Does EU Competition Policy

sufficiently promote companies

investment & innovation?

University CEU San Pablo

Madrid, 28-29 October 2013

Nicolas Petit

University of Liege (ULg) and College of Europe

Nicolas.petit@ulg.ac.be

www.chillingcompetition.com

Purpose of the presentation

• “Does EU Competition Policy sufficiently

promote companies investment & innovation?

R&D and technology transfer cooperation,

abuse of dominant positions and merger

control policy”.

For real?• Theological issue

• Measurement issue– What type of innovation? commercial/technological;

drastic/incremental

– Raft of indicators• Innovation inputs: patenting activity, R&D investments, HR devoted to

research

• Innovation outputs: new products placed in the market, etc.

– Rare area of EU law where no impact assessment

• Identification issue– Innovation not primarily driven by policy

– Many other relevant policies: trade; intellectual property; tax policy; labor policy; education; good governance; transparency; corruption; etc.

• Design issue– Competition rules applied through case adjudication, by a variety

of organs which do not necessarily follow a structured, consistent policy agenda

Reframing

• Does competition policy undermine other policies that seek to foster innovation, and in particular IPR policy?

• Old debate, yet resurgence of new cases on innovation markets with IPRs

• Leading IP Judge Robin Jacob: “competition authorities show signs of becoming anti-patent too. Examples are the recent absurd but vastly expensive pharma industry sector inquiry of the European Commission, and its even more recent interest in, and threat of such an inquiry into, the mobile phone industry” (R. Jacob, “IP Law: Keep Calm and Carry On?”, Current Legal Problems (2013) 66(1): 379-399.

Sample

• Technology markets: E-Books (closed), Samsung, Motorola, Google, MathWorks, Mosaid

• Pharma: AstraZeneca (closed), Lundbeck (closed), Servier, J&J

• Review of rules on Technology Transfer Agreements (BER and Guidelines)

• Horizontal Cooperation Guidelines: new section on Standardization

• Other– DuPont-Honeywell

– Thomson Reuters

– Rio Tinto

– S&P

No clear signs of an anti-IP

competition policy

Case-law

• Few infringement cases

– Lundbeck: market

sharing

– AstraZeneca: fraud

– E-Books: boycott

• Dropped cases

– Qualcomm

– IPcom

Texts

• HCG, §263:

“Standardisation

agreements usually produce

significant positive

economic effects”

• D. Woods, GCLC re. TTBER

review: “licensing is

generally pro-competitive

and should be encouraged”

Devil in the details?

• IP neutrality

• Patent = Monopoly

• Exotic theories of anticompetitive strategic patenting

• Phasing out of references to protective IP case-law

• “Soft” licensing

• Antitrust bipolarity

• Anti-Schumpeterian enforcement philosophy?

IP Atheism• Microsoft, §550: “intellectual

property rights are not in a different category to property rights as such”

• Microsoft, fn 249: “In any case, since the relevant specifications are not available for scrutiny, it is not possible for the Commission to determine to what extent Microsoft’s claims relating to various intellectual property rights are justified”.

• Thomson Reuters, §90: “The Commission does not take a view on whether RICs are protected by intellectual property rights”.

• S&P, §41: “the mere use of numbers for reference purpose is not capable of being subject to copyright”.

Patent = Monopoly

• CJEU, C-468/06 to C-478/06, Sot. Lélos kai Sia EE and Others v GlaxoSmithKline AEVE, [2008] ECR I-7139: §64 “a medicine is protected by a patent which confers a temporary monopoly”

• Commission Decision, Google/MMI: §54 “The specificity of SEPs is that they have to be implemented in order to comply with a standard and thus cannot be designed around, i.e. there is by definition no alternative or substitute for each such patent. Therefore, each SEP constitutes a separate relevant technology market on its own”.

• Flawed: patents rarely confer market power => substitute patents (e.g. Lipitor v Zocor); design around opportunities; unpatented substitutes (60% of patented inventions give rise to alternative in 4y)

Exotic Theories of Anticompetitive Harm

• “Patent hold up” => Samsung and Motorola

• “Patent thickets” => TTBER and Guidelines

review

• “Patent trolls” => Mosaid

• Strategic patenting => Pharma sector inquiry,

“tool-box” of strategic instruments

Illustration: Patent hold-up

• Source: M. Lemley and

C. Shapiro, “Patent

Holdup and Royalty

Stacking”, (2007) 85

Texas Law Review

Contentious

• Formal rebuttal: G. Langus, V. Lipatov and D. Neven, “Standard essential patents: who is really holding up (and when)?”, mimeo

• Empirical invalidation– Litigation costs are trivial (0,1% of Apple’s revenues in

2012)

– No empirical evidence: “In the recent case with Microsoft pursuing claims of hold-up against Motorola in the Western District of Washington, even Microsoft's experts …conceded under cross-examination that holdup was not necessarily a problem. Instead, they stated there was no evidence of hold-up and could not identify a single license that had been held up”.

