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UNCTAD

Segment 4:

Balancing act – How to ensure that IP is not used to block innovation-based competition?

UNCTAD’s approach when advising developing countries on the design of IP and competition

law regimes

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Agenda

• 1. Introduction

• 2. Design of IP laws

• 3. Design of competition laws

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Complementary between Competition Law & Policy and Intellectual Property Laws (1/2)

Competition law

⇒ Prohibition of anti-competitive agreements,

⇒ Prohibition of the abuse of market power

⇒ Merger control

Common objective:

Stimulating innovation to the benefit of consumers

Intellectual Property Rights

⇒ Reward of innovations by granting exclusivity rights

Different tools/methods of functioning

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Complementary between Competition Law & Policy and Intellectual Property Laws (2/2)

Intellectual Property Rights

Exclusivity rights are main tool to stimulate innovation.

⇒ However, through exclusivity, IPRs may allow their holders to acquire substantial market power.

Competition law

Substantial market power perceived as serious threat to competitive landscape.

Therefore:

⇒ Prohibition to abuse dominant position, and

⇒ Merger control that shall prevent creation or strengthening of dominant positions through external growth.

Conceptualtensions?

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Agenda

• 1. Introduction

• 2. Design of IP laws

• 3. Design of competition laws

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IP Regime and its Impact on Competition

Competition regimes in many developing countries often not well equipped to handle IP cases

IP regimes can be structured to help ensure a better balance between exclusive rights and fair competition

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Goals & principles of IP protection

Art 7, TRIPS AgreementArt 7, TRIPS AgreementArt 7, TRIPS AgreementArt 7, TRIPS AgreementTo contribute to the promotion of technological innovation and to the transfer and dissemination of technologyMutual advantage of producers & usersConducive to social & economic welfare [ ]

Art 8.2, TRIPS AgreementArt 8.2, TRIPS AgreementArt 8.2, TRIPS AgreementArt 8.2, TRIPS AgreementTRIPS-consistent measures to prevent the abuse of intellectual property rights Any use of IPR contrary to goal of IP protection in Art 7 – regardless of anti-competitive effect

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Example: AstraZeneca v Commission

2010: EU General Court finds misuse of patent system to delay generic market entryJune 2012: confirmed by Advocate General before ECJ Supplementary protection certificates (SPCs… available to extend patent in case of long drug approval procedure (up to 5 yrs…True date of approval concealed from EU patent offices to obtain SPCs

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AstraZeneca misuse: the impact

Consumers/patients:Delay of cheaper generics Additional costs to health systems in EU

Competitors: costly litigation To invalidate AZ SPCsTo respond to infringement claims brought by AZ on basis of wrongly obtained SPCs

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AstraZeneca: beyond patent misuse

EU General Court & Commission: AZ abused dominant position Misuse of patent law may result in abuse of dominance under competition lawOpens up specific remedies under competition law: fines

Patent misuse independent of abuse of dominance

Limited remedies: no fines, but invalidation of right or non-enforcement

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Blocking effects of patents

AZ case involves illegal behaviorBut even used legally, patents may generate blocking effects: inherent in exclusive characterWhat can be done if legal use of patents blocks innovative competitors? EBay v MercExchange (2006…

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EBay v MercExchange

Infringement of business method patent ME no intention to use its patent (« patent troll »…Trial court: never injunction for patent trollsAppeals court: always injunction for patent infringementUS Supreme Court:

no automatic remedycase-by-case consideration of opposing interestsnot every inventor is capable of using his patentinjunction may be denied in the public interest

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Blocking effects of patents –policy considerations

Decisive to limit protection to truly inventive elements of an inventionRest is in public domain & available for competitors Important role of legislator, patent examiner, courts TRIPS provides toolbox (« flexibilities »…

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Independence of patents

Art 4bis Paris Convention / Art 2.1 TRIPSCipla’s « Triomune » anti-retroviral

Lamivudine, stavudine, nevirapineEach patented in US & EU by different firmsBlocked each other from merging into one pill –three different drugsNo patent in India – Cipla launched triple combination

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Exclusions from patentability

Business method patents in US: EBay caseComputer programs excluded in many developing countriesNot in US: FTC deplores patent thickets

90,000 different patents on microprocessorsPatents held by more than 10,000 partiesExpensive licensing or litigation Patent trolling / road blocks to innovation Opposite of what patents should do

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Patentability criteria

Strict interpretation & application to avoid low quality patents – role of examiners & courts

No novelty if new use of known productNo inventive step if minor modifications

European Patent Convention Art 54(4… & (5… is lax on pharmaceuticals: product patents on new usesEU Commission deplores blocking strategies of pharmaceutical industry (« ever greening »…

Up to 1,300 patents on one drug Thousands of secondary patents with unclear scope Delayed generic market entry

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Patent exceptions

Research exception in Swiss lawFree use of patented substance to generate new knowledge about the protected product, even if later commercial useRight to use patented research tools against compensation of right holder

Regulatory review exception WTO Panel: Canada – Patent Protection of Pharmaceutical ProductsUse of patented substance for sole purpose of seeking regulatory approval for drugs To speed up generic market entry after patent expiry

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Compulsory licenses

In the case of dependent patents: Art 31 (l…One patent (« second patent »… cannot be exploited without infringing another patent (« first patent »…

Second patent involves technical advance of economic importance over first patent

Mandatory licenses for both patentees (« cross licenses »…

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Patent pools

Several patent holders make their technologies available in a common pool, against license fees

Enables combination of otherwise separate technologies (Cipla’s Triomune case… Medicines Patent Pool launched in July 2010 to enable fixed-dose combinations to facilitate treatment of HIV/AIDS

Licenses by US National Institutes of Health (NIH… and ongoing negotiations with private sector

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Conclusions

Exclusive character of patents may result in blocking effects, even where use is lawful

Remedies require balance of interests

TRIPS Agreement contains various tools to strike balance between exclusive rights and competition

TRIPS implementation in US, EU tilted toward exclusive rights – raises concern of competition authorities (Commission, FTC…

Important role for patent examiners and courts

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Agenda

• 1. Introduction

• 2. Design of IP laws

• 3. Design of competition laws

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Rationale for UNCTAD’s work in the field of Competition Law and Policy (1/2)

Competition Law and Policy considered as:

• important pillar for a thriving market economy,– wherein competitive pressure hones productive efficiency

and – stimulates product and process innovation fundamental to

international competitiveness and economic growth;

• tool for consumer access to a wider range of cheaper and better products;

• means to ensure that benefits from trade liberalisation are passed on to the consumers.

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Rationale for UNCTADRationale for UNCTADRationale for UNCTADRationale for UNCTAD’s work in the field of s work in the field of s work in the field of s work in the field of Competition Law and Policy (2/2…Competition Law and Policy (2/2…Competition Law and Policy (2/2…Competition Law and Policy (2/2…

Global dimension of conviction of benefits of competition:

• In 1980, less than 20 countries had a competition law;

• Today, more than 100 countries and regional organisations have adopted a competition law regime;

• Competition law and policy have become a matter of interest for many developing countries;

• Large number of developing countries have adopted competition laws and policies or are currently in the process of doing so.

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Basis for UNCTAD's work in the field of Basis for UNCTAD's work in the field of Basis for UNCTAD's work in the field of Basis for UNCTAD's work in the field of Competition Law and PolicyCompetition Law and PolicyCompetition Law and PolicyCompetition Law and Policy

Adopted in 1980, the “Set”:sets out equitable rules for the control of anti-competitive practices addressed to companies and states;recognizes the development dimension of competition law and policy; andprovides for a framework for international cooperation and exchange of best practices.

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Three Pillars of UNCTADThree Pillars of UNCTADThree Pillars of UNCTADThree Pillars of UNCTAD’s work in the field of s work in the field of s work in the field of s work in the field of Competition Law and PolicyCompetition Law and PolicyCompetition Law and PolicyCompetition Law and Policy

Consensus Building

(Intergovernmental Machinery)

Research Technical Assistance

UN Set of Principles and Rules on Competition of 1 980

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Technical Assistance

Policy

• Formulation of competition policy, including advice on how to design interface between competition policy and IPR

• Design and implementation of competition advocacy programmes

Legislation • Drafting of competition legislation, including advice on

how to draft provisions dealing with the interface of competition law and IPR

• Revision of existing competition legislation

Enforcement• Workshops and trainings for personnel of competition

authorities• Conferences for judges• UNCTAD Peer Review of Competition Law and Policy

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Design of competition law: Scope of application

UNCTAD Model Law on Competition

Chapter 2 (Definitions and scope of application)

“II. Scope of application(a) Applies to all enterprises as defined above, in regard

to all their commercial agreements, actions or transactions regarding goods, services or intellectual property.”

Comments

“19. The reference to intellectual property is consistent with virtually all antitrust laws, which treat licences of technology as “agreements” and scrutinize them for restrictions or abuses like any other agreement, except that the legal exclusivity granted by the State to inventors may justify some restrictions that would not be acceptable in other contexts.”

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Scope of application - Examples

General scope of application

§§§§ 130 German Act against Restraints of Competition (Public 130 German Act against Restraints of Competition (Public 130 German Act against Restraints of Competition (Public 130 German Act against Restraints of Competition (Public Undertakings, Scope of application…Undertakings, Scope of application…Undertakings, Scope of application…Undertakings, Scope of application…

(1… This Act shall apply also to undertakings which are entirely or partly in public ownership [ ].

(2… This Act shall apply to all restraints of competition having an effect within the scope of application of this Act, also if they were caused outside the scope of application of this Act.

(3… The provisions of the Energy Industry Act shall not preclude [ ]

Explicit reference to

IPR

Section 3c of Jamaica Fair Competition Act, states that nothing in the Act shall apply to the entering into of an agreement in so far as it contains a provision relating to the use, licence or assignment of rights under or existing by virtue of any copyright, patent or trade mark .

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Assessment of IPR related agreements under competition law

Block exemptions

Examples:

• EU block exemption for technology transfer agreements

• Indonesia: KPPU Regulation 2/2009 concerning the exemption of IPR related agreements

Case-by-case assessment

• Prohibition of anticompetitive agreements

• Prohibition to abuse of a dominant position– “Refusal to deal” cases– Very controversial, see e.g. diverging

assessment of the Microsoft case in the EU and the US

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Further information available at:

http://www.unctad.org/competitionhttp://www.unctad.org/competitionhttp://www.unctad.org/competitionhttp://www.unctad.org/competition

and

http://www.unctad.org/ddiphttp://www.unctad.org/ddiphttp://www.unctad.org/ddiphttp://www.unctad.org/ddip