7. In what circumstances may unilateral conduct involving the exercise of intellectual property rights be deemed to be anticompetitive (monopolisation, abuse of dominance, etc)?
Assuming dominance in a properly defined relevant market (see questions 3 and 6), the EU Court of Justice has held that a refusal to grant a licence cannot in itself constitute an abuse of a dominant position (see Case 238/87 Volvo v Veng). However, in certain “exceptional circumstances” the refusal to license an IPR may amount to an abuse under article 102 TFEU.
In Magill, a case that concerned copyright over television listings, the Commission found that in the “exceptional circumstances” of the case, the copyright-holder had abused a dominant position by refusing to grant a licence to a potential licensee. This was confirmed by the EU Courts. Noting that the appellants were “by force of circumstance” the only sources of the basic information required to compile a weekly television guide, the EU Court of Justice held that the refusal to license amounted to abuse in the following exceptional circumstances:
- the refusal prevented the appearance of a new product for which there was potential consumer demand;
- there was no justification for such a refusal; and
- the appellant’s conduct excluded all competition on the market since they denied access to basic information that was indispensable for the creation of the new product (paragraphs 53–57 of joined Cases C-241 and 242/91 P).
In IMS Health, the EU Court of Justice reached a similar conclusion while offering certain clarifications on the applicable legal standard (this case was a preliminary reference judgment in which the indispensability of the IPR was assumed). Referring to the Magill precedent, the Court set forth a legal test consisting of three prongs. For a refusal by a dominant IP owner to give access to a “product or service indispensable for carrying on a particular business to be treated as abusive, it is sufficient that three cumulative conditions be satisfied":
- the refusal prevents “the emergence of a new product for which there is a potential consumer demand”;
- the refusal “is unjustified”; and
- the refusal is “such as to exclude any competition on a secondary market” (paragraph 38 of Case C-418/01).
Moreover, as concerns the “new product” requirement, the Court held that a refusal to license IPRs can only be abusive when the potential licensee “does not intend to limit itself essentially to duplicating the goods or services already offered […] but intends to produce new goods or services […] for which there is potential consumer demand” (paragraphs 49 and 52 of Case C-418/01). See also Case C-7/97 Oscar Bronner v Mediaprint, a case that, although it did not concern IPRs, emphasises the need carefully to consider the impact that intervention may have on incentives to invest.
In Case T-201/04 Microsoft, a case that concerned, inter alia, a refusal by Microsoft to provide interoperability information, the General Court held that the “new product” criterion could be satisfied if the refusal led to a limitation of “technical development” (paragraph 647). The General Court also held that the foreclosure requirement would be satisfied if the refusal was likely to result in the elimination of all effective competition such that, for example, competitors retained only a “marginal presence in certain niches on the market” (paragraph 563). Therefore, although arguably attempting to modify and “soften” some of the elements of the EU Court of Justice’s Magill/IMS Health test, the General Court maintains a test of genuinely exceptional circumstances, one of which being a very significant elimination of competition. Given that the General Court’s ruling in Microsoft was not appealed before the EU Court of Justice, it remains unclear whether it modifies the legal standard applicable to refusals to license IPRs.
In Case T-51/89 Tetra Pak I (BTG Licence), the General Court upheld a Commission decision finding that the acquisition through a merger of an exclusive licence of patents and know-how by a dominant undertaking was, in the specific circumstances of the case, an infringement of article 102 TFEU (even though the licence itself was exempt from the application of article 101 TFEU by the block exemption in force at the time). As mergers are now addressed under the EU Merger Regulation, the continued relevance of this case to article 102 TFEU enforcement is debatable.
To date, there is no European case law or decisional practice directly concerning exploitative conduct and IPRs, as distinct from the sale of goods that may be protected by IPRs, fees charged for licensing and management of IPR-protected works, etc. In fact, there is very little European case law or decisional practice on exploitative conduct generally. Presumably, the Commission and national competition authorities recognise the dangers of trying to act as price regulators and the heightened risk of trying to determine the “economic value” of IPRs. The leading case on exploitative conduct (or, excessive pricing) generally is Case 27/76 United Brands. In that case, the Court held that a price charged may be abusively high if “it has no reasonable relation to the economic value of the product supplied”. However, it could be argued that the case law on refusal to license outlined above is lex specialis for IP licensing. Therefore, it is arguable that licensing terms could not be deemed excessive under EU law unless an antitrust duty to license was first established following the application of the “exceptional circumstances” test set forth in the case law on refusals to license. Put simply, it would be surprising if antitrust liability could arise if a firm refused to license at a given price without it having first been established that the firm is under an antitrust duty to license at all (ie, at any price). Nevertheless, in its Horizontal Co-operation Guidelines (see question 1) the Commission cites United Brands, in a footnote to its statement, that:
[h]igh royalty fees can only be qualified as excessive if the conditions for an abuse of a dominant position as set out in Article 102 of the Treaty and the case-law of the Court of Justice of the [EU] are fulfilled (footnote 2 to paragraph 269).
