Does competition law apply to the obtainment, grant, acquisition, exercise and transfer of intellectual property rights?
Yes. The EU rules on anticompetitive agreements (and concerted practices), abuse of a dominant position and merger control may all be relevant to conduct involving intellectual property rights (IPRs). As the European Commission notes in its Technology Transfer Guidelines:
[t]he fact that intellectual property laws grant exclusive rights of exploitation does not imply that intellectual property rights are immune from competition law intervention […]. Nor does it imply that there is an inherent conflict between intellectual property rights and the [EU] competition rules. Indeed, both bodies of law share the same basic objective of promoting consumer welfare and an efficient allocation of resources […] (paragraph 7)
The basic text for agreements (and concerted practices) is article 101 of the Treaty on the Functioning of the European Union (TFEU). Article 101(1) TFEU prohibits agreements and concerted practices that “have as their object or effect the prevention, restriction or distortion of competition” in the EU (or EEA). Article 101(2) TFEU renders void agreements that infringe article 101(1). However, article 101(3) TFEU allows for prima facie anticompetitive agreements and concerted practices – those that infringe article 101(1) TFEU – to be redeemed on efficiency grounds.
In addition to the general procedural and substantive rules, a number of pieces of secondary legislation and guidance are particularly relevant to the application of article 101 TFEU to IPRs. These are:
- Commission Regulation 316/2014 on the application of article 101(3) TFEU to categories of technology transfer agreements (the Technology Transfer Block Exemption Regulation or TTBER);
- Commission Guidelines on the application of article 101 TFEU to technology transfer agreements, 2014 (the Technology Transfer Guidelines or TT Guidelines);
- Commission Regulation 1217/2010 on the application of article 101(3) TFEU to categories of research and development agreements (the R&D Block Exemption Regulation);
- Commission Regulation 1218/2010 on the application of article 101(3) TFEU to categories of specialisation agreements (the Specialisation Regulation); and
- Commission Guidelines on the applicability of article 101 TFEU to horizontal cooperation agreements, 2011 (the Horizontal Co-operation Guidelines), sections 3 (Research and Development Agreements) and 7 (Standardisation Agreements).
All of these texts are available on DG Competition’s website (see question 2). For more information on the EU technology transfer regime, see question 5. For more information on standardisation, see questions 11, 12, 13 and 14.
The basic text for unilateral conduct is article 102 TFEU, which prohibits “[a]ny abuse” by a firm “of a dominant position” in the EU (or EEA). Other than the Commission’s own decisional practice, the only guidance in force from the Commission on the application of article 102 is the Guidance on the Commission’s enforcement priorities in applying article 102 TFEU to abusive exclusionary conduct by dominant undertakings, 2009 (the article 102 Guidance Paper). This guidance (available on DG Competition’s website – see question 2) applies generally, including to conduct involving IPRs. For more information on the application of article 102 to conduct involving IPRs, see questions 6, 7, 13 and 14.
The basic text for EU merger control is Regulation 139/2004 on the control of concentrations between undertakings (the EU Merger Regulation). The general procedural and substantive merger control rules (available on DG Competition’s website – see question 2) apply to mergers involving IPRs, there is no EU merger control legislation or guidance that applies specifically to transactions involving IPRs. For more information on EU merger control, see questions 9 and 10.
Which authorities are responsible for the application of competition law to intellectual property rights? What enforcement powers do they have? Are there any special procedures for conduct that concerns intellectual property rights?
The European Commission is the primary enforcer of EU competition law. Within the Commission, DG Competition handles competition cases. European Commission decisions are challengeable before the EU General Court, then on points of law only before the EU Court of Justice (article 263 TFEU). The EU Court of Justice may also give “preliminary rulings” on matters of EU law referred to it by courts of EU member states, commonly known as “preliminary references” (article 267 TFEU).
The basic procedural framework for enforcement of articles 101 and 102 TFEU by the Commission is set out in Regulation 1/2003 on the implementation of the rules on competition laid down in articles [101 and 102 TFEU] (Regulation 1/2003). These rules are supplemented by Regulation 773/2004 relating to the conduct of proceedings by the Commission pursuant to articles [101 and 102 TFEU] (Regulation 773/2004). There are no special procedures applying to Commission investigations concerning IPRs under articles 101 or 102 TFEU. The Commission may impose very substantial fines (up to 10 per cent of annual group turnover) for infringements of articles 101 and 102 TFEU that it can show have been committed intentionally or negligently (article 23 of Regulation 1/2003). The Commission may also make behavioural orders, including interim measures, ordering parties to cease the conduct that the Commission considers to be anticompetitive (articles 7 and 8 of Regulation 1/2003). The Commission is not empowered to impose civil or criminal sanctions on individuals for infringements of EU competition law.
