Intellectual Property and Competition Law - IPRsonline.org

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ICTSD Programme on IPRs and Sustainable DevelopmentIntroductionThe relationship between intellectual property (IP) and disciplines regulating competition has attractedgrowing attention, particularly as a result of the expansion and strengthening of IP protection atthe global scale. While IP law deliberately subjects intellectual assets to the exclusive control ofright owners, competition law seeks to avoid market barriers and benefit consumers by encouragingcompetition among a multiplicity of suppliers of goods, services and technologies. Dealing with sucha relationship poses unique analytical challenges to policy-makers (Kovacic, 2005, p. 2).Such challenges are particularly complex in developing countries, the majority of which have littleor no tradition in the application of competition law and policies. In fact, in most of these countriesIPRs have been broadened and strengthened in the absence of an operative body of competition law,in contrast to developed countries where the introduction of higher levels of IP protection has takenplace in normative contexts that provide strong defences against anti-competitive practices.The analysis of the relationship between IP and competition disciplines may be limited to the interactionsbetween laws relating to the acquisition and exercise of IP, on the one hand, and competition law 1 ,on the other. However, this perspective ignores the impact of a number of regulations linked to theacquisition and exercise of IPRs that directly influence market entry and contestability. This broadset of regulations integrates what may be called a country’s “competition policy”. 2 They include, forinstance, regulations dealing with the marketing approval of pharmaceuticals and agrochemicals,inter-firm mobility of personnel, standard setting, and other measures and policies applicable insectors where IP is significant in determining relationships among competitors.The study of competition policy, as defined, requires the consideration of various forms of stateinterventions affecting the acquisition and use of IPRs. Although competition law can be an importantinstrument to limit the harmful effects of IPRs 3 , most developing countries do not apply such lawsto correct anti-competitive uses of IPRs, due to the lack of legislation, weak implementation orabsence of policies to deal with the IP-competition relationship. 4 Hence, a broader competition policyapproach may be particularly useful in developing countries to ensure a pro-competitive use of IPRs.Until 1990 only 16 developing countries had formal competition legislation. With technical assistancefrom international institutions, particularly the United Nations Conference on Trade and Development(UNCTAD), around 50 countries completed legislation for competition in the 1990s and many otherswere in the process thereafter. However, as noted by Gal, “the mere adoption of a competitionlaw is a necessary but not sufficient condition for it to be part of market reform. Just as ecologicalconditions determine the ability of a flower to bloom, so do some preconditions affect the ability toapply a competition law effectively” (Gal, 2004, p. 21). Many such conditions are missing in developingcountries. Enforcing agencies generally lack the financial and human resources, as well as the legalmechanisms (such as investigative tools and the capacity to impose high penalties) required for aneffective application of the laws to correct anti-competitive distortions. This may be particularly truein situations where IPRs are involved, as enforcing agencies normally have no expertise in this area. 5Even in those developing countries where competition law exists, clear criteria or guidelines to dealwith the anti-competitive acquisition and use of IPRs have not been established. 6 In adopting suchguidelines, developing countries can obviously follow their own conceptions about competition lawand IP as there are no international rules 7 (with the exception of Article 40 of the TRIPS Agreement)that constrain the capacity of such countries to discipline IP-related anti-competitive behaviour. Theattempts, mainly sponsored by the European Union, to bring competition policy into the WTO havefailed and are unlikely to surface again in the short term.
Carlos M. Correa — Intellectual Property and Competition LawCompetition laws can adopt different approaches, such as an efficiency or welfare approach, or a purely“economic freedom” approach (Drexl, 1999, p. 228). Countries may also elaborate a developmentorientedapproach by emphasising, for instance, the generation or preservation of competitivecapabilities or social benefits. Thus, in South Africa, competition law seeks to “promote and maintaincompetition” for a range of purposes, including the promotion of “the efficiency, adaptability anddevelopment of the economy” and the advancement of social and economic welfare. 8 It may also bein the national interest for firms to increase their market power, for instance, through mergers toachieve economies of scale, even though, as a result, consumer prices may rise (Scherer, 1994, p. 61).Conversely, competition policies focusing on consumers’ welfare may give preference to static overdynamic efficiency and may be vigilant about the impact of pricing.In examining the relationship between IP law and competition policy, consideration should also begiven to the different territorial spans of IP and competition policy. Intellectual property policyis to a great extent shaped by international law, particularly in the case of developing countries.These countries are induced by various means to adopt the standards of IP protection elaborated indeveloped countries 9 , often through coercion or as a pre-condition to preserve or get access to largermarkets in the context of free trade agreements (FTAs). Such standards are decisively influenced bythe industries that may benefit from new or strengthened forms of IP protection (Sell, 2003).Competition policy – as opposed to competition law – has important implications for the analysis ofthe interaction with IP policies. Two such implications are of particular relevance. First, differentstate agencies may assume important pro-competition roles, independently of the interventions byspecific competition law-enforcing agencies, where they exist. Second, such roles are relevant notonly with regard to private behaviour, but also with regard to competitive distortions introduced byvarious government bodies.For instance, there is growing concern that the failings in the procedures for examining and grantingpatents have led to the proliferation of “low quality” or trivial patents which have deleterious effectson competition, as examined below. While some of the distortions created by such failings may becorrected by courts, their intervention may be too costly and too late. Some state agencies have,hence, taken action in order to prevent the erection of undue market barriers through the acquisitionof patents. Such agencies may include bodies with specific competences in areas apparently distantfrom competition policy. 10The courts can also play a pro-competition role. In some countries (e.g. Germany) they are in charge ofgranting compulsory licences. In other cases, they can take an active role in avoiding anti-competitivebehaviour by limiting the rights conferred by IPRs. For instance, in a recent decision in eBAY INC. etal v. MERCEXCHANGE 11 , the US Supreme Court denied a permanent injunction in a case of patentinfringement. It stated that “the decision whether to grant or deny injunctive relief rests within theequitable discretion of the district courts.” This decision effectively amounts to granting a compulsorylicence on “equity” grounds.It is important to recall that Article 8.2 of the TRIPS Agreement stipulates that “appropriate measures,provided that they are consistent with the provisions of this Agreement, may be needed to preventthe abuse of intellectual property rights by right holders or the resort to practices which unreasonablyrestrain trade or adversely affect the international transfer of technology.” This provision recognises theMember State’s right to subject the exercise of intellectual property rights to competition laws. 12This paper deals, first, with some competition law issues specifically relating to technology markets,as distinct from product markets. Second, it discusses the extent to which the refusal to license
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