Module IV - Case Studies

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Module VI Case Laws

INTRODUCTION ............................................................................................................................................... 1

TENSION BETWEEN COMPETITION AND INTELLECTUAL PROPERTY LAW........................................................ ....................... 4

SAFE HARBOUR |SAFETY ZONE................................................................................................................................. 5

United States ............................................................................................................................................................... 5

Canada......................................................................................................................................................................... 6

European Union .......................................................................................................................................................... 7

United Kingdom........................................................................................................................................................... 8

India............................................................................................................................................................................. 9

REFUSAL TO LICENSE........................................................ ................................................................. ..................... 10

Outright refusal to License ........................................................................................................................... 10

United States ............................................................................................................................................................. 10

Canada....................................................................................................................................................................... 13

European Union ........................................................................................................................................................ 14

United Kingdom......................................................................................................................................................... 16

India........................................................................................................................................................................... 17

Exclusive Licenses ......................................................................................................................................... 21

United States ............................................................................................................................................................. 22

Canada....................................................................................................................................................................... 22

European Union ........................................................................................................................................................ 24United Kingdom......................................................................................................................................................... 25

India........................................................................................................................................................................... 25

CASE STUDIES ................................................................................................................................................ 28

US:IN RE:CARDIZEMCDANTITRUSTLITIGATION.LOUISIANA WHOLESALE DRUG CO.(PLAINTIFF)V.HOECHST MARION

ROUSSEL,INC.AND ANDRX PHARMACEUTICALS,INC.(DEFENDANT)332F.3D 896 ................................................ .......... 28

US:IMAGE TECHNICAL SERVICES (PLAINTIFFS)V.EASTMAN KODAK CO.(DEFENDANT)125F.3D 1195 ............................... 34

IN RE INDEPENDENT SERVICE ORGANIZATIONS ANTITRUST LITIGATION (CSU,L.L.C.V.XEROX CORP.)203F.3D 1322(FED.CIR.

2000) ................................................................................................................................................................ 43

VERIZON COMMUNICATIONS INC.V.LAW OFFICES OF CURTIS TRINKO LLP(TRINKO)540US398(2004) ........................... 46

PACIFIC BELL TELEPHONE COMPANY (AT&T)V.LINKLINE COMMUNICATIONS (LINKLINE)555US438(2009) ................... .. 49


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Introduction

Competition law, by contrast remains largely national in focus. Each country (or jurisdiction,

in the case of European Union) applies its laws to conduct having effects within the

territory. A single restraint with effects in multiple jurisdictions may be subject to

competition laws of several countries. Furthermore, despite significant progress in reducing

inconsistencies among various national laws, substantial differences remain. Common

licensing issues, such as package licensing and grant backs, can be handled very differently

by regulatory authorities in various countries. Thus, a single restraint may be found to

violate the competition laws of one jurisdiction but not those of another.

In recent years, a number of cases involving application of national competition law to cross

border IP licensing practices have captured attentions. Microsofts practices of tying and

integrating various types of software have subjected it to sanctions under the antitrust and

competition laws of the United States, the European Union, Japan, and Korea, although the

various jurisdictions did not challenge the same tying and integration practices. In the

United States, both the Federal Trade Commission (FTC) and private litigants challenged

Intels practice of refusing to supply certain copyrighted product information unless the

recipient agreed to license certain patent rights both to Intel and to Intels customers on

favourable terms. No other jurisdiction challenged Intels practices. More recently, the

Japan Fair Trade Commission challenged similar practices of Microsoft and Qualcomm.

To date no other jurisdiction has followed the lead of the Japan Fair Trade Commission.

Certain private litigants in the United States and Korea Fair Trade Commission challenged

certain royalty based provisions of Qualcomms licensing agreements, but based on

somewhat different theories; the European Commission also investigated royalty provisions

of Qualcomms licensing agreements, although apparently based on its own v ariation of

theory of violation. Arrangements for package licensing of broadcast rights to films and

music libraries have also been considered in various jurisdictions.

As more companies are licensing patents and copyrights in the international arena, and

competition regulators in many countries focus greater attention to intellectual property

licensing transactions, there is a rising need for regulators, practitioners and corporate


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counsel to understand the intersection of intellectual property and competition law in

multiple countries.


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Tension between Competition and Intellectual Property Law

Many practitioners perceive an inherent tension between competition law and intellectual

property law. Both schemes seek to promote innovation. Competition law attempts to

achieve both short term competition and long term innovation, however, Intellectual

property law, by contrast, generally involves the sacrifice of short term competition in an

effort to promote innovation. This leads to questions of whether one legal scheme must

yield to the other or, if not how one should accommodate the other.

The question arises most concretely in the form of whether the exercise of intellectual

property rights should be exempt from competition laws, and if so, what the breadth of

such an exemption should be. Some (but not all) jurisdictions have provided for some form

of exemption or safe harbour for certain practices relating to the exercise of intellectual

property, but the scope of applicable exemption or safe harbour varies widely.

In the absence of, or outside of, scope of such an exemption, it is necessary to determine

the circumstances in which practices relating to the exercise of intellectual property rights

might violate competition laws. The laws of most jurisdiction are consistent in providing thatthe majority of arrangements relating to the licensing of (or refusal to license) intellectual

property do not violate competition laws. The laws of most jurisdictions are also consistent,

however, in providing that certain licensing practices will violate competition laws and will

not be saved by rights associated with intellectual property. Although there are many

common elements to the way in which various competition regimes approach specific

issues, there nevertheless remain significant differences with respect to the particular

licensing practices that might give rise to violation of a countrys competition laws and the

specific circumstances in which a violation might be found.

In order to provide the necessary background for analysis of interplay of competition and

intellectual property law in each jurisdiction.


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Safe Harbour | Safety Zone

The law or administrative practice of certain jurisdictions provides a safe harbour or safety

zone for restrictions imposed on the exploitation of intellectual property rights. For

example, the law or administrative practice of a number of jurisdictions provide that the

competition laws generally will not apply (or the enforcement agency will not commence

enforcement actions) if the companies involved account for less than a certain share of

technology or product market in question and/or if a certain number of companies hold or

make available rights to alternative technologies.

United States

US case laws do not provide any safe harbour for IP licensing arrangements. Rather the test

for applicability of antitrust law to a particular IP licensing arrangement will be whether it

causes anticompetitive harm in a relevant market (except for the rare circumstance when

an arrangement is considered to be a per se violation).

In re Cardizem CD Antitrust Litigation, Louisiana Wholesale Drug Co. v. Hoechst Marion

Roussel Inc,332 F.32 896, 908, 915 (6th

Cir. 2003), an agreement pursuant to which a brand

name manufacturer pays a generic manufacturer not to sell any generic version of the

product and which excludes other potential generic entrants, is a per se violation of the

Sherman Act.

To provide more specific guidance with respect to the agencies enforcement intentions, the

FTC and DOJs IP Guidelines provide for an antitrust safety zone for licensing arrangement

meeting certain qualifications. The IP Guidelines state that, absent extraordinary

circumstances, the agencies will not challenge a restraint in an intellectual property

licensing arrangement if:

(i) the restraint is not facially anticompetitive, and;

(ii) the licensor and its licensee collectively account for no more than 20% of each

relevant market significantly affected by the restraint.1

1US Antitrust Guidelines for the Licensing of Intellectual Property
http://ftc.gov/bc/0558.pdfhttp://ftc.gov/bc/0558.pdfhttp://ftc.gov/bc/0558.pdfhttp://ftc.gov/bc/0558.pdf


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Similarly, intellectual property licensing arrangements that may affect competition in

research and development (referred to as an innovation market) will not be challenged,

absent extraordinary circumstances, if:

(1)

the restraint is not facially anticompetitive and;

(2) for or more independently controlled entities in addition to the parties to the

licensing agreement possess the required specialized assets or characteristics and

the incentive to engage in research and development activities of the parties to the

licensing agreement.

The agencies emphasize that they will not presume that licensing arrangements falling

outside of this safety zone are anticompetitive, and that it is likely that the great majority

of licenses falling outside the safety zone are lawful and precompetitive.

Canada

The general provisions of the Competition Act do not apply to conduct consisting solely of

the mere exercise of an IP right. That said, the Canadian Competition Act does not contain a

specific safe harbour for practices involving IP.