Competition authorities and courts of EU member states are also empowered – indeed, obliged – to apply articles 101 and 102 TFEU. The basic division of competences between the Commission and national competition authorities and courts is set out in Regulation 1/2003. Subject to EU general principles of equivalence and effectiveness, procedures and sanctions of national authorities and courts are a matter for the laws of EU member states (see articles 5, 6 and 35 of Regulation 1/2003, Case 33/76 Rewe).
By contrast, only the European Commission – subject to the scrutiny of the EU courts – is competent to apply the EU Merger Regulation (see recital 17 of the EU Merger Regulation). Under certain limited circumstances, a transaction may be referred from the European Commission to one or more national competition authorities or vice versa (articles 4, 9 and 22 of the EU Merger Regulation). National competition authorities assess the transaction under national merger control provisions. Sanctions exist for parties that close a transaction that is notifiable to the Commission prior to receiving approval from the Commission (article 15 of the EU Merger Regulation).
How are markets involving intellectual property rights defined?
The Commission’s general approach to defining relevant markets is explained in the Commission’s Notice on the definition of relevant market for the purposes of [EU] competition law, 1997 (the Market Definition Notice). In EU competition law, relevant markets have both a product and a geographic dimension. Relevant markets are defined on the basis of demand and supply substitutability of the products and services in question. The Market Definition Notice describes the “hypothetical monopolist” or “small but significant and non-transitory increase in price” test.
The Commission’s Technology Transfer Guidelines (see questions 1 and 5) describe aspects of market definition that are particular to the licensing of “technology” as defined in the TTBER (see paragraphs 19–26). “Technology” includes, for example, patents and know-how (see question 5). The Commission considers that to assess the competitive effects of agreements through which such technology is licensed, it is necessary to define both one or more relevant product markets (ie, the market(s) for products incorporating the licensed technology) and one or more relevant technology markets (ie, the market(s) for the licensed technology). However, the Commission recognises that there may be practical difficulties in calculating market shares in technology markets due to a lack of clear information on royalties. The Commission recognises the importance of innovation and dynamic competition but generally considers these factors to be sources of potential competition, which is taken into account when assessing the competitive impact of the conduct rather than at the market definition stage.
The definition of relevant markets for “standard-essential patents” (SEPs) was considered by the Commission in its Google/Motorola merger clearance decision (Case M.6381, 2012). Stating that “[t]he specificity of SEPs is that they have to be implemented in order to comply with a standard and thus cannot be designed around, ie, there is by definition no alternative or substitute for each such patent”, the Commission takes the view that “each SEP constitutes a separate technology market on its own” (paragraph 54).
In the Samsung and Motorola SEP investigations (Cases AT.39939 and AT.39985, respectively, both 2014) the Commission also found that the standardised technology on which each relevant SEP read formed the relevant technology market. For market definition purposes, the Commission assumed the genuine essentiality, validity and infringement of SEPs by those implementing the standard. In Motorola, the Commission inferred from Motorola’s declaration of potential standard-essentiality to the European Telecommunications Standardisation Institute (ETSI) that the SEP in question was “an essential input for manufacturers of GPRS-compliant products”. However, these factors are not, and cannot be, assessed at the time a patent is declared as potentially essential to a standard. In its Samsung and Motorola decisions, the Commission also found that the UMTS and GPRS technologies on which the patents read – as widely adopted telecommunications standards, including in Europe – were not substitutable with each other, or with other telecommunications technologies such as LTE. In Qualcomm/ NXP Semiconductors (Case M.8306, 2018), the Commission found that each SEP related to cellular standards and to Near Field Communication (NFC) technology – which is a non-cellular wireless communication standard – formed a separate product market. The Commission’s approach means that SEP holders are by definition not competitors on a relevant technology market.
In 2015, in its Huawei preliminary ruling (C-170/13), the EU Court of Justice did not directly address market definition since the referring national court did not ask any questions on the topic. However, and in contrast to the Commission’s position, the Huawei ruling does not refer to declared (potentially) essentiality of a patent, the Court acts on the premise that the patent in suit is genuinely essential to the standard, valid and infringed (see paragraphs 49 and 62).
For more on standardisation, see questions 11, 12, 13 and 14.
Acquisition and sale
Does competition law apply to the obtainment or grant and transfer or assignment of intellectual property rights?
Yes. EU competition law may apply to the obtainment or grant and transfer or assignment of IPRs. As the “naked” transfer or assignment of patents is unlikely to qualify as a merger in EU competition law (see question 9), the transfer or assignment of IPRs is likely to be considered an “agreement” within the meaning of article 101 TFEU. Certain technology assignments that are concluded for the purpose of the production of contract products are considered as being equivalent to licensing agreements and potentially covered by the TTBER and/or Technology Transfer Guidelines. For a discussion on licensing see question 5. For information on the transfer of SEPs, see questions 11, 12 and 13.
