A Competition Approach to Intellectual Property Protection

1 November 2007

The relationship between intellectual property protection and fair competition presents difficult challenges to policy-makers, particularly in developing countries that have little experience in the application of competition law and policies.
Intellectual property (IP) law subjects intellectual assets to the exclusive control of right owners. In contrast, competition law seeks to avoid market barriers and benefit consumers by ensuring that a multiplicity of suppliers of goods, services and technologies may effectively compete against each other.
Competition laws can be applied to remedy anti-competitive practices related to the acquisition and exercise of intellectual property rights (IPRs). However, many developing countries lack competition laws or effective mechanisms for their implementation. These countries may apply a broader competition policy approach to deal with the IP-competition relationship by ensuring that certain regulations that directly influence market entry and contestability IPRs, such as those dealing with the marketing approval of pharmaceuticals and agrochemicals, are designed and applied in a pro-competitive manner.
Developing countries can follow their own approach to competition law and IPRs since there are no other international rules than Article 40 of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) that constrain their capacity to discipline IP-related anticompetitive behaviour. They could, for instance, include provisions in national competition law to address situations in which IPRs are used to charge excessive prices for or to prevent access to protected technologies.
‘Refusal to Deal’ and the ‘Essential Facilities’ Theory
Competition provides a strong incentive for the development of new technologies in certain fields. Even in cases where a country does grant IPR protection, governments can adopt measures to mitigate the monopolisation of technologies and promote competition. Thus, although TRIPS Article 31(b) refers only to the refusal of a voluntary licence as a condition for the granting of a compulsory licence, the unilateral refusal to voluntarily licence a patent (known as ‘refusal to deal’) can be autonomous grounds for the grant of a compulsory licence. Such clauses have been contemplated in a number of national patent laws.
Some countries have also considered the possibility of permitting third parties’ use of inventions under patent in cases of refusal to deal in the context of the ‘essential facilities’ concept. This doctrine applies when a firm that controls an essential facility denies a second firm reasonable access to a product or service that the latter must obtain in order to compete with the first.
While some US court decisions have suggested that information may constitute an essential facility, the extent of the application of this doctrine to intellectual property cases is uncertain. Under European Community law, an ‘essential facility’ may include an intellectual property right. An IPR-holder is not entitled to exclude competitors from the use of his rights when a licence thereof is essential to competition, i.e. the refusal to licence prevents the introduction of a new product or allows the right-holder to monopolise a secondary market.
Developing countries may draw interesting lessons from the application of the concepts of ‘refusal to deal’ and ‘essential facilities’ in developed countries. However, there are no rigid models and developing countries are free to elaborate their own approaches to competition law in order to respond to their public interests.
Patents and Competition Policy
Respect for IPRs under competition law is premised on the assumption that the intellectual property was lawfully obtained. Competition law may be applied when a particular intellectual property right was not obtained in the proper manner or is otherwise not justified (for instance, because the rights-holder deceived the patent office). In addition, low standards of patentability and shortcomings in patent examination may lead to the grant of ‘poor quality’ patents that can hamper competition. Acquiring patent rights for frivolous developments or with overly broad claims can provide grounds for anti-competitive intervention even in jurisdictions where IP is essentially seen as compatible with competition law.
The accumulation of private rights in the form of ‘patent packages’ may also have anticompetitive effects. This could happen, for instance, if the ‘package’ is used to inappropriately extend legitimate patents’ market power to illegitimate patents, or to coerce a party into licensing patents that it might have chosen to avoid. ‘Patent thickets’ may also raise competition law concerns, as cooperation among competitors (including cross-licensing) may be necessary to navigate the thicket, thus ultimately limiting competition. ‘Sham petitioning’ may equally provide the basis for a claim under competition law. The US Federal Trade Commission, for instance, has intervened in some cases of fraudulently obtained patents.
Other Elements of a Procompetitive IP Regime
While much of the literature on IPRs and competition law focuses on patents, anticompetitive behaviour may also take place in the context of other intellectual property rights. Copyrights, for example, have been involved in important competition law disputes. Several studies have shown that copyrights create monopoly power, and that progressive concentration is occurring in the majority of information goods markets at both national and international levels. The anti-competitive effects of copyright protection of software, and interfaces in par- ticular, have been central in several cases, notably involving Microsoft. Competition law concerns have also frequently arisen in relation to copyright-collecting societies. Fundamental tension between the goals of trademark and competition law has been observed in some cases as well.
Moreover, undue enforcement of IPRs can amount to anti-competitive conduct. In particular, preliminary injunctions may be effectively used to prevent legitimate competition. This is why courts in the United States and Europe have generally taken a very cautious approach towards granting injunctions in patent cases. Border measures may also be used with an anti-competitive intent.
Enforcement measures should allow the protection of the right-holder’s legitimate interests, but equally protect against abuses that may unjustifiably distort competition. In the US, the concept of ‘sham’ litigation may be applied in cases of abuses of legal procedures, notably when a legal action is based on fraudulently acquired IPRs or on an obviously incorrect legal theory; on valid rights that are known to be unenforceable; or where the plaintiff knew that there was no infringement.
Compulsory licensing provisions can be included in both intellectual property and competition laws. Article 31(k) of the TRIPS Agreement, explicitly provides for the granting of such licences in the case of patents. Grounds for granting compulsory licences under competition law have included in the US the use of patents as a basis for pricefixing or entry-restricting cartels, the conclusion of market-concentrating mergers in which patents played an important role, and practices that extend the scope of patent restrictions beyond the bounds of the patented subject matter. Compulsory licences may also be issued when cross-licensing unduly limits competition, particularly in cases that involve substitute technologies, i.e. technologies that actually or potentially compete with each other, independently of their intrinsic characteristics.
‘Patent pools’ provide another situation that may be subject to analysis from a competition policy perspective. While such pools may be used for pro-competitive purposes, they may also facilitate tacit collusion in a multiplicity of markets and allow the pool members to impose abusive terms on non-members seeking access to the technologies in question.
Finally, there are a number of areas in which IPRs play an important role and where actions taken by governments decisively shape competitive relations. This is notably the case with regulations determining the requirements for marketing approval of pharmaceutical and agrochemical products. The sui generis system of ‘data exclusivity’ applied in some countries – and promoted through free trade agreements – confers a temporary right to the exclusive use of such data by the first applicant (generally the company that developed a new product), thereby excluding generic competition during the period of exclusivity.
Restrictions to competition may also arise from the so-called ‘patent-registration linkage’ under which a national health authority cannot approve a medicine without the consent of the owner of patents covering it.
Some Recommendations
In conclusion, intellectual property legislation cannot be designed and applied in isolation from other legal disciplines, particularly competition law. The ‘competition policy’ approach suggests that creating and preserving the conditions for competition and market contestability in the area of IPRs is not only the task of competition law or antitrust authorities. Defining the right balance between competition and IPRs is an objective to be achieved through a diversity of policies and regimes.
A number of recommendations to developing countries can be made, namely:

