Honourable Annabelle Bennett explained that the interface between IP and competition is the subject of scrutiny in Australia since Australia's Productivity Commission gave a report on its inquiry into Australia's Intellectual Property Arrangements to the Government in September 2016. The report arose from a recommendation in an earlier competition law review (the Harper Review) which suggested that Australia's IP regime needed to be viewed through a competition prism. The final Productivity Commission report recommended sweeping changes to all aspects of Australia's IP system. In August 2017, the Australian Government released its response, which accepted some of the recommendations, rejected others, and indicated the need for further consultation on others. Although the response suggested that intellectual property and competition share the purpose of furthering innovation, the relation between them is complicated. For example, the Government accepted that it should incorporate an objects clause into the Patents Act 1990 (Cth) describing the purpose of the legislation as enhancing the wellbeing of Australians by promoting technological innovation, transfer and dissemination, and that in so doing, the patent system should balance the interests of producers, owners and users of technology. Ms Bennett explained that it is not clear how this clause should be applied by Courts in determining the outcome of patent proceedings. This will need to be elucidated by judges. In another example, the Government accepted the recommendation that section 51(3) of the Competition and Consumer Act 2010 (which provides an exception to some of the restrictive trade practices provisions of that Act in relation to intellectual property licensing) should be repealed, but noted that where anti-competitive conduct in this space is nonetheless in the public interest, authorisation will be available from Australia’s competition watchdog, the ACCC. However, it remains to be seen how those provisions will work in practice (in response to a later question from the audience, Mr Ficks suggested that block exemptions, which are available in the EU, were a useful tool in helping companies comply with competition law in their settlement agreements).

Mr Wasserbauer noted that unfair competition law is well settled in the US, and that the major issues which arise relate to “mega-mergers” and issues around FRAND licensing (for example, the patent pools which are covered by FRAND licences, and the issue of whether the terms offered by essential patent holders are unfavourable). The consistent challenge for regulators is to respond to creative attempts by companies with market power to avoid regulation.

In the EU, the interface between intellectual property law and competition recognises the importance of intellectual property, but also recognised that competition fosters innovation. The panel gave the example of “pay-for-delay” cases, where a settlement agreement restricts generic market entry in exchange for benefits transferred from the originator to the generic company. Such agreements (which have been the subject of scrutiny in the EU and the US), most often relate to formulation patents, and result in delayed market entry of cheaper generic medicine.

Mr Wasserbauer agreed that “pay for delay” had a significant effect on the market. He observed in the case of patent pools, where licence fees are tiered to reflect the expiry of patents, pay for delay could have the effect of keeping licence fees higher for longer. Mr Wasserbauer noted that competition laws were an important consideration in the context of IP harmonisation, because where IP laws are harmonised but competition laws are not, transaction costs will be increased. The panel noted that the formal harmonisation of IP laws was likely to be very difficult, but that there was an indirect drive to harmonise, with many jurisdictions having introduced competition laws. Ms Bennett noted that when adjudicating local disputes concerning global agreements, the local market conditions were likely to be significant. The panel noted that this was a particularly significant consideration in the context of trade secrets, where the law of trade secrets differs markedly between different jurisdictions, with the effect that a global agreement might be differently construed in different places.

Mr Ficks asked what issues the Internet of Things might raise for competition. The panel responded that although the question of interoperability posed interesting issues in the context of competition, the key question is still likely to be whether any player in the market is dominant. If they are, competition considerations will apply. If they are not, then they will have freedom to operate. The difficult issue is ascertaining whether and when a particular player is dominant. Ms Bennett observed that clear guidelines for assessing dominance might be of more assistance that, for example, objects clauses. Mr Wasserbauer noted the Internet of Things has not yet been built. However, he highlighted one significant issue in the context of interoperability requirements. In the US context, compulsory licensing schemes have previously been rejected in light of the US Constitution’s takings clause. Without a way to ensure that interoperability requirements are not a barrier to entry, the Internet of Things may have detrimental effects on competition.

 We wait with interest to see how the regulation of competition in the context of intellectual property will unfold in these jurisdictions …