In exceptional circumstances, the methods used by a firm to obtain IPRs may be qualified as an abuse of a dominant position under article 102 TFEU. This may be the case if the firm seeking such IP protection engages in a “consistent and linear” course of misleading conduct involving “the submission to the public authorities of misleading information liable to lead them into error” (ie, grant the applicant IP protection that they otherwise would not have obtained absent such conduct (Cases T-321/05 and C-457/10 P AstraZeneca v Commission)).
How does competition law apply to technology transfer and licensing agreements?
Article 101 TFEU may apply to the licensing of IPRs. The EU competition law regime that applies to licensing arrangements is, for the most part, found in the TTBER and the Technology Transfer Guidelines (see question 1). Revised versions of both have been in force since 1 May 2014.
The TTBER applies to certain licensing agreements, as well as to a limited class of assignment agreements (article 1(1)(c) of the TTBER), entered into between two (but not more than two) firms. The TTBER covers the following “technology rights”: know-how, patents, utility models, design rights, topographies of semiconductor products, supplementary protection certificates for medicinal products, plant breeders' certificates and software copyrights (article 1(1)(b) of the TTBER). Provisions in technology transfer agreements relating to the licensing of other types of intellectual property such as trademarks and copyright, other than software copyright are only covered by the TTBER if, and to the extent that, they are directly related to the production or sale of the contract products (TT Guidelines, paragraph 47). The Commission will not extend the principles developed in the TTBER and the TT Guidelines to trademark licensing as, in the Commission's view, trademark licensing often occurs in the context of distribution and resale of goods and services and is generally more akin to distribution agreements than to technology licensing. Where a trademark licence is directly related to the use, sale or resale of goods and services and does not constitute the primary object of the agreement, the licence agreement is covered by Commission Regulation 330/2010 on the application of article 101(3) of the TFEU to categories of vertical agreements and concerted practices (TT Guidelines, paragraph 50).
The TTBER provides a legal safe harbour from article 101 TFEU for technology transfer agreements provided that they do not contain certain clauses; and the combined relevant market share of the parties does not exceed certain thresholds (ie, 20 per cent for competitors and 30 per cent for non-competitors (article 3)). Very broadly, problematic restrictions are classified as being either “hardcore” (article 4) or “excluded” (article 5). There are two lists of hardcore restrictions: one for agreements between competitors and one for agreements between non-competitors. The inclusion of a hardcore restriction in an agreement removes the benefit of the TTBER from the entire agreement. Furthermore, the Commission is likely to consider agreements containing hardcore restrictions to be “by object” restrictions of competition under article 101(1) TFEU (paragraphs 14 and 94 of the TT Guidelines) and unlikely to fulfil the conditions of article 101(3) TFEU (paragraphs 18 and 95 of the TT Guidelines). The inclusion of an excluded term or clause in an agreement precludes that term/clause from benefitting from the safe harbour, but does not prevent the rest of the agreement from being covered by the safe harbour. Excluded terms must be individually assessed by weighing up their likely pro- and anticompetitive effects to determine their compatibility with article 101 TFEU (TT Guidelines, paragraph 128).
The TT Guidelines provide guidance on both agreements that will potentially fall within the scope of the TTBER and those that do not. The TT Guidelines therefore provide a framework for a more general assessment of the applicability of article 101 TFEU to licensing agreements. Moreover, the TT Guidelines provide guidance on the application of article 101 TFEU to settlement agreements (paragraphs 234–243) and technology pools (paragraphs 244–273).
As explained above, copyright other than software copyright is not formally covered by the TTBER. Even so, the TT Guidelines state that the Commission will “as a general rule” apply the principles of the TTBER and the TT Guidelines to the licensing of copyright other than software copyright (paragraph 48). However, the TT Guidelines recognise that the licensing of rental rights and public performance rights protected by copyright, especially for films and music, raises particular issues and an analysis different from that set out in the TTBER and the TT Guidelines may be warranted (paragraph 49). These particularities have also been recognised by the EU Court of Justice (see Case 262/81 Coditel II; see also joined Cases C-403 and 429/08 FA Premier League and Karen Murphy).
A notable development in the context of licensing agreements that postdates the current TTBER and TT Guidelines is the Genentech case (C-567/14, 2016), in which the EU Court of Justice ruled that article 101(1) TFEU does not preclude the imposition on a licensee of a requirement to pay a royalty for the use of a patented technology for the entire period in which that agreement was in effect, even in the event of the revocation or non-infringement of a licensed patent, provided that the licensee was able freely to terminate that agreement by giving reasonable notice. See also paragraph 187 of the Technology Transfer Guidelines.
Market power and dominance
In what circumstances is the possession of intellectual property rights deemed to confer substantial market power on the holder such that the rules on unilateral conduct will apply?
IPRs confer exclusive rights on their holders. This exclusive right may in turn confer market power on its holder. It has, however, long been established that it would be incorrect to assume that holding an IPR right necessarily confers market power or the significant market power necessary to support a finding of dominance (see, eg, Case C-24/67 Parke, Davis & Co).
Instead, it is necessary to carry out an individual assessment, taking into account all relevant factors, including the market position of the licensor (including market shares in both the licensing and product markets – see question 3), the market position of competitors, the market position of buyers on the relevant markets, barriers to entry/expansion and the degree of maturity of the market (see Technology Transfer Guidelines, paragraphs 159–160). Referring to innovative markets generally, the General Court has held that “large market shares may turn out to be ephemeral. In such a dynamic context, high market shares are not necessarily indicative of market power” (paragraph 69 of Case T-79/12 Cisco v Commission) – innovation markets are, of course, often associated with IPRs. See also question 10.
In a small number of cases, the EU Courts have upheld the Commission’s finding that the ownership of an IPR confers a dominant position on its owner for the purposes of the application of article 102 TFEU. For example, in Magill, the General Court and the EU Court of Justice found that the IPR held by the applicant (in casu, copyright over television schedules) resulted in a de facto monopoly to supply a product (in casu, a weekly television listings guide), which in turn resulted in the applicant holding a dominant position (Case T-69/89 and joined Cases C-241 and 242/91 P).
Concerning the question whether and in what circumstances the holder of SEPs may hold a dominant position, to date, there is no case law of the European Courts on the question. In its 2015 Huawei ruling, the EU Court of Justice was not asked to determine the question of SEP ownership and dominance. However, certain obiter statements suggest that the Court may have doubted that Huawei, a holder of SEPs, should be found dominant in the context of licensing negotiations with ZTE, another holder of SEPs (see paragraphs 37 and 40 of Case C-170/13).
In any event, it is important to distinguish between technologies that have been declared as potentially essential to a standard and those that are in fact essential: as the Commission notes in its Technology Transfer Guidelines at paragraph 252: “[t]he fact that a technology holder merely declares that a technology is essential does not imply that such a technology is [genuinely] essential." Also, the Commission’s Horizontal Co-operation Guidelines state that:
Even if the establishment of a standard can create or increase the market power of IPR holders possessing IPR essential to the standard, there is no presumption that holding or exercising IPR essential to a standard equates to the possession or exercise of market power. The question of market power can only be assessed on a case by case basis (paragraph 269).
For example, even if one were to assume genuine essentiality, validity and infringement, competition between standards, the existence of unpatented solutions, the degree of “lock in” to a standard and the presence of countervailing buyer power of potential licensees must be considered in the case-by-case assessment of the market power, if any, enjoyed by a holder of SEPs.
However, despite the above statements in the Commission’s guidelines, in its Motorola and Samsung SEP decisions (2014), the Commission concluded that merely holding a single patent that has been declared as potentially essential to 2G and 3G wireless communications standards developed within ETSI may result in a finding of dominance (see Cases AT.39939 Samsung and AT.39985 Motorola). See also Case M.8306 Qualcomm/NXP Semiconductors (2018).
For more on standardisation, see questions 11, 12, 13 and 14.
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).
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 High Court of Justice considered excessive pricing and FRAND rates in the context of SEP portfolio licensing in its 2017 ruling in Unwired Planet v Huawei (EWHC 711 (Pat)). The UK court held that what is (or is not) a FRAND rate is not equivalent to what is (or is not) unfair for 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). Further, the UK court considered 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 (see also question 13). The ruling was appealed to the UK Court of Appeal, whose judgment is pending at the time of writing.
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 decision) 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.
In what circumstances may patent settlements be deemed to infringe competition law?
A settlement agreement is an agreement within the meaning of article 101 TFEU (see Cases 65/86 Bayer and Machinenfabrik Hennecke GmbH v Heinz Süllhöfer and 193/83 Windsurfing). Article 102 TFEU may also apply to such an agreement. In its Technology Transfer Guidelines, the Commission recognises that “[s]ettlement agreements in the context of technology disputes are, as in many other areas of commercial disputes, in principle a legitimate way to find a mutually acceptable compromise to a bona fide legal disagreement” (paragraph 235) and that “[l]icensing, including cross-licensing, in the context of settlement agreements is generally not as such restrictive of competition” (paragraph 236). However, settlement agreements may give rise to competition concerns, especially if the parties to the settlement agreement are actual or potential competitors.
The Commission generally considers that “pay-for-restriction” or “pay-for-delay” type settlements in which no licensing takes place but there is a value transfer from one party (usually the IP holder) in return for the other party (usually an actual or potential competitor) agreeing not to enter, or to limit their presence on, the market will infringe article 101(1) TFEU (paragraph 239 of the Technology Transfer Guidelines). As in other jurisdictions such as the US, pay-for-delay settlements in the pharmaceutical industry between “originators” and (potential) “generics” entrants have received particular scrutiny from the Commission (see Commission decisions in Cases AT.39226 Lundbeck (2013), AT.39685 Fentanyl (2013) and AT.39612 Perindopril (Servier) (2014)).
These cases stem in part from the Commission’s antitrust inquiry into the pharmaceutical sector, which was launched in 2013. In its fifth monitoring report (2014) the Commission summarised the effects of 146 patent settlement deals reached between originators and generic manufacturers in the EU/EEA in 2013 and concluded that the vast majority of such agreements do not raise competition concerns.
In September 2016, the EU General Court dismissed the appeals brought by Lundbeck and a number of generic companies (see in particular Case T-472/13). The General Court confirmed, in particular, the Commission's findings that (i) Lundbeck and the generic companies were potential competitors given that the generic companies had possibilities to enter the market, including by launching products "at risk" of infringing Lundbeck's patents, and (ii) the agreements at issue constituted restrictions of competition "by object" as in traditional market-sharing cases as they contained a value transfer from the patent holder to the patent challenger in return for restrictions on the challenger's entry into the market. Lundbeck has appealed the General Court judgment to the Court of Justice, whose judgment is pending at the time of writing (Case C-591/16 P).
Servier’s appeal is still pending before the General Court at the time of writing (Case T-691/14). In June 2017, Servier appeared before the General Court seeking to overturn the Commission decision.
The Commission may also examine agreements in which licensing takes place but which lead to a delayed entry or limited presence on the market by at least one of the parties (paragraphs 238–239 of the Technology Transfer Guidelines). In certain circumstances, the Commission may consider that cross-licensing in settlement agreements may fall within article 101(1) TFEU (paragraphs 240–241 of the Technology Transfer Guidelines) and, exceptionally, non-challenge clauses in settlement agreements (paragraphs 242–243 of the Technology Transfer Guidelines).
Merger control (jurisdiction)
In what circumstances will the transfer of intellectual property rights constitute a merger for the purposes of competition law?
In contrast to certain jurisdictions, such as the US, the mere transfer (or assignment) of IPRs does not fall within the scope of EU merger control. A necessary condition for the EU Merger Regulation to apply to the transfer of assets, including IP, is a “market presence, to which a market turnover can be clearly attributed” (paragraph 24 of the Commission’s Consolidated Jurisdictional Notice under Council Regulation 139/2004 on the control of concentrations between undertakings, 2008). However, there may be circumstances in which it is possible to attribute turnover to an IPR, or a collection of IPRs (a portfolio), possibly in combination with other assets (eg, see Commission decision in Case M.5721 Otto/Primondo Assets, 2010). Assessments must be made on a case-by-case basis. For more on the acquisition and sale of IPRs, see question 4.
Merger control (substantive)
In what circumstances will a merger involving intellectual property rights be deemed anticompetitive? Are there any special considerations for mergers involving intellectual property rights or innovation markets?
A transaction that falls within the scope of the EU Merger Regulation – regardless of whether it involves IPRs – will be prohibited if the Commission concludes that the transaction “would significantly impede effective competition, in the [EU/EEA], in particular as a result of the creation or strengthening of a dominant position” (article 2(3) of the EU Merger Regulation).
In its assessment of the likely impact of a proposed merger, the Commission often gives considerable weight to market shares as a proxy for market power. However, concerning markets characterised by innovation, the General Court has held that “the sector [concerned] is a recent and fast‑growing sector which is characterised by short innovation cycles in which large market shares may turn out to be ephemeral. In such a dynamic context, high market shares are not necessarily indicative of market power […]” (paragraph 69 of Case T-79/12 Cisco v Commission).
As in other areas of EU merger control, in deciding whether to approve a notified transaction that involves IPRs, the Commission will assess only merger specific effects (see Cases M.6381 Google/Motorola (2012), M.7047 Microsoft/Nokia (2013) and M.8306 Qualcomm/NXP Semiconductors (2018)).
How, in general, does competition law treat the development of standards in standard-development organisations (SDOs), and the exercise of intellectual property rights for technology that may be essential to a standard?
At present, there is little case law from the European Courts that directly concerns the application of EU competition law to standardisation or IP that is, or has been declared as potentially, essential to a given industry standard. However, in its Horizontal Co-operation Guidelines, the Commission has recognised the fundamentally pro-competitive nature of standardisation, noting that “[s]tandardisation agreements usually produce significant positive economic effects” and that “standards […] normally increase competition and lower output and sales costs, benefiting economies as a whole” (paragraph 263). The Commission goes on to note, however, that standardisation “can […], in specific circumstances, also give rise to restrictive effects on competition” if, for example, firms are prevented from having effective access to a standard (paragraph 264). In the case of standards that rely on IPRs, the Horizontal Co-operation Guidelines state that voluntary commitments from IPR holders that they will license their IPRs that prove essential to the implementation of the standard on FRAND terms (see question 12) “ensure effective access to the standard” and “can prevent IPR holders from making the implementation of a standard difficult” (paragraphs 285 and 287).
Finally, in November 2017 the Commission published a Communication setting out its proposed approach to the licensing of SEPs (COM/2017/0712) (the SEP Communication). Although it must be emphasised that the SEP Communication is not legally binding on private parties, and it is not a competition-specific document, the SEP Communication represents the Commission’s effort to promote a balanced and predictable framework for SEP licensing in the EU. The SEP Communication recognises the fundamental importance of standardisation. With respect to SDOs specifically, the SEP Communication proposes an increase in database quality, transparency and accessibility in order to facilitating licensing negotiations.
Standardisation and anticompetitive agreements
How do competition law rules on agreements, concerted practices, etc, apply to the standardisation process?
Agreements to establish a standard development organisation (SDO,) or subsequent agreements relating to the standard development process within an SDO will be considered as agreements within the meaning of article 101 TFEU. However, there is scant case law from the European Courts that directly concerns the application of EU competition law to standardisation agreements. Section 7 of the Horizontal Co-operation Guidelines (see question 1) provides guidance on how the Commission will analyse standard development under article 101 TFEU. In EMC v Commission, the EU Courts examined whether the Commission had correctly applied the previous version of the Horizontal Co-operation Guidelines to the development of a cement standard. Although in that case the EU Courts confirmed the Commission’s application of the guidelines, the applicant did not challenge the guidelines as such, and the EU Courts did not explicitly endorse the analysis contained therein (see Cases T-432/05 (2010) and C-367/10 P (2011)).
According to the Horizontal Co-operation Guidelines, the Commission will consider standardisation agreements that aim at excluding actual or potential competitors, as well as those that are a cover for price fixing etc, to be restrictive of competition under article 101(1) TFEU “by object” (paragraphs 273 and 274). For all other standardisation agreements, the Commission considers it necessary to analyse their (actual or likely) effects on competition in order to determine whether the agreement falls within article 101(1) TFEU (paragraphs 277 and 292–299).
However, the Horizontal Co-operation Guidelines state that:
[w]here participation in standard-setting is unrestricted and the procedure for adopting the standard in question is transparent, standardisation agreements which contain no obligation to comply with the standard and provide access to the standard on fair, reasonable and non-discriminatory terms will normally not restrict competition within the meaning of Article 101(1) (paragraph 280)
For standards involving IP that have the potential to restrict competition, the Horizontal Co-operation Guidelines state that the SDO should have “clear and balanced IPR policy, adapted to the particular industry” (paragraph 284) and that:
[i]n order to ensure effective access to the standard, the IPR policy would need to require participants wishing to have their IPR included in the standard to provide an irrevocable commitment in writing to offer to license their essential IPR to all third parties on fair, reasonable and non-discriminatory [ie, FRAND] terms
and that this commitment should be given prior to the adoption of the standard. The Horizontal Co-operation Guidelines also state that:
there would also need to be a requirement on all participating IPR holders who provide such a commitment to ensure that any company to which the IPR owner transfers its IPR (including the right to license that IPR) is bound by that commitment […] (paragraph 285)
Paragraphs 287 to 291 provide some detail on the Commission’s view of the purpose and content of FRAND commitments, including under article 102 TFEU. Notably, the Horizontal Co-operation Guidelines remain silent on the availability of injunctions for the alleged infringement of standard-essential IP (for more information on injunctions and FRAND-encumbered IP see questions 13 and 14). As regards article 101 TFEU, the Horizontal Co-operation Guidelines state that “[c]ompliance with Article 101 [TFEU] by the standard-setting organisation does not require the standard-setting organisation to verify whether licensing terms of participants fulfil the FRAND commitments” (paragraph 288).
The Horizontal Co-operation Guidelines do not contain provisions concerning the level of the supply chain at which SEP holders should license. Instead, the Horizontal Co-operation Guidelines refer to “effective access to the results of the standard-setting process,” and that “[i]f a company is either completely prevented from obtaining access to the result of the standard, or is only granted access on prohibitive or discriminatory terms, there is a risk of an anti-competitive effect” (paragraph 268). Access (which would occur at all levels of the supply chain) is clearly not synonymous with licensing (which would typically occur at only one level of the supply chain in part due to the IP law doctrine of patent exhaustion). Thus, it seems clear that according to the Commission’s guidance patent holders are entitled to license at whichever level, or levels, of the supply chain they deem to be appropriate provided that “effective access” to the standard is not denied. Similarly, the Horizontal Co-operation Guidelines do not contain any provisions concerning the appropriate royalty base. However, the Technology Transfer Guidelines state that “[i]n cases where the licensed technology relates to an input which is incorporated into a final product it is as a general rule not restrictive of competition that royalties are calculated on the basis of the price of the final product, provided that it incorporates the licensed technology” (paragraph 184).
Standardisation and unilateral conduct
How do competition rules on unilateral conduct apply to the exercise of intellectual property rights for technology that may be essential to a standard?
For discussion of standardisation and market definition, market power and dominance, see questions 3 and 6. Should standard-essential technology confer substantial and lasting market power upon its holder, it would be necessary to consider the application of article 102 TFEU. To date, the EU Court of Justice’s ruling in Huawei is the only ruling of the EU courts dealing directly with the application of article 102 TFEU to the exercise of IP that is genuinely essential to the implementation of a standard, or that has been declared as potentially standard-essential (see below). For the application of article 102 TFEU to IP rights more generally, see question 7.
