Assessment on Intellectual Property Rights and Information Technology - Assignment Example

?COMPETITION LAW: CRITICAL ASSESSMENT ON INTELLECTUAL PROPERTY RIGHTS AND/OR INFORMATION TECHNOLOGY Introduction New and innovative products are the lifeblood of business entities or organizations. It has become a sound corporate policy or business strategy to come up with contemporary or modern products—consumer or technology—to increase their bottom-line and ultimately, to eliminate their competition if not corner a substantial segment of the market. There are instances when innovative creations or inventions are necessarily obtained to ensure that the use of the primary product is not only made pleasant but more efficient in terms of cost of ownership. Research and development is heavily relied upon by business or corporate entities to create or generate new products that would entice the consumers venture away from their comfort zone and try out other products which are marketed or promoted to be of better quality but it would not break the bank so to speak. It may be a gadget, technology or pill that would be a panacea to aches and pains. Another strategy is to take over existing business entities or corporate organizations that already possess the technology or business process by way of undertaking1, agreement2 or concentration3, either through merger or acquisition4. It may be undertaken to save a fledgling business or employed by business entities of equal capital assets to further strengthen its holdings and enhance its market viability or simply because it is cheaper to buy the rival company than to compete with it in the open market. One particular study that will be tackled in this paper is the cross-licensing, bundling or tying strategy that increases the role if not the dominance of a commercial organization. Thus this strategy warrants the close scrutiny of the European Commission to protect the interest of the European Market. The European Union advocates not only single market5 but open and free enterprise as well. Business entities or corporations have the discretion or liberty to acquire or join forces with other entities by virtue of agreements, undertaking or concentration but this right is not absolute. It is subject to certain conditions such that it must not prevent, restrict and distort competition6 and more importantly, it should not create, strengthen or abuse dominant position7. The primary objective of competition is to serve the general welfare of the consumers however the growing number of agreements, undertakings, mergers and/or acquisitions had the opposite effect since the main concern of businesses or corporations are increased profits and its bottom-line as well as to protect proprietary rights. The consumers were not protected from corporate greed and adventurism since there were no clear cut policies, standards or measures to regulate or control agreements, undertakings, mergers or acquisitions including collusive or abuse of dominant position by invoking exclusive rights over patents or intellectual properties. However, the enactment of Treaty of the Functioning European Union8 and its predecessor, the Treaty Establishing the European Union9 conferred upon competition authorities the jurisdiction not only to scrutinize undertakings within the EU but to ensure competition in the European market is not distorted. It is likewise authorized to determine the economic viability and practicability of the undertakings. It is also within the purview of the competition authorities to conduct due diligence to assess if the intellectual property rights over a product or information technology would significantly impede effective competition and strengthens or abuