Recent Developments In European Ip Antitrust Law

From Conflict to Complementarity

I - Starting point

  • Promises made by Patents

- for profit?
- Intellectual Property = Tangible Property?

  • Role of Intellectual Property in Competition

- Monopoly?
- Right for (not against) competition?

II - No conflict, but complementarity

  • Promote dynamic competition via technology transfer

- Restrictive Licences
- Res 772/2004

  • Free trade for competition and its limits

- Principles


The paper written by professor Ullrich about "Expansionist Intellectual Property Protection and Reductionist Competition Rules: A TRIPS Perspective" is downloadable here, or here.


You can find the presentation "Intellectual Property Rights and Competition Law: Conflict or Complementarity?" in the attached-files section of this page.


Below is a brief summary of the concepts that we faced during the last International law lessons.

THE INTERFACE BETWEEN IPRs AND COMPETITION LAW

First of all, it has to be defined what are the Intellectual Property Right: “rights given to people over the creations of their minds”. (by WTO)
There are two categories of these types of rights:
• INDUSTRIAL property rights: include trademarks, patents, industrial design, trade secrets
• COPYRIGHTS: are referred to INTANGIBLE things, such as the content of a book, a song, an image,..

The Competition Law, concerning the IPRs, has many objectives, and the most important ones are to improve the efficiency in the firms, to integrate the market, to protect the individual economic freedom of the competitors and to foster innovations.

For these reasons, IPRs and Competition law are COMPLEMENTARY and mutually enriching since they share the common goal to enhance efficiency and innovation that in turn increase consumer welfare, the former by developing the research and improving the quality of the products, the latter by strengthening competition between firms and fostering product differentiation.
Although sharing the same final objective, the two policies come often into CONFLICT. This is due because Competition law simultaneously addresses the needs of both producers (by decreasing the barriers to entry) and consumers (by providing a wider choice of products at competitive prices), while IP policy is concerned with the supply side of the market (by ensuring the IPR-holder a sort of temporary monopolistic power in order to give him the incentive to produce non-rival goods) and only indirectly with the consumers.

Without any incentive, non-rival goods (as Research & Development output) would not be produced because of the nature of these goods: a non-rival good is a good that, by nature, can be used or enjoyed by many people simultaneously, so that it is impossible to exclude someone from its use. R&D investments, for example, would benefit all the producers of the good to which they are related, if there were no IPRs protecting the investor. As a result the investor would be the only one facing the R&D costs, while the competitiors would be able to exploit the findings and sell the same innovated product at a lower price (gaining from free-riding!).

There are two different approaches relating to IPRs:
1. OLD APPROACH: its aim is the consumer’s welfare produced by the fact that IPRs stimulate investments in R&D.
This point of view gives rise to two main dilemmas:
- Vertical Innovation dilemma: exclusive rights may prevent the development of new technologies, because IPRs provide a huge power similar to the monopolistic one.
- Horizontal Diffusion dilemma: exclusivity may impede optimal exploitation of protected technologies, because there is not full intra-brand competition nor perfect inter-brand competition.

Intra-brand competition: it is referred to that one which there can be among retailers or distributors of the same branded products.
Inter-brand competition: it is referred to that one which there can be among producers in the same sector but that have developed different brand for their products.

2. NEW APPROACH: its aim is the equilibrium between competition law and welfare of the society (not only the consumer’s welfare) so this new economic method focuses on the efficiency improvement and the fostering of innovation. This last objective can be achieved leaving the individual development of technology made by single firm but shifting to an coordinated creation of innovation made by industrial group of firms.

It is important to keep in mind the “imperfect complementarity” between the different policies concerning the IPRs and the Competition Law(that are described above)to better understand the context of the highly patented pharmaceutical market and, more specifically, the controversial case which has seen one of the most important supplier of pharmaceutical products - GlaxoSmithKline - involved.

In short: in 2001 the European Commission declared the GSK practice in Spain aiming at fixing different prices according to the purpose of the wholesalers (whether they were going to sell the drugs within the country or in other countries) against EC antitrust law (art. 81) since it was considered a limitation of parallel trade - and therefore a restriction of competition - affecting the welfare of final consumers. (Commission decision of 8 May 2001 available here)

GlaxoSmithKline complained about this decision to the Court of First Instance since its behavior was not unlawful but was intended to promote research and innovation in favor to consumers. For this reason the CFI exempted GSK practice under Article 81(3) EC.

The CFI decision (available here) reflects an important shift from competition policy to “innovation policy”. While the first approach tends to safeguard the dissemination of technology, the innovation-oriented approach is concerned with the creation of new technologies by allowing exclusive rights in order to provide incentives to innovate. But, as many competition experts claim, exclusivity also leads to block the development of improved, related or complementary technology (VERTICAL INNOVATION DILEMMA) and impede optimal exploitation of protected technology under conditions of full intra-brand competition (HORIZONTAL DIFFUSION DILEMMA). (Ulrich 2004)

At the same time, GSK was also involved in a dispute with Greek wholesalers claiming that GSK was abusing its dominant position (under Art.82 EC) by initially stopping and then reducing the quantity of medicinal products supplied to them with the aim of restricting their exports to those countries in which the selling prices of medicines were higher. On the other side, GSK stated that the quantity provided was sufficient to cover all the requirements that the retailers were facing and that its behavior was, once again, intended to promote investment in R&D.

The ECJ gave reason to GSK: even though a limitation in the quantity supplied prevent, in principle, parallel trade and, therefore, distort competition, in the GSK case, since the supplies enabled the retailers to meet their requirements, its refuse to provide those who made “out of the ordinary” orders in terms of quantity was considered “reasonable and proportional” (ECJ decision). The ECJ sent back the case to the national authority leaving more questions than answers.

In conclusion, the new tendency seems to be that of finding a balance between competition and innovation. The living matter is to determine the extent to which competition can be restricted in order to promote innovation and enhance indirectly consumer welfare, taking into account case by case in a complementary-view direction.

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