It is questionable whether article 102 TFEU can apply to claimed exploitative exercise of standard-essential IP (see question 7). Further, the commitment to be prepared to license standard-essential patents on FRAND terms that is usually given by patent owners who participate in standard-setting activities (see question 12) provides standard implementers with the ability to dispute the FRAND nature of proposed licensing terms, either in negotiations or in litigation before a court. This additional argument logically militates against the need for antitrust intervention. Despite the foregoing, in its Horizontal Co-operation Guidelines, the Commission states that “the assessment of whether fees charged for access to IPR in the standard-setting context are unfair or unreasonable should be based on whether the fees bear a reasonable relationship to the economic value of the IPR” and refers to United Brands. The Commission makes a similar, albeit obiter, statement in its merger clearance decision in Case M.6381 Google/Motorola (2012) (paragraph 105). However, no such statements can be found in the Huawei ruling (see question 7).
In its 2017, non-binding, SEP Communication (see question 11), the Commission acknowledges that FRAND is not a one-size-fits-all solution, but what constitutes fair and reasonable can vary from sector to sector and depending of the business models in question. In this respect, and in line with member state rulings (see 2017 UK High Court ruling in Unwired Planet v Huawei, which is cited with approval by the SEP Communication), the SEP Communication recognises that a global, rather than a country-by-country, SEP licensing approach can be fair and reasonable when it is in line with a recognised commercial practice in the relevant sector, and therefore contributes to a more efficient approach. The SEP Communication also considers the FRAND element of non-discrimination of “similarly situated” licensees, again citing the UK High Court Unwired Planet v Huawei ruling (2017). In that case the UK court found that rates to “similarly situated” licensees do not have to be the same or similar but may vary as long as the difference does not distort competition between those licensees (see also question 7). The ruling was appealed to the UK Court of Appeal, whose judgment is pending at the time of writing.
In Case COMP/38636 Rambus (2009), the Commission accepted formal commitments from Rambus, which was being investigated for alleged “patent ambush”. In the press release accompanying that decision, the Commission described “patent ambush” as occurring when “a company taking part in the standard-setting process hides the fact that it holds essential [IPRs] over the standard being developed, and starts asserting such IPRs only after the standard has been agreed […]” (Commission press release (IP/09/1897)). As this was a commitments decision adopted pursuant to article 9 of Regulation 1/2003, the Commission did not make any findings as to whether there had been an infringement of EU competition law. Nevertheless, it is doubtful whether Rambus’ alleged behaviour would be a cognisable violation of article 102 TFEU: Rambus’ alleged behaviour – the “patent ambush” – may have allowed it to acquire a dominant position, but the unilateral acquisition of market power (“attempted monopolisation”), even by reproachable means, is not an abuse of a dominant position.
In Case COMP/39615 IPCom (2009), the Commission investigated IPCom for its licensing practices for a portfolio of patents that it had acquired and in relation to which the former holder (Bosch), but not IPCom, had given a FRAND commitment. The Commission closed its investigation into IPCom after IPCom declared itself ready to assume Bosch’s FRAND commitment. The Horizontal Co-operation Guidelines consider both prior disclosure of potentially standard-essential IP and the transfer of FRAND commitments in the context of article 101 TFEU (see question 12).
The subject of seeking and, if a request is successful, enforcing injunctions in relation to the infringement of potentially standard-essential IP has received a lot of attention in recent years. The 2015 Huawei preliminary ruling of the EU Court of Justice provides the relevant applicable standard (Case C-170/13). According to the Huawei ruling, due to the “particular circumstances of the case”, ie, indispensability of the SEP to compete on the downstream product market and the FRAND commitment given to the SDO (paragraphs 48-51), an SEP holder (who is also in a dominant position – the ruling does not determine issues of market definition or of dominance (see questions 3 and 6)) will not infringe article 102 TFEU by seeking injunctive relief in respect of the alleged infringement of an SEP – and presumably have the right to obtain an injunction – “as long as”:
- Prior to bringing that action, the SEP holder has first informed the implementer of the infringement complained about by (i) designating that SEP and (ii) specifying the way in which it has been infringed;
- The implementer has then “expressed its willingness to conclude a licensing agreement on FRAND terms”. If there is no such expression, the SEP holder can presumably seek – and obtain and enforce – an injunction without fear of antitrust liability;
- Assuming there has been such an expression of willingness, the SEP holder has presented a “specific, written offer for a license on [FRAND] terms”, specifying the royalty amount and calculation methodology; and
- Where the implementer continues to use the SEP, the implementer has not diligently responded to that offer, “in accordance with recognised commercial practices in the field and in good faith [...] which implies, in particular, that there are no delaying tactics”. These duties include making a FRAND counter-offer. Again, if there is a failure to respond diligently, a lack of good faith or any “delaying tactics” (concepts upon which the Court does not expand), or a non-FRAND counter-offer, the SEP holder can presumably seek – and obtain and enforce – an injunction without antitrust exposure.