  • establish or strengthen competition laws in order to control, inter alia, possible abuses emerging from the acquisition and exercise of IPRs;
  • consider the competition implications of various policies and regimes that determine market entry, such as marketing approval of pharmaceutical and agrochemical products;
  • ensure an adequate co-ordination among the competition law agency and other agencies whose decisions may influence the market structure and operation, with the aim of maintaining a competitive environment;
  • fully use the flexibilities allowed by the TRIPS Agreement to determine the grounds for the rant of compulsory licences to remedy anti-competitive practices relating to IPRs;
  • consider, in particular, the granting of compulsory licences in cases of ‘refusal to deal’;
  • apply the ‘essential facilities’ doctrine to address situations of control of essential technologies, taking into account the relevant market conditions and public needs;
  • develop policies, including guidelines, to prevent and correct abuses in the acquisition and enforcement of IPRs;
  • address situations that may normally lead to the anti-competitive conduct such as ‘package’ and ‘thicket’ patents;
  • adopt guidelines for the use of patent offices to prevent the granting of frivolous or low quality patents, as well as patents with overbroad claims, which may be used to unduly restrain legitimate competition and block innovation; and
  • avoid ‘linkage’ provisions and data exclusivity in order to promote competition in markets of regulated products.

Carlos Correa is Director of the Center for Interdisciplinary Studies on Industrial Property and Economics (CEIDIE) at the University of Buenos Aires. The author adapted this article from his study on ‘Intellectual Property and Competition Law: Exploring Some Issues of Relevance to Developing Countries’. ICTSD Programme on IPRs and Sustainable Development. October 2007

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