Unlike the approach taken in the US and the EU, the IP Guidelines 2 do not specifically

recognise a competition safety zone or safe harbour. Nevertheless, the Bureaus

enforcement approach with respect to abuse of dominance recognizes that where a firm (or

a group of firms acting together) possesses less than 35% share of a relevant market, the

Bureau will not challenge the conduct of such firm.

Leading decisions of the Tribunal demonstrate its reluctance to have competition laws

interfere with the exclusive rights and privileges conferred by IP laws. Specifically, theTribunal has held that the mere exercise of an IP right to refuse to license IP to a

complainant is not an anticompetitive act.3 Competitive harm must stem from the more

than the mere refusal to license.

According to IP Guidelines the Bureau determines whether the mere exercise of an IP right

meets the threshold for intervention by analysing the situation in two steps. In the 1st

step,

2Canada Intellectual Property Enforcement Guidelines

3Director of Investigation & Research v. Warner Music Canada Ltd.[1997] 78 CPR 3d 321(Comp. Trib.) (Can)
http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/vwapj/ipege.pdf/$FILE/ipege.pdfhttp://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/vwapj/ipege.pdf/$FILE/ipege.pdfhttp://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/vwapj/ipege.pdf/$FILE/ipege.pdfhttp://www.canlii.org/en/ca/cact/doc/1997/1997canlii3725/1997canlii3725.pdfhttp://www.canlii.org/en/ca/cact/doc/1997/1997canlii3725/1997canlii3725.pdfhttp://www.canlii.org/en/ca/cact/doc/1997/1997canlii3725/1997canlii3725.pdfhttp://www.canlii.org/en/ca/cact/doc/1997/1997canlii3725/1997canlii3725.pdfhttp://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/vwapj/ipege.pdf/$FILE/ipege.pdf


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the Bureau determines whether the mere refusal (typically the refusal to license IP) has

adversely affected competition to a degree that would be considered substantial in a

relevant market that is different or significantly larger than the subject matter of IP or the

products and service which result directly from the exercise of IP. The Bureau must besatisfied that:

(i) the holder of the IP is dominant in the relevant market; and

(ii) the IP is an essential input or resource for firms participating in the relevant

market; and

(iii) the IP is an essential input or resource for firms participating in relevant market,

i.e. the refusal to allow others to use the IP prevents other firms from effectively

competing in the relevant market.

In the second step, the Bureau balances the goals of IP law and competition law by

determining whether invoking a special remedy against the IP holder would not adversely

alter the incentives to invest in research and development in the economy.

European Union

For the purpose of the EU competition rules, a technology transfer agreement is an

agreement where one party (the licensor) authorizes another party (or parties, the

licensee(s) to use its technology (patent, know-how, software license) for the production of

goods and services. In assessing restrictive provisions in the license agreements, the

Commission bears in mind the substantial investment and significant risks often associated

with creating IPRs, and the consequential need to maintain investment incentives in light of

both successful and failed projects. In addition, the Commission acknowledges that most

license agreements do not restrict competition, and, even if they do, the benefits arising

from the dissemination of the technology and the promotion of innovation through the

agreement can outweigh the negative restrictive effects and, therefore render it compatible

with Article 101.

The EU competition rules for licensing agreements are set out in Article 101 of the Treaty on

the Functioning of the European Union. Article 101 prohibits agreements between

companies which lead to an appreciable restriction of competition. Enforcement of this

primary rule is complemented by two instruments, the technology transfer block exemption


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regulation ("TTBER") and accompanying Guidelines, The Commission has codified its

administrative practice in the TTBER.4 The TTBER creates a safe harbour for technology

transfer agreements under EU competition law. The Guidelines5 provide guidance on the

application of the TTBER as well as on the application of EU competition law to technologytransfer agreements that fall outside the safe harbour of the TTBER. The competition rules

aim to strengthen the incentives for initial R&D, facilitate diffusion of intellectual property

and generate market competition.6

Conceptually, in assessing whether an IP licensing agreement is in compliance with EU

competition rules, the parties have to determine

(i)

Whether the arrangement infringes the prohibition of Article 101(1);

(ii) If it does, whether the TTBER provides for a safe harbour, and;

(iii) If the agreement is outside of the safe harbour, if the general exemption criteria

of Article 101(3) apply.7

Regarding Article 101, the TTBER provides for a safe harbour that is based on market shares.

In addition the guidelines provide for an alternative safe harbour based on the number of

technologies available.

United Kingdom

Parties should follow EU rules (TTBER and Guidelines) with respect to technology licenses)

as the primary source of official guidance. Parties should also conduct an economic and legal

assessment of the IP agreement in accordance with the principles of UK law. The United

4COMMISSION REGULATION (EC) No 772/2004 on the application of Article 81(3) of the Treaty to categories of

technology transfer agreements5Guidelines on the Application of Article 81 of the EC Treaty to Technology Transfer Agreements, 2004 OJ (C

101) 26These instruments will expire on 30 April 2014. In order to prepare the regime to be applied after that date

and to ensure that it both reflects current market realities and provides for the possibility of non-competitors

and competitors to enter into technology transfer agreements where it contributes to economic welfare

without posing a risk for competition, the Commission has invited stakeholders to present their views on their

experiences in applying the BER and the accompanying Guidelines in practice. In light of stakeholders'

submissions, the Commission will adopt a new regime before April 2014.7 The TTBER provides for an exemption to the prohibition of Article 101(1), so that the TTBER cannot

technically apply where Article 101(1) is not infringed.
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2004:123:0011:0017:EN:PDFhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2004:123:0011:0017:EN:PDFhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2004:123:0011:0017:EN:PDFhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2004:123:0011:0017:EN:PDFhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2004:101:0002:0042:EN:PDFhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2004:101:0002:0042:EN:PDFhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2004:101:0002:0042:EN:PDFhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2004:101:0002:0042:EN:PDFhttp://europa.eu/rapid/press-release_IP-13-120_en.htm?locale=enhttp://europa.eu/rapid/press-release_IP-13-120_en.htm?locale=enhttp://europa.eu/rapid/press-release_IP-13-120_en.htm?locale=enhttp://europa.eu/rapid/press-release_IP-13-120_en.htm?locale=enhttp://europa.eu/rapid/press-release_IP-13-120_en.htm?locale=enhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2004:101:0002:0042:EN:PDFhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2004:101:0002:0042:EN:PDFhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2004:123:0011:0017:EN:PDFhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2004:123:0011:0017:EN:PDF


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Kingdom does not offer any official or quasi-official guidance. The OFTs stated position is

that the parties should not rely on the draft guidelines that it published in November 2001.8

The TTBER provides for a safe harbour for horizontal agreements if the parties combined

market share does not exceed 20% and for vertical agreement if each partys individual

market share does not exceed 30% of any relevant market share. The European

Commissions guidelines further state that Article 101 of the TFEU is unlikely to be infringed

if there are four or more independently controlled technologies, in addition to those

controlled by the parties, available at comparable cost.

The safe harbours provided by the EU competition rules are the only safe harbours that may

be available in the United Kingdom.

India

The Competition Act 2002 does not permit any unreasonable condition forming a part of

protection or exploitation of intellectual property rights. According to the section 3(5)

nothing in the Section 3 shall restrict the right of any person to restrain any infringement of,

or to impose reasonable conditions, as may be necessary for protecting any of his rights

which have been or may be conferred upon him by IP laws. The term reasonable conditions

have not been defined and hence left on the enforcers or the judiciary to decide what falls

within the ambit of term unreasonable where Competition Act can be invoked. The

unreasonable conditions may vary ranging from imposing unfair pricing, limiting market

access, and continued royalties even after expiry of IP rights, price fixing, rent seeking,

territorial restrictions etc.

In other words, licensing arrangements likely to affect adversely the prices, quantities,

quality or varieties of goods and services will fall within the contours of competition law as

long as they are not in reasonable juxtaposition with the bundle of rights that go with IPRs.

Therefore the reasonability of the conditions in agreements involving IPRs has to be there to

avail the exception under Section 3 (5) of Indian Competition Act or otherwise CCI may be

called upon to take note of anti-competitive agreement under Section 19 of the Act and it

may pass order of divesture of intellectual property or compulsory licensing under the

provisions of the Act.