(Paragraphs 60–68 and the operative part).
The ruling was triggered by a series of questions asked by a German court in the context of patent infringement litigation. In German domestic law (but not as a matter of EU law), an injunction by an SEP holder who is found to occupy a dominant position would generally be granted unless the party seeking to resist the injunction can raise an antitrust defence that the award of the injunction would be anticompetitive. This specificity of the law of the referring court perhaps accounts for the apparent conflation by the EU Court of Justice of the question whether an injunction should be awarded with the very different question whether antitrust liability should attach merely to the act of requesting such an injunction.
The ruling sets out a very stylised and formalistic negotiation scenario, and does not satisfactorily address what should happen in the event that both offer and counter-offer are made but a licence is not agreed, which is an unremarkable situation (limited discussion can be found at paragraphs 67–68). The ruling also does not address portfolio licensing or cross-licensing, which are again common practices.
However, the Huawei ruling appears to accept that antitrust liability could only arise if the litigated SEP is valid and essential and infringed in the case at hand, and in addition “indispensable to all competitors which envisage manufacturing products that comply with the standard to which [the SEP] is linked” (see, eg, paragraphs 49 and 62). The ruling establishes a safe harbour from the application of article 102 TFEU to dominant SEP holders who follow the procedure established by the EU Court of Justice. Furthermore, the inclusion of FRAND offer and counter-offer as part of the test means that before attaching antitrust liability or refusing an injunction request, courts and agencies would usually be required to assess whether offer and counter-offer were indeed FRAND.
The Huawei ruling was preceded by two Commission decisions, adopted on the same day in April 2014, which also concern the application of article 102 TFEU to seeking – and potentially obtaining and enforcing – injunctions in respect of alleged SEP infringement: Cases AT.39939 Samsung and AT.39985 Motorola. The former is a commitments decision pursuant to article 9 of Regulation 1/2003 and the latter is an infringement decision pursuant to article 7 of Regulation 1/2003 (although the Commission did not impose a fine on Motorola). There are a number of important points of divergence between the Huawei ruling and the Commission decisions. Of course, in the event of such divergences, the ruling of the EU Court of Justice prevails. The Commission decisions are therefore of very limited, if any, continued significance.
The Huawei ruling and the Commission decisions that came before it raise a number of serious concerns including, notably, over the respect of the fundamental EU law rights of access to the courts and to an effective remedy. It is particularly disappointing that the Court did not seek to reconcile its position with the precedent established by the General Court in Case T-111/96 ITT Promedia (1998), confirmed more recently in Case T-119/09 Protégé International (2012), which provides that bringing legal proceedings may only be qualified as an abuse of dominance in “wholly exceptional circumstances”, that is, when the action is “manifestly unfounded” and part of a “plan” or “deliberate strategy” to eliminate competition (ie, the legal proceedings are genuinely vexatious). While judgments of the General Court clearly do not bind the EU Court of Justice, these rulings nevertheless set out the hitherto widely recognised legal standard for abusive litigation.
In Unwired Planet v Huawei (2017), and consistent with the Court of Justice's Huawei v ZTE ruling providing a safe harbour for SEP holders rather than a prescriptive set of instructions for licensing negotiations, the UK High Court held that the seeking of an injunction did not infringe article 102 TFEU (and, as a separate matter, that an injunction was appropriate) in circumstances where the patentee had not strictly followed each step described by the Court of Justice in its Huawei v ZTE ruling (see above). The ruling was appealed to the UK Court of Appeal, whose judgment is pending at the time of writing. As noted above, the Commission’s SEP Communication cites Unwired Planet v Huawei approvingly (see also question 7).
Recent cases and other developments
A recent merger decision that deals with IP and licensing issues is the (approved but abandoned before completion) US$47 billion acquisition of NXP by Qualcomm (Case M.8306, 2018).
In November 2017 the Commission published the SEP Communication setting out the Commission’s non-binding approach to the licensing of SEPs (see questions 11 and 13). The SEP Communication acknowledges that a FRAND rate may vary across sectors and business models, and thus a global SEP portfolio license may well be fair and reasonable for products with global circulation. Further, the Commission cites, with approval, both the EU Court of Justice’s 2015 Huawei v ZTE ruling and the UK High Court’s 2017 Unwired Planet v Huawei ruling.
In Unwired Planet v Huawei (2017), the UK court held that a price above FRAND rate cannot be assumed to infringe article 102 TFEU, and could amount to an abuse only when, considering the circumstances of the case, it is substantially above FRAND or when the offer is so extreme that it disrupts or prejudices license negotiations. As noted above, the ruling was appealed to the UK Court of Appeal, whose judgment is pending at the time of writing (see questions 7 and 13).