Empirical data (telcos, Darts IP)

• Domaine: Brevets

• Tribunal: Europe

• Type de décision: Judiciaire

• Type de première action: Action en contrefaçon

• Niveau de décision: 1ère instance

• Nature de la décision: Action au fond

• Domaine technique: - Télécommunications (3)

Empirical data (digital

communications, Darts IP)

• Domaine: Brevets

• Tribunal: Europe

• Type de décision: Judiciaire

• Type de première action: Action en contrefaçon

• Niveau de décision: 1ère instance

• Nature de la décision: Action au fond

• Domaine technique: - Communication digitale

(4)

Empirical Data (Samsung, telcos)

Empirical data (Samsung, Digital

Communications)

Phasing out of IP-Protective Case Law

• No reference to “exercise/existence” dichotomy

• No reference to “specific subject matter”

• Reversal of Magill/IMS Health in CFI, T-201/04,

Microsoft Corp. v Commission (but reversed by

GC, T-167/08, Microsoft Corp. v Commission)

• No reference to Magill/IMS Health in:

– Horizontal Cooperation Guidelines

– Draft Technology Transfer Guidelines

“Soft” Licensing

• 2 cases only of compulsory licensing by agency

– Magill

– Microsoft

• Only the tip of the iceberg

– Other agency decisions

• Rambus

• S&P

• Thomson Reuters

– EU and national courts’ case-law

Antitrust Bipolarity

Litigate!

• Cases

– Lundbeck

– Servier

– J&J

• Texts

– Draft TTBER and Guidelines

remove anti-litigation clauses

from safe harbour

• No challenge clauses

• Termination clauses

• Settlement (pay for delay)

Settle!

• Samsung commits not to seek injunctive relief in the EEA with regard to all its SEPs for tablets and smartphones

• Licensing framework consists of: (i) a negotiation period of up to 12 months and (ii) a third party determination of FRAND terms by either a court or arbitrator, as agreed by the parties. If the parties cannot agree on either submitting to court or arbitration, the parties will have to submit to arbitration.

• http://europa.eu/rapid/press-release_MEMO-13-910_en.htm

Anti-Schumpeterian Approach?

• Unsettled debate over relationship between competition and innovation: Schumpeter v. Arrow v. Aghion et al.– But Commission may have a preference: Rio Tinto

Alcan, §§77 and 79

• Follow-on innovation (competition in the market) > drastic innovation (competition for the market)?– Interoperability orders

• Cisco/Tandberg

• Intel/McAfee

– Draft TTBER: all exclusive grant backs outside of safe harbour

“Black Swans”

Nicholas Banasevic, Global

Competition Review, 8 October

2013

“It’s important to remember that

antitrust intervention in IP is very

rare”

“Some of the cases [at the

moment] are very high-profile,

that’s why they get more

prominence. But [antitrust

intervention] is over-stated.”

Nassim Nicholas Taleb, The Black

Swan: The Impact of the Highly

Improbable, 2007

Antitrust “Black Swans” (or “Grey

Swans”)

• Definition and examples

– “An event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight” (Wikipedia)

– September 2001, WW1, financial crisis, Fukushima meltdown

• Antitrust “grey swan”: decisional activity that cannot be well anticipated but that has a sizable impact, and that is validated in retrospect as bound to happen (through contextual observations)

• Innovators discount risk of antitrust intervention ex ante, and then make inappropriate adjustments ex post

Antitrust “Grey Swans” (1)

• Cannot be anticipated

– Very nature of antitrust enforcement is to come ex

post

– Antitrust provisions have an elastic, open ended scope

– One size fits all policy: no clear distinction amongst

sectors or type of IP, though some may necessitate

antitrust deference

• Patents > trademarks

• Pharma > high tech

• Illustration: Xatalan case (Italy)

Antitrust “Grey Swans”(2)

• Retrospective predictability: “It was bound to happen”

• Many statements expressing suspicion at IP in the context of general declarations, non-binding legal instruments (such as guidelines, communications and notices) or through other channels (public speeches, policy reports, etc.)

• “Companies should spend their time innovating and competing on the merits of the products they offer – not misusing their intellectual property rights to hold up competitors to the detriment of innovation and consumer choice.” (Almunia)

Antitrust “Grey Swans” (3)

• Astronomical consequences

• Remedies

– Fines

– But also settlements under Article 9 proceedings

• Firms forfeit right of access to court (e.g., Samsung)!

Conclusions

• Antitrust intervention, even if rare, may have extreme consequences on innovators’ conduct

• Maybe it is IP policy that is broken

• Patent system in need of reform? Posner talking of “patent proliferation” or “minefield” => 400,000 patents on software

• Then change IP policy?

• More predictable, ex ante rules

• Targeted at patents

• No “Grey Swan” effect