The Latvian Collecting Societies preliminary ruling (Case C-177/16, 2017) concerns allegedly unfair pricing in respect of fees charged by a collecting society holding the legal monopoly to the licensing for public performance of musical works in respect of which it manages the copyright. In this case, the Court of Justice held that for a price (ie, fee) to be excessive it must be both “significant[ly] and persistent[ly]” above the relevant benchmark rate (in this case a rate charged by collecting societies in other member states), emphasising that “the circumstances specific to each case are decisive” (paragraph 55). Even such prices are merely indicative of abuse and subject to efficiency justification by the undertaking concerned. The ruling had been preceded by an opinion of Advocate-General Wahl, which further found that unfair pricing as an abuse of article 102 TFEU “can only exist in regulated markets” as high prices in non-regulated markets are likely to be self-correcting (paragraph 48). On that basis, Advocate-General Wahl further considered that intervention under article 102 TFEU would be merited only when the difference between the benchmark price and the actual price “is of such magnitude that almost no doubt remains as to” the abusive nature of the price charged (paragraph 112). According to Advocate-General Wahl, applying a lower threshold to establish unfair pricing would be neither “realistic nor advisable” (paragraph 102).
Another important judgment relating to the licensing fees charged by a collecting society was handed down in MEO (Case C-525/16, 2018). This case, brought as a reference for a preliminary ruling, concerned the notion of discriminatory licensing rates for the use of audiovisual content. The Court of Justice held that discriminatory pricing can amount to a competitive disadvantage and thereby an abuse only when, considering all circumstances of the case, it affects the competitive position of the undertaking that was charged more vis-à-vis its competitors (paragraphs 30 and 34). The ruling had been preceded by an opinion of Advocate-General Wahl, which further found that differentiated prices can be pro-competitive and that “it should only be possible to penalise price discrimination […] if it creates an actual or potential anticompetitive effect” (paragraph 63), ie, if the price discrimination is “likely to have a negative effect on the ability of trading partners that are disfavoured to exert competitive pressure on trading partners that are favoured” (paragraph 99).
In its 2015 Huawei ruling concerning injunction requests in respect of SEPs for which a FRAND commitment was given, the EU Court of Justice did not endorse any exploitative licensing theories, or even mention the United Brands precedent. In fact, the only competitive harm mentioned by the Court was the potential to exclude competitors from a downstream product market (paragraph 52 of Case C-170/13).
At member state level, the UK courts considered excessive pricing and FRAND rates in the context of SEP portfolio licensing in Unwired Planet v Huawei, culminating in the UK Supreme Court’s August 2020 judgment.
In its 2017 ruling, the UK High Court of Justice (EWHC 711 (Pat) held that what is (or is not) a FRAND rate is not equivalent to what is (or is not) an unfair or excessive price constituting an abuse of dominance. Rather, the court found that “for a royalty rate to amount to excessive pricing it would have to be substantially more than FRAND” (paragraph 152), and that Unwired Planet’s early offers that were significantly above what was later considered the benchmark rate were a step in negotiation and could not amount to an abuse as long as they were not so far above FRAND as to disrupt or prejudice the negotiations. The ruling was upheld in 2018 by the UK Court of Appeal, and in August 2020 by the UK Supreme Court (UKSC 2018/0214).
The UK Supreme Court held that the non-discrimination limb of a FRAND undertaking is satisfied when a single royalty price list reflecting the true value of the relevant SEPs is available to all market participants, without adjustment for the individual characteristics of licensees. Nevertheless, this does not require an SEP owner to grant licences on the most favourable terms to all similarly situated licensees (paragraphs 113-119). Further, the court confirmed that Unwired Planet had shown a willingness to grant a licence to Huawei on whatever terms the court decided were FRAND, and had therefore not abused a dominant position (see also question 13).
In the Grüne Punkt – DSD case, the EU Court of Justice upheld the Commission’s and the General Court’s finding that a scheme under which DSD charged a fee for all packaging bearing its “green dot” logo, even where customers could show that they did not use DSD's system for “take-back and recovery” of used packaging, was an example of unfair pricing and an abuse under article 102 TFEU. The EU Court of Justice rejected claims that the Commission had obliged DSD to grant a trademark licence and noted that the ruling “merely obliges DSD not to claim payment from its contractual partners for take-back and recovery services which it has not provided” (paragraph 146 of Case C-385/07). In its decision concerning interoperability in the Microsoft case, the Commission imposed an obligation upon Microsoft to make the interoperability information available to third parties on “reasonable and non-discriminatory terms”, which allowed for Microsoft to require a reasonable remuneration for information covered by IPRs. The Commission subsequently fined Microsoft for its failure to comply with this remedy, a finding that was upheld by the General Court (Case COMP/37792 (2008) and Case T-167/08 (2012)). The circumstances giving rise to the Commission’s order were particular: the Commission had found an abusive refusal to supply the interoperability information (see above) and provided a framework under which the interoperability information should be made available.
For the application of article 102 TFEU to SEPs, see questions 11, 12, 13 and 14.
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