8OFT, Intellectual Property Rights: A Draft Competition Act 1998 Guidelines, OFT 418


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Refusal to License

Outright refusal to License

Most jurisdictions accept that, as a general principle, the holder of intellectual property has

the right to refuse to license its IP if it wishes. However, a number of countries provide an

obligation to license intellectual property under certain limited circumstances. This section

explores whether, and if so under what circumstances, the competition laws of the

jurisdiction in question may require an intellectual property owner to license its IP.

United States

The prevailing view is that a unilateral, unconditional refusal to license intellectual property

rights does not violate the antitrust laws, there is still some uncertainty on the subject. To

the extent that an IP holders decision to refuse to license its IP might involve antitrust

issues, it would most likely implicate Section 2 of the Sherman Act.

Two cases in particular support the view that an IP holder may be exposed to antitrust

liability for refusing to license its intellectual property under certain limited circumstances. It

is unclear, however, whether these cases are still good law.

In Data General Corporation v. Grumman Systems Support Corporation9, the First Circuit

evaluated a monopolization claim involving a unilateral refusal to license a copyright and

held that, an authors desire to exclude others from use of its copyrighted work is

presumptively valid business justification for any immediate harm to consumers, although

there may be rare cases where an antitrust plaintiff could rebut the presumption.

InImage Technical Services v. Eastman Kodak Co. (Kodak)10

, the Ninth Circuit, in adopting a

modified version of Data Generals rebuttable presumption test, held that this presumption

could be rebutted by evidence of test, held that this presumption could be rebutted by

evidence of pretext. In upholding a jury verdict that Kodak had violated Section 2 of the

Sherman Act by withholding patented and copyrighted parts from independent services

organizations, the court explained that evidence regarding the state of mind of the

defendants employees may throw pretext when such evidence suggests that the proffered

business justification played no part in the decision to act.

936 F. 3d 1147 (1

stCir. 1994)

10125 F.3d 1195 (9

thCir. 1997)


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In a case based on comparable facts to Kodak the Federal Circuit held in CSU v. Xerox

Corporation (Xerox)11 that it would not inquire into the patent holders subjective

motivation for exerting his statutory rights, even though his refusal to sell or license his

patented invention may have an anticompetitive effect, so long as that anticompetitiveeffect is not illegally extended beyond the statutory patent grant. Thus the court endorsed

the view that in absence of any indication of illegal tying, fraud in the Patent and

Trademark Office, or sham litigation, the patent holder should be immune from the

antitrust laws.

Recently Supreme Court cases support the Federal Circuit position inXerox. Even though the

case did not involve intellectual property, the Supreme Court in Verizon Communications

Inc. v. Law Offices of Curtis Trinko LLP (Trinko)12addressed refusals to deal in a broader

context an endorsed the view that courts should be very cautious in recognizing exception

to the general rule that even monopolists may choose with whom to deal. The court held

that the facts in Trinkodid not justify creating another exception to this general rule. The

Court explained that the exception recognized by the Court in Aspen Skiing v. Aspen

Highlands Skiing Corporation13

was at or near the outer boundary of Section 2 liability,

and stated that the Court had never recognized the doctrine of essential facilities.

More recently, the Supreme Courts decision in Pacific Bell v. linkLine Communications

(linkLine)14

expanded its holding in the Trinkoto apply to price-squeeze claims.15The court

explained that when a defendant has no antitrust duty to deal with its rivals at wholesale, a

price squeeze claim cannot be brought under Section 2 of the Sherman Act. It is likely that

linkLinewill further limit the ability of an antitrust plaintiff to assert Section 2 claims against

a rival that refuses to provide it with necessary inputs, including intellectual property. Trinko

11203 F.3d 1322 (Fed. Cir. 2000)

12540 US 398 (2004)

13472 US 585 (1985)

14555 US 438 (2009)

15A price squeeze, or margin squeeze, is a theory of antitrust liability that concerns the pricing practices of

a vertically integrated monopolist that sells its upstream bottleneck input to firms that compete with themonopolist in the production of a downstream product sold to end users. Gregory Sidak, Abolishing the Price

Squeeze as a Theory of Antitrust Liability, Journal of Competition Law & Economics, 4(2), 279309
http://jcle.oxfordjournals.org/content/4/2/279.full.pdfhttp://jcle.oxfordjournals.org/content/4/2/279.full.pdfhttp://jcle.oxfordjournals.org/content/4/2/279.full.pdfhttp://jcle.oxfordjournals.org/content/4/2/279.full.pdfhttp://jcle.oxfordjournals.org/content/4/2/279.full.pdfhttp://jcle.oxfordjournals.org/content/4/2/279.full.pdfhttp://jcle.oxfordjournals.org/content/4/2/279.full.pdfhttp://jcle.oxfordjournals.org/content/4/2/279.full.pdf


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and linkLine may indicate that the court would be more likely to endorse the Federal

Circuits view inXeroxthan the Ninth Circuits view of Kodak.16

Conditional refusals to license have been treated differently than unconditional refusal to

license by both the courts and agencies. For example in United States v. Microsoft17,

Microsoft defended its policy of refusing to license its intellectual property except on

specific terms that prevented customers from removing icons, altering the initial boot

sequence, or otherwise altering the appearance of the Windows desktop. The DC Court

rejected Microsofts argument that the owner of lawfully obtained intellectual property has

an absolute and unfettered right to use its intellectual property as it wishes, without

giving rise to antitrust liability. The court stated that such an argument is no more correct

than the proposition that use of ones personal property, such as a baseball bat, cannot give

rise to tort liability. The agencies also concluded in the Innovation and Competition Report

that there are circumstances in which imposing conditions for a license may be

anticompetitive and that view is consistent with a long line of antitrust cases.18

One example of court and agency treatment of a conditional refusal to deal arose in

Intergraph Corporation v. Intel Corporation19 and In re Intel Corporation

20 respectively.

According to FTCs allegation, Intel supplied patent and copyrighted protected technical

information and specifications regarding future products to customers in advance of the

release date of microprocessors. However, according to FTCs complaint, Intel refused to

provide advance technical information and specifications to three customers Intergraph,

Digital Equipment and Compaqbecause those companies refused to grant Intel and Intels

licensees royalty free licenses to their microprocessors related patents. Intergraph sued

Intel in a private suit. The Federal Circuit reversed a district courts entry of preliminary

injunctive relief against Intel, ruling that Intergraph and Intel were not direct competitors in

any downstream product market and therefore Intel could not be held liable for

16It has been suggested in the Article in footnote 15 above that the price-squeeze theory of antitrust liability

should be abolished in American antitrust law. The theory is incompatible with contemporary antitrust

jurisprudence, and on economic grounds the threat of such liability discourages investment, retail price

competition, and the voluntary provision of inputs on negotiated terms by vertically integrated monopolists to

current and potential rivals otherwise unable to obtain or self-provide them. p. 282.17

253 F.3d 34 (DC Cir. 2001)18

US Dept. of Justice and Federal Trade Commission,Antitrust Enforcement and Intellectual Property Rights:

Promoting Innovation and Competition (2007)19195 F.3d 1346 (Fed. Circ. 1999)20

128 FTC 213 (1999)
http://www.ftc.gov/reports/innovation/P040101PromotingInnovationandCompetitionrpt0704.pdfhttp://www.ftc.gov/reports/innovation/P040101PromotingInnovationandCompetitionrpt0704.pdfhttp://www.ftc.gov/reports/innovation/P040101PromotingInnovationandCompetitionrpt0704.pdfhttp://www.ftc.gov/reports/innovation/P040101PromotingInnovationandCompetitionrpt0704.pdfhttp://www.ftc.gov/reports/innovation/P040101PromotingInnovationandCompetitionrpt0704.pdfhttp://www.ftc.gov/reports/innovation/P040101PromotingInnovationandCompetitionrpt0704.pdf


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monopolizing the market for workstations in which Intergraph competed. The FTC, in

contrast, alleged that Intels conduct had the effect of maintaining its monopoly power in

the market for microprocessors by diminishing the incentives of other companies to develop

new microprocessor related technologies that might erode Intels monopoly position. Thematter was settled by a consent decree ordering Intel to cease refusing to supply advance

technical information to any customer for reasons relating to dispute over intellectual

property unless a customer refused to agree not to pursue injunctive relief against Intel.

Canada

In two decisions on point, the Tribunal established that a unilateral refusal to license will

rarely, if ever, violate the Competition Act. This is consistent with the Bureaus IP Guidelines.

In Canada (Director of Investigation and Research) v. Tele-Direct (Publications) Inc21

, the

Bureau alleged that Tele-Directs refusal to license its trademark, which included Yellow

Pages and the walking fingers logo, to competitors amounted to engaging in

anticompetitive acts contrary to Section 79 (abuse of dominant position) of the Competition

Act. The Tribunal held that Tele-Directs selective refusal to license its trademark did not

constitute an anticompetitive act. Recognizing the importance of an IP owners right to

refuse licensing, the Tribunal stated:

The respondents' refusal to license their trade-marks falls squarely within their

prerogative. Inherent in the very nature of the right to license a trade-mark is the

right for the owner of the trademark to determine whether or not, and to whom, to

grant a licence; selectivity in licensing is fundamental to the rationale behind

protecting trade-marks. The respondents' trade-marks are valuable assets and

represent considerable goodwill in the marketplace. The decision to license a trade-

mark -- essentially, to share the goodwill vesting in the asset -- is a right which rests

entirely with the owner of the mark. The refusal to license a trade-mark is

distinguishable from a situation where anti-competitive provisions are attached to a

trade-mark licence.

21[1997] 73 CPR 3d 1 (Comp. Trib.) (Can)


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Following Tele-Direct, the Tribunal in Director of Investigation and Research v. Warner

Music Canada Ltd.22, held that the right to exclude others is fundamental to IP rights and

that such behaviour cannot be considered anticompetitive. Despite the urgings from the

Bureau, the Tribunal refused to have Section 75 operate as a compulsory licensing provisionfor intellectual property.

European Union

In general, an IP holder has no obligation to license its IP, and in most circumstances will not

violate EU competition law by unilaterally refusing to license another company. In a series of

decision, however the European Court of Justice (ECJ), the General Court (GC), and the

Commission established a narrow exception, pursuant to which an IP holder might violate

Article 102 for a unilateral refusal to license in exceptional circumstances.

The exact nature of these circumstances is far from clear, but past ECJ and GC judgments

suggest that an outright refusal to license violates Article 102 if:

(i) The IP holder is dominant in a relevant market;

(ii) The intellectual property is indispensable to an activity in a downstream market;

(iii) The refusal eliminates effective competition in that downstream market;

(iv) The would-be license seeks to sell products or services not currently being

offered for which there is customer demand, and;

(v) The refusal to license is not objectively justified.

Current law governing refusal to license developed in a series of three cases: Radio Telefis

Eireann and Independent Television Publications Ltd v. Commission (Magill)23

; IMS Health

GmbH & Co. OHG v. NDC Health GmbH & Co. KG24; and Microsoft Corp. v. Commission

25

Magillinvolved a British company, Magill TV Guide Ltd., which intended to produce a new

product, namely a weekly TV guide that would have included the programming of all

important broadcasting companies. At that time, each broadcasting company produced its

own TV guide that included only its own programming. The broadcasting companies refused

to grant Magill a license to include their TV programming within the Magills proposed

22[1997] 78 CPR 3d 321

23

Joined Cases C-241/91 P & C-242/91 P,1995 ECR 74324Case C-418/01,2004 ECR I-503925

Case T-201/04,2004 ECR II-4463
http://www.ct-tc.gc.ca/CMFiles/CT-1997-003_0022_45LKL-482004-4642.pdfhttp://www.ct-tc.gc.ca/CMFiles/CT-1997-003_0022_45LKL-482004-4642.pdfhttp://www.ct-tc.gc.ca/CMFiles/CT-1997-003_0022_45LKL-482004-4642.pdfhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:61991CJ0241:EN:PDFhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:61991CJ0241:EN:PDFhttp://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:61991CJ0241:EN:PDFhttp://curia.europa.eu/juris/showPdf.jsf?text=&docid=49104&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=1514631http://curia.europa.eu/juris/showPdf.jsf?text=&docid=49104&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=1514631http://curia.europa.eu/juris/showPdf.jsf?text=&docid=49104&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=1514631http://curia.europa.eu/juris/showPdf.jsf?text=&docid=62940&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=1514757http://curia.europa.eu/juris/showPdf.jsf?text=&docid=62940&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=1514757http://curia.europa.eu/juris/showPdf.jsf?text=&docid=62940&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=1514757http://curia.europa.eu/juris/showPdf.jsf?text=&docid=62940&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=1514757http://curia.europa.eu/juris/showPdf.jsf?text=&docid=49104&pageIndex=0&doclang=EN&mode=lst&dir=&occ=first&part=1&cid=1514631http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:61991CJ0241:EN:PDFhttp://www.ct-tc.gc.ca/CMFiles/CT-1997-003_0022_45LKL-482004-4642.pdf


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guide. Magill filed a complaint with the commission with respect to this behaviour, claiming

that the other broadcasting companies were infringing Article 102. The Commission found

that the action of the broadcasting company was indeed an infringement of Article 102, and

instructed the companies to provide licensing rights to Magill. This decision was laterconfirmed by the GC and the ECJ. The ECJ in Magillheld that an IP holder could be liable for

a refusal to license its IP if:

(i) The refusal to license prevents the appearance of a new product which the

appellants (the dominant business) did not offer and for which there was a

potential consumer demand;

(ii) There is no objective justification; and

(iii) The refusal puts the dominant business in a position to reserve a secondary

market to itself by excluding all competition in the market.

The ECJ had no opportunity to revisit this standard in the IMSdecision. IMS and NDC were

engaged in tracking sales of pharmaceutical and health care products. The reports were

formatted according to what was called a brick structure in which each brick designated

represented a designated geographical area. The IMS structure with 1860 bricks became the

industry standard. When NDC wanted to use a similar structure, IMS attempted to prohibit

such use through the courts under the argument that the brick structure was protected by

German copyright law.

In 2001, the Landgericht Frankfurt (Germany) referred the case to the ECJ for a preliminary

ruling, which the ECJ issued in 2004. In its judgment, the ECJ confirmed that a refusal to

license cannot amount to an abuse unless the business requesting the license intends to

produce new goods or services not offered by the owner of the right and for which there is a

potential consumer demand.

The most recent court judgment involving a refusal to license relates to the Commiss ions

Microsoftdecision. In 1998, Sun Microsystems notified the Commission that Microsoft had

refused to provide Sun Microsystems with interface information that would allow it develop

software compatible with Microsofts operating system. After more than five years of

investigation, the Commission concluded that Microsoft had deliberately refused to provide

this information to several companies as part of the strategy to eliminate competition and


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push itself to the forefront of the work group server operating system market. The

Commission held that Microsoft abused its market power and harmed competition and

innovation in the market place. Not only did the Commission impose a fine of 497.2

million, it also ordered Microsoft to license interface information necessary for competitorsto develop Windows compatible products and compete on an equal footing alongside

Microsoft in the market for workgroup server operating systems. The GC confirmed the

Commissions decision. Microsoft did not apply to the ECJ.

When the Commission defended its decision at the GC, it asserted that applying the

traditional EU criteria for refusal to license would be problematic and argued that there

were additional circumstances in which refusal to license could support finding a violation.

In contrast to the Commissions approach, the GC found the Magill and IMS criteria

appropriate for 102 but interpreted these criteria broadly. With reference to Article 102(b),

which prohibits as an abuse the limitation of production, markets or technical

developments to the.prejudice of consumers, the court emphasized that the rationale of

a new product requirement in Magill and IMS was related to the prospect that

interference with the introduction of a new would cause consumer harm. The GC specifically

stated, however, that the prevention of a new product from emerging is not the only

parameter of consumer harm. The GC found that the Microsofts refusal to license

interoperability information discouraged competitors from developing and marketing

workgroup server operating system with innovative features to the prejudice of consumers.

On this basis, the GC concluded that it is sufficient for a product to be a new product if it is

distinguished from the products of the IPR holder with respect to parameters which

consumer consider important.

Concerning the indispensability of the licensed technology, the GC took the view in

Microsoft that competitors must be in a position to compete with Microsoft on an equal

footing and that they require access to complete interoperability information for this

reason.

United Kingdom

A refusal to license by a dominant undertaking may infringe Article 102 of the TFEU. In

assessing whether this is the case, the OFT and UK Courts are guided by the principles set


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out by the ECJ and GC. The extent to which the UK competition law can compel a

compulsory license will therefore be the same as under the EU competition law.

The leading UK case is the Intel Corporation v. Via Technology Inc.26

that was decided by

the Court of Appeal in 2002. Intel sued Via Technologies for patent infringement defended

the action on the basis that Intel had refused to grant a license in breach of competition law.

Intel was awarded summary judgment. The matter then came up to Court of Appeal.

Via Technologies alleged that Intels refusal to license constituted an abuse of dominant

position on the basis that it was impossible for a competitor to enter or compete in the

chipset or CPU market in the UK unless it had access to Intels patented technology.

Finding in favour of Via Technologies, the Court of Appeal overturned the summary

judgement. It stated that there was no EU or English authority holding that a refusal to grant

a license to intellectual property was an abuse in itself unless exceptional circumstances

were present. The Court of Appeal referred to establish EU case law, particularly the Magill

case, and held that a claim of exceptional circumstances does not require the complete

elimination of all competition within the relevant market. The court also held that it was

arguable that competition in the relevant market would in fact be impossible without a

license from Intel.

India

Before the Competition Act came into existence, section 15 of MRTP Act excluded the

application of provisions of the Act to patented products similar to that of Section 3(5) of

the Competition Act. In Vallal Peruman v. Godfrey Philips (India) Limited27

the Commission

observed that the provisions of the Monopolies and Restrictive Trade Practices Act would be

attracted only when there is an abuse in exercise of the right protected.

The Competition Act and the Patents Act have no direct link with each other i.e., cross

referencing provisions. However, certain commercial transactions could be scanned by the

CCI and called in question. The Competition Act does not explicitly provide for issue of

Compulsory Licences as a remedy for anticompetitive practices. However, Section 27(g)

empowers the CCI to pass such other order or issue such other directions as it may deem fit.

26[2002] EWHC 1159

27MRTP Commission - UTPE 180/92


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Further Section 90(ix) of the Patents Act recognizes that Compulsory License can be granted

to remedy a practice determined, after judicial or administrative process to be

anticompetitive.

Under section 28 also the commission may provide for divesture or transfer of property

rights including IPRs. Such an approach especially after Bayer v. Natco28

could be considered

if there is blatant abuse of dominance by a company in related matter. Following situations

may attract compulsory licensing where IP holder:

(i) Charges unfair and discriminatory prices; or

(ii) Limits production of goods and services; or

(iii)

Restricts technical or scientific development of goods and services; or

(iv) Desecrates consumer welfare

Similarly, section 84(1) read along with section 84(7) of the Indian Patents Act mentions

various circumstances such as non-affordability, non-availability, non-working, restrictive

licensing conditions etc., where Government of India already has the right to judiciously

intervene to decide on the matter of issuance of Compulsory license.

The Controller General of Patents Designs and Trademarks of India (Controller) recently

granted Natco Pharma Limited (Natco), an Indian drug manufacturer, a compulsory license

for Bayer AGs (Bayer) Nexavar (sorafenib), an oncology drug that extends the patients life

but does not cure the underlying condition.

The Controller held that:

(i) Bayer had made the drug available to a small percentage of eligible patients

(approximately slightly above 2 percent), which did not meet the requirements of

the public;

(ii) The price of Rs. 2,80,000 per month was not reasonably affordable. The term

reasonably affordable had to be construed predominantly with reference to the

purchasing power of the public;

(iii) Natco may sell the drug within India at a price of not more than Rs. 8,800 for a pack

of 120 tablets required for one months treatment;

28Compulsory Licence Application No 1/2011


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(iv) Bayers patent was not being worked in India as Nexavar was not being

manufactured in India. Importation from manufacturing facilities outside India did

not satisfy the mandatory requirement of working the patent in India;

(v)

Natco is required to pay a 6% royalty to Bayer

In FICCI - Multiplex Association v. United Producers/ Distributors Forum (UPDF)29

a plea

was raised by UPDF that a feature film is subject matter of copyright under the Copyright

Act, 1957 and section 14 thereof permits the owner of copyright to exploit such copyright in

a manner as he deems fit. It was further argued that it is entirely up to the copyright owner

as to how to communicate his film to the public. Further it was argued that no multiplex

owner can demand that the film be released in a theatre let alone dictate the commercial

terms on which such film must be released. It was also argued that it is discretion and right

of the copyright owner to decide as to how many copies of the films to communicate to the

public through theatre or multiplexes and a demand by a theatre or multiplex owner of a

right to exhibit the film cannot be sustained.

In this regard, attention was drawn to the provisions contained in section 3(5) of the Act

which through the use of non obstante clause excludes such rights from the purview of the

Act and accordingly the opposite parties were within their rights to impose reasonable

conditions for protecting any of the rights which have been conferred upon them under the

Copyright Act, 1957.30

29CCI Case No. 1/2009

30It was noted that section 2 (f) of the Copyright Act, 1957 states that cinematograph film means any work of

visual recording on any medium produced through a process from which a moving image may be produced by

any means and includes a sound recording accompanying such visual recording and cinematograph shall be

construed as including any work produced by any process analogous to cinematography including video films.

Section 13(1) (b) of the Copyright Act, 1957 further provides that subject to the provisions of this section and

the other provisions of this Act, copyright subsists in cinematograph films. According to Section 14 of the

Copyright Act, 1957, copyright means the exclusive right subject to the provisions of the Copyright Act, 1957

to do or authorize the doing of anything (in the case of cinematograph films) to make a copy of the film,

including a photograph of any image forming part thereof; to sell or give on hire, or offer for sale or hire, any

copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions and to

communicate the film to the public. Further section 16 of the Copyright Act, 1957 lays down that no person

shall be entitled to copyright or any similar right in any work, whether published or unpublished, otherwise

than under and in accordance with the provisions of this Act or any other law for the time being in force, but

nothing in this section shall be constructed as abrogating any right or jurisdiction to restrain a breach of trustor confidence.


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It was further canvassed that any action for the benefit of multiplex owners to claim as a

matter of right that the producers should exhibit the film through them will tantamount to

compulsory licensing of the film and, therefore, the Commission would not have the

jurisdiction over such issues.

It was further submitted by the opposite parties that as a copyright owner, a film producer

can, at his sole discretion, determine the manner of communicating his film to the public

and this includes commercial terms on which the film is permitted to be communicated to

the public. It is also stated that this is an internationally recognized principle of copyright

law.

Held, after cumulative reading of all these provisions, it makes it clear that copyright is a

statutory right subject to the provisions of the Copyright Act, 1957. It is not an absolute

right. It is, therefore, abundantly clear that a protectable Copyright (comprising a bundle of

exclusive rights mentioned in Section 14(1) (c) of the Act) comes to vest in a cinematograph

film on its completion which is said to take place when the visual portion and audible

portion are synchronized.31

In the present case, neither any question of infringement of rights of producers/distributors

conferred under the Copyright Act, 1957 arises nor does the question of imposing

reasonable conditions to protect such right arise. In the light of the facts of the case and the

evidence gathered during the course of the investigation, it is clear that the producers/

distributors acted in concert to determine revenue sharing ratio with multiplex owners and

to this end they also limited/controlled supply of films to multiplex owners. Such a conduct

on their part squarely falls within the mischief of section 3(3)(a) and (b) of the Act and any

plea based on copyright is wholly misplaced and has to be rejected.

It may be observed that multiplex owners are not in any manner infringing the rights of the

producers/distributors under the Copyright Act, 1957. On the contrary, the multiplex

owners, by seeking to release films in multiplexes, are only facilitating the rights of the

producers/ distributors under the Copyright Act, 1957. As multiplex owners have not

31

Reliance was also placed upon a decision of HonbleSupreme Court of India in the case of Indian PerformingRight Society Ltd. v. Eastern Indian Motion Pictures Association, wherein it was held that each feature film is

nothing but a bundle of copyrights.


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infringed or threatened to infringe the rights of producers/distributors under the Copyright

Act, 1957 in any manner, the plea of the producers/distributors based on section 3(5) of the

Act is thoroughly untenable in law for the reasons stated above.

It may be mentioned that the intellectual property laws do not have any absolute overriding

effect on the competition law. The extent of non obstante clause in section 3(5) of the Act is

not absolute as is clear from the language used therein and it exempts the right holder from

the rigours of competition law only to protect his rights from infringement. It further

enables the right holder to impose reasonable conditions, as may be necessary for

protecting such rights.

Moreover, the producers/distributors have failed to produce any evidence to show the

impugned act as a reasonable condition to protect their right under the Copyright Act, 1957.

It has come in the reports of the DG that as a result of the action of the

producers/distributors the price of tickets of multiplex theatres was increased which,

ultimately, are to be borne by the common man. In such a scenario, it is wholly

preposterous on the part of the producers/distributors to invoke the plea based on the

rights protected under the provisions of the Copyright Act, 1957 by taking recourse to the

overriding effect of such law under section 3(5) of the Act. For the same reason, the plea of

the opposite parties that any direction of the Commission for release of films in multiplexes

shall tantamount to compulsory licensing of the film is also baseless and is rejected.

In the EU a refusal would be considered abusive only in 'exceptional circumstances', when

the refusal prevents the emergence of a new product on a secondary market for which

there is potential consumer demand. Such a refusal would be subject to a stricter standard

still in the US. Whether the CCI will follow either the EU or US approach remains to be seen;

however, both the Controller's Natcodecision and the general attitude of the CCI seem to

suggest a more consumer-oriented approach in India.

Exclusive Licenses

The issue of a refusal to license may also arise in the context of a decision to license the

intellectual property to certain parties on exclusive terms, which thereby establishes a

contractual obligation on the owner to refuse to license all other potential users. This

section considers how the competition law of each jurisdiction treat exclusive licenses.


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United States

Exclusive licenses are agreements that restrict the right of the licensor to licenses other;

such licenses may also restrict the right of the licensor to use the patented technology itself.

US patent laws expressly provide that a patentee may grant and convey an exclusive rightunder his application for patent, or patents, to the whole or any specified part of the United

States.32

As reflected in the IP Guidelines and in court decisions, antitrust concerns are only likely to

arise when evaluating exclusive licenses between a licensor and a licensee that are in a

horizontal relationship.33

Specifically, exclusive licensees will likely come under antitrust

scrutiny only if the licensor and licensee are actual or potential competitors and the

exclusive license creates or enhances the exercise of market power. The agencies will apply

the same principles and standards used to evaluate mergers and acquisitions when

examining exclusive licenses provided that the license precludes all persons, including the

licensor from using the licensed intellectual property.34

Canada

A key issue that arises in the licensing context is the nature of the person (s) to whom the

license is granted. The IP Guidelines make clear that, while the right refuse to license is the

fundamental right of the IP owner, the right to grant a license to a competitor may not be.

The Bureau provides an example in its IP Guidelines:

A hypothetical company called SHIFT which has recently developed a new gear system

for mountain bikes. Two other firms manufacture systems that compete with SHIFTs. All

three of these firms manufacture several varieties of bicycle gear systems and are

engaged in research and development to improve gear system technology. SHIFT grants

licenses for the use of its patented gear system technology to manufacturers of

mountain bikes as it does not have the ability to manufacture mountain bikes itself.

Demand for mountain bikes is supplied by three large firms, which account for

approximately 80 percent of sales, plus six smaller firms. SHIFT has just granted

ADVENTURE, the largest mountain bike manufacturer (accounting for 30 percent of

32

35 USC 26133Zenith Radio Corp. v. Hazeltine Research, 395 US 10034

Exclusive licenses are related


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sales), an exclusive license to use its new patented gear system technology on its

mountain bikes. ADVENTURE does not own or have the ability to develop gear system

technology. Although SHIFTs new gear system offers a number of features not available

on other current products, the demand for mountain bikes with these new features isuncertain. In addition, ADVENTURE expects to incur significant expense developing and

promoting mountain bikes that use SHIFTs new gear system technology. SHIFT has

refused requests from other mountain bike manufacturers for a license for this

technology. As a result of ongoing research and development, alternative gear system

technologies are likely to become available in the future.

Analysis

The Bureau is likely to examine the conduct of both firms under the abuse-of-dominant-

position provision (section 79) of the Competition Act.

SHIFT and ADVENTURE relate as supplier and customer, and are neither actual nor

potential competitors in the markets for gear systems or mountain bikes. Since the firms

do not compete, the exclusive license would likely not lessen competition between the

two firms. The Bureau would nonetheless examine the markets for gear systems and

mountain bikes to determine if the exclusive license lessened or prevented competition

substantially in either or both of those markets.

Even though SHIFTs technology is not available to ADVENTUREs two principal rivals and

the markets for gear systems and mountain bikes are concentrated, SHIFTs rivals in the

gear system market may still sell to ADVENTURE. Furthermore, the other mountain bike

manufacturers have access to other gear systems from SHIFT and to gear systems from

other suppliers. The exclusive license may have been granted in consideration for

ADVENTUREs agreement to incur significant expense in the development and

promotion of mountain bikes that use SHIFTs technology

In the course of its assessment, the Bureau would consider the competitiveness of the

mountain bike market before and after the license. Since SHIFT is not a mountain bike

manufacturer and has no obligation to license its gear system to a mountain bike

manufacturer, any licensing agreement would enhance competition. In this case, the


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technology license mandated the development and promotion of mountain bikes using

the technology, thereby enhancing competition without in any way limiting the ability of

other mountain bike manufacturers to access or use competing technologies.

Consequently, the Bureau would conclude, given the facts of this case, that the exclusivelicense arrangement did not raise any competition issues.

European Union

A technology license is exclusive if the licensee is the only one who is permitted to produce

on the basis of the licensed technology within a given territory. Where the licensor

undertakes not to license third parties to produce within the given territory but retains the

right to produce there itself, the license is considered to be a sole license.

The ECJ has taken a stricter view on exclusive license agreements between non-competitors

in Football Association Premier League Ltd v. Karen Murphy35.

The Football Association Premier League (FAPL) operates the leading professional football

league competition in England (Premier League) and markets the television broadcasting

rights for Premier League Matches in the UK and abroad. FAPL granted broadcasters in the

EU exclusive broadcasting for those matches on a territory by territory basis (typically, one

broadcaster per member state). Additionally, each broadcaster undertook in its license

agreement with FAPL to encrypt the satellite signal and to transmit the signal only to

subscribers in the licensed territory. Customers needed to purchase decoder cards that

decrypt the program, and FAPL imposed an obligation on the broadcasters not to supply

those devices for use outside of their respective territory.

Some publicans in the United Kingdom purchased decoder cards and boxes from a Greek

broadcaster who offered the cards and boxes at lower prices compared to Sky, the UK

broadcaster. The FAPL brought civil and criminal actions against pubs that screened Premier

League matches on their premises by using Greek decoder cards. The High Court of Justice

England referred the EU aspect of two of those proceedings to the ECJ.

The ECJ acknowledged that EU competition law does, as a general rule, not prohibit

exclusive licenses for sporting events in single member states. The ECJ, therefore, did not

35Joined cases C 403/08 and C 429/08


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find fault with the exclusive licenses for the broadcasting of Premier League Matches, which

is not called into question. The Court objected, however, to the additional obligations in the

agreements between FAPL and the broadcaster that were designed to ensure compliance

with the territorial limitation (in particular, the obligation on the broadcaster not to supplydecoder cards and boxes with a view to their use outside the territory covered by the

license agreement). With regards to those ancillary restrictions, the ECJ identified a restraint

of competition by virtue of the object of the agreements:

Such clauses prohibit the broadcasters from effecting any cross border provision of services

that relate to those matches, which enables each broadcaster to be granted absolute

territorial exclusivity in the area covered by its license and, thus, all, competition between

broadcasters in the fields of those services to be eliminated.

United Kingdom

The OFT and the courts have not yet had to decide on exclusive licenses and veto rights over

additional licenses. The OFT and the courts can be expected to treat these issues similarly to

how the European courts and the Commission approach them.

India

Examples of arrangements involving exclusive licensing that may give rise to competition

concerns include cross licensing by parties collectively possessing market power and grant

backs. A few such practices as described in the advocacy booklet 36by the CCI are described

below. However, it should be noted that CCI has not yet come with IP Guidelines as those in

prevailing in mature jurisdictions discussed above. The list below is not exhaustive but

illustrative.

1)

Patent PoolsIt happens when the firms in a manufacturing industry decide to pool

their patents and agree not to grant licenses to third parties, at the same time fixing

quotas and prices. They may earn supra-normal profits and keep new entrants out of

the market. In particular, if all the technology is locked in a few hands by a pooling

agreement, it will be difficult for outsiders to compete.

36TheAdvocacy Bookletpublished by the CCI should in no way, be treated as official views of the Commission

or of its officials.
http://competitioncommission.gov.in/advocacy/PP-CCI_IPR_7_12.pdfhttp://competitioncommission.gov.in/advocacy/PP-CCI_IPR_7_12.pdfhttp://competitioncommission.gov.in/advocacy/PP-CCI_IPR_7_12.pdfhttp://competitioncommission.gov.in/advocacy/PP-CCI_IPR_7_12.pdf


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2) Tying Arrangement It happens when the licensee may be required to acquire

particular goods (unpatented materials e.g. raw materials) solely from the patentee,

thus foreclosing the opportunities of other producers. There could be an

arrangement forbidding a licensee to compete, or to handle goods which competewith those of the patentee.

3) Royalty Provisions An agreement may provide that royalty should continue to be

paid even after the patent has expired or that royalties shall be payable in respect of

unpatented know-how as well as the subject matter of the patent.

4) Restriction affecting R&DThere could be a clause, which restricts competition in R

& D or prohibits a licensee to use rival technology.

5)

No-Challenge ClausesA licensee may be subjected to a condition not to challenge

the validity of IPR in question.

6) Grantback Obligations A licensee may require to grant back to the licensor any

knowhow or IPR acquired and not to grant licenses to anyone else. This is likely to

augment the market power of the licensor in an unjustified and anti-competitive

manner.

7) Price RestrictionsA licensor may fix the prices at which the licensee should sell.

8)

Territorial Restraints - The licensee may be restricted territorially or according to

categories of customers.

9) Package Licensing A licensee may be coerced by the licensor to take several

licenses in intellectual property even though the former may not need all of them.

10)Quality LimitationsA condition imposing quality control on the licensed patented

product beyond those necessary for guaranteeing the effectiveness of the licensed

patent may be an anti-competitive practice.

11)Customer RestraintRestricting the right of the licensee to sell the product of the

licensed know-how to persons other than those designated by the licensor may be

violative of competition.

12)Trade Mark RequirementImposing a trade mark use requirement on the licensee

may be prejudicial to competition, as it could restrict a licensee's freedom to select a

trade mark.

13)

Indemnification Indemnification of the licensor to meet expenses and action ininfringement proceedings is likely to be regarded as anticompetitive.


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14)Undue Restrictions Undue restriction on licensee's business could be anti-

competitive. For instance, the field of use of a drug could be a restriction on the

licensee, if it is stipulated that it should be used as medicine only for humans and not

animals, even though it could be used for both.15)Usage Limits- Limiting the maximum amount of use the licensee may make of the

patented invention may affect competition.

16)Chosen Staff A condition imposed on the licensee to employ or use staff

designated by the licensor is likely to be regarded as anti-competitive.


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Case Studies

US: In re: CARDIZEM CD ANTITRUST LITIGATION. Louisiana Wholesale Drug

Co. (Plaintiff) v. Hoechst Marion Roussel, Inc. and Andrx Pharmaceuticals,

Inc. (Defendant) 332 F.3d 89637

Facts: Hoescht Marion Roussel, Inc. ("HMR") manufactures and markets Cardizem CD, a

brand-name prescription drug which is used for the treatment of angina and hypertension

and for the prevention of heart attacks and strokes. The active ingredient in Cardizem CD is

diltiazem hydrochloride, which is delivered to the user through a controlled-release system

that requires only one dose per day. HMR's patent for diltiazem hydrochloride expired in

November 1992.

On September 22, 1995, Andrx filed an ANDA with the FDA seeking approval to manufacture

and sell a generic form of Cardizem CD. On December 30, 1995, Andrx filed a paragraph IV

certification stating that its generic product did not infringe any of the patents listed with

the FDA as covering Cardizem CD. Andrx was the first potential generic manufacturer of

Cardizem CD to file an ANDA with a paragraph IV certification, entitling it to the 180-day

exclusivity period once it received FDA approval.

In November 1995, the United States patent office issued Carderm Capital, L.P. ("Carderm")

U.S. Patent No. 5,470,584 ("'584 patent"), for Cardizem CD's "dissolution profile," which

Carderm licensed to HMR. JA 1796-1810. The dissolution profile claimed by the '584 patent

was for 0-45% of the total diltiazem to be released within 18 hours ("45%-18 patent").38

In January 1996, HMR and Carderm filed a patent infringement suit against Andrx in the

United States District Court for the Southern District of Florida, asserting that the generic

version of Cardizem CD that Andrx proposed would infringe the '584 patent'. The complaint

sought neither damages nor a preliminary injunction. Id. However, filing that complaint

automatically triggered the thirty-month waiting period during which the FDA could not

approve Andrx's ANDA and Andrx could not market its generic product.

37

United States Court of Appeals for the Sixth Circuit38Two other patents for the dissolution profile of Cardizem CD had previously been issued, one in February

1994 and one in August 1995. Neither is relevant to the present litigation.


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In February 1996, Andrx brought antitrust and unfair competition counterclaims against

HMR. In April 1996, Andrx amended its ANDA to specify that the dissolution profile for its

generic product was not less than 55% of total diltiazem released within 18 hours ("55%-18

generic"). HMR nonetheless continued to pursue its patent infringement litigation againstAndrx in defence of its 45%-18 patent. On June 2, 1997, Andrx represented to the patent

court that it intended to market its generic product as soon as it received FDA approval.

On September 15, 1997, the FDA tentatively approved Andrx's ANDA, indicating that it

would be finally approved as soon as it was eligible, either upon expiration of the thirty-

month waiting period in early July 1998, or earlier if the court in the patent infringement

action ruled that the '584 patent was not infringed.

Nine days later, on September 24, 1997, HMR and Andrx entered into the Agreement. It

provided that Andrx would not market a bioequivalent or generic version of Cardizem CD in

the United States until the earliest of:

(1) Andrx obtaining a favourable, final and unappealable determination in the patent

infringement case;

(2)

HMR and Andrx entering into a license agreement; or

(3) HMR entering into a license agreement with a third party.

Andrx also agreed to dismiss its antitrust and unfair competition counterclaims, to diligently

prosecute its ANDA, and to not "relinquish or otherwise compromise any right accruing

thereunder or pertaining thereto," including its 180-day period of exclusivity. In exchange,

HMR agreed to make interim payments to Andrx in the amount of $ 40 million per year,

payable quarterly, beginning on the date Andrx received final FDA approval.39HMR further

39The payments were scheduled to end on the earliest of:

(1)

a final and unappealable order or judgment in the patent infringement case;

(2)

if HMR notified Andrx that it intended to enter into a license agreement with a third party, the earlier

of:

a) the expiration date of the required notice period or

b)

the date Andrx effected its first commercial sale of the Andrx product; or(3)

if Andrx exercised its option to acquire a license from HMR, the date the license agreement became

effective.


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agreed to pay Andrx $ 100 million per year,40

less whatever interim payments had been

made, once:

(1) there was a final and unappealable determination that the patent was not infringed;

(2) HMR dismissed the patent infringement case; or

(3) there was a final and unappealable determination that did not determine the issues

of the patent's validity, enforcement, or infringement, and HMR failed to refile its

patent infringement action.41

HMR also agreed that it would not seek preliminary injunctive relief in the ongoing patent

infringement litigation.42

On July 8, 1998, the statutory thirty-month waiting period expired. On July 9, 1998, the FDA

issued its final approval of Andrx's ANDA. Pursuant to the Agreement, HMR began making

quarterly payments of $ 10 million to Andrx, and Andrx did not bring its generic product to

market. On September 11, 1998, Andrx, in a supplement to its previously filed ANDA, sought

approval for a reformulated generic version of Cardizem CD. Andrx informed HMR that it

had reformulated its product; it also urged HMR to reconsider its infringement claims. On

February 3, 1999, Andrx certified to HMR that its reformulated product did not infringe the

'584 patent.

On June 9, 1999, the FDA approved Andrx's reformulated product. That same day, HMR and

Andrx entered into a stipulation settling the patent infringement case and terminating the

Agreement. At the time of settlement, HMR paid Andrx a final sum of $ 50.7 million,

bringing its total payments to $ 89.83 million. On June 23, 1999, Andrx began to market its

product under the trademark Cartia XT, and its 180-day period of marketing exclusivity

40HMR and Andrx stipulated that, for the purposes of the Agreement, Andrx would have realized $ 100 million

per year in profits from the sale of its generic product after receiving FDA approval.41

HMR had to notify Andrx within thirty days of such a determination that it continued to believe that Andrx's

generic version of the drug infringed its patent and that it intended to refile its patent infringement action.42

HMR also agreed that it would give Andrx copies of changes it proposed to the FDA regarding Cardizem CD's

package insert and immediate container label, that it would notify Andrx of any labeling changes pending

before or approved by the FDA, and that it would grant Andrx an irrevocable option to acquire a nonexclusivelicense to all intellectual property HMR owned or controlled that Andrx might need to market its product in

the United States.


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began to run. Since its release, Cartia XT has sold for a much lower price than Cardizem CD

and has captured a substantial portion of the market.

Summary of Facts: This antitrust case arises out of an agreement entered into by the

defendants, Hoescht Marion Roussel, Inc. ("HMR"), the manufacturer of the prescription

drug Cardizem CD, and Andrx Pharmaceuticals, Inc. ("Andrx"), then a potential manufacturer

of a generic version of that drug. The agreement provided, in essence, that Andrx, in

exchange for quarterly payments of $ 10 million, would refrain from marketing its generic

version of Cardizem CD even after it had received FDA approval (the "Agreement"). The

plaintiffs are direct and indirect purchasers of Cardizem CD who filed complaints challenging

the Agreement as a violation of federal and state antitrust laws.

Procedural History:The first complaint challenging the legality of the Agreement was filed

in August 1998, shortly after the FDA issued its final approval for Andrx's generic version of

Cardizem CD. That complaint, and the other complaints that were subsequently filed, have

been consolidated by the Judicial Panel on Multidistrict Litigation for coordinated or

consolidated pretrial proceedings in the Eastern District of Michigan. For all of the plaintiffs,

the foundation for their claims is the allegation that but for the Agreement, specifically the

payment of $ 40 million per year, Andrx would have brought its generic product to market

once it received FDA approval and at a lower price than the patented Cardizem CD sold by

HMR. They further allege that the Agreement protected HMR from competition from both

Andrx and other potential generic competitors because Andrx's delayed market entry

postponed the start of its 180-day exclusivity period, which it had agreed not to relinquish

or transfer. The Sherman Act Class Plaintiffs and the Individual Sherman Act Plaintiffs bring

claims under the federal antitrust laws, specifically section 1 of the Sherman Act; they seek

treble damages under section 4 of the Clayton Act. The State Law Class Plaintiffs bring

claims under various state antitrust laws.

Of relevance to the present appeal, the defendants argued that all of the plaintiffs had failed

to allege and could not allege an "antitrust injury" cognizable under section 1 of the

Sherman Act or under the respective state antitrust statutes. The district court concluded

that the plaintiffs had adequately alleged "antitrust injury." In reaching its conclusion, the

district court first considered whether the plaintiffs' allegations satisfied the test articulated


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by the Supreme Court in Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.43

In Brunswick, the

Supreme Court defined "antitrust injury" as "injury of the type the antitrust laws were

intended to prevent and that flows from that which makes defendants' acts unlawful."

Accordingly, the district court denied the defendants' motions to dismiss for failure to allege

antitrust injury.

The plaintiffs then moved for partial summary judgment on the issue of whether the

Agreement was a per se illegal restraint of trade. The district court concluded that the

Agreement, specifically the fact that HMR paid Andrx $ 10 million per quarter not to enter

the market with its generic version of Cardizem CD, was a naked, horizontal restraint of

trade and, as such, per se illegal.

Issues before the Appellant Court:

1. In determining whether plaintiffs properly pleaded antitrust injury, did the language

of two appellate decisions44

require dismissal of plaintiffs' antitrust claims at the

pleading stage if plaintiffs could not allege facts showing that defendants' alleged

anticompetitive conduct was a "necessary predicate" to their antitrust injury; and

2. In determining whether Plaintiffs' motions for partial judgment were properly

granted, whether the Defendants' September 24, 1997 Agreement constitutes a

restraint of trade that is illegal per se under section 1 of the Sherman Antitrust Act,

15 U.S.C. 1, and under the corresponding state antitrust laws at issue in this

litigation..

Answer to First Issue:As framed, the certified question was not susceptible to a yes or no

answer because it incorporated a definition of "necessary predicate" that was rejected.

Hodges and Valley Products stand for the proposition that in order to survive a motion to

dismiss for failure to allege antitrust injury, a plaintiff must allege that the antitrust violation

is either the "necessary predicate" for its injury or the only means by which the defendant

could have caused its injury. Under the "necessary predicate" option, dismissal is warranted

only where it is apparent from the allegations in the complaints that the plaintiffs' injury

43

429 U.S. 47744Valley Products Co. v. Landmark, 128 F.3d 398, 404 (6th Cir. 1997) and Hodges v. WSM, Inc., 26 F.3d 36, 39

(6th Cir. 1994)


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would have occurred even if there had been no antitrust violation. Here, Andrx could have

made a unilateral and legal decision to delay its market entry, but the plaintiffs have alleged

it would not have done so but for the Agreement and HMR's payment to it of $ 40 million

per year. The plaintiffs' allegations satisfy the "necessary predicate" test. The defendants'claim that Andrx's decision to stay off the market was motivated not by the $ 40 million per

year it was being paid by HMR, but by its fear of damages in the pending patent

infringement litigation, merely raises a disputed issue of fact that cannot be resolved on a

motion to dismiss. Accordingly, the district court properly denied the defendants' motions

to dismiss for failure to allege antitrust injury.

Answer to Second Issue: Yes. The Agreement whereby HMR paid Andrx $ 40 million per

year not to enter the United States market for Cardizem CD and its generic equivalents is a

horizontal market allocation agreement and, as such, is per se illegal under the Sherman Act

and under the corresponding state antitrust laws. Accordingly, the district court properly

granted summary judgment for the plaintiffs on the issue of whether the Agreement was

per se illegal.

Conclusion: The court answered both questions as follows: the district court properly

resolved the questions it put to the appellate court in the course of denying defendants'

motions to dismiss and granting the plaintiffs' motions for summary judgment that the

defendants had committed a per se violation of the antitrust laws.


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US: Image Technical Services (Plaintiffs) v. Eastman Kodak Co. (Defendant)

125 F.3d 1195

Facts: Kodak manufactures sells and services high volume photocopiers and micrographic

(or microfilm) equipment. Competition in these markets is strong. In the photocopier

market Kodak's competitors include Xerox, IBM and Canon. Kodak's competitors in the

micrographics market include Minolta, Bell & Howell and 3M. Despite comparable products

in these markets, Kodak's equipment is distinctive. Although Kodak equipment may perform

similar functions to that of its competitors, Kodak's parts are not interchangeable with parts

used in other manufacturers' equipment. Kodak sells and installs replacement parts for its

equipment. Kodak competes with ISOs in these markets. Kodak has ready access to all parts

necessary for repair services because it manufactures many of the parts used in its

equipment and purchases the remaining necessary parts from independent original-

equipment manufacturers. In the service market, Kodak repairs at least 80% of the

machines it manufactures. ISOs began servicing Kodak equipment in the early 1980's, and

have provided cheaper and better service at times, according to some customers. ISOs

obtain parts for repair service from a variety of sources, including, at one time, Kodak. As

ISOs grew more competitive, Kodak began restricting access to its photocopier and

micrographic parts. In 1985,

Documents

Module IV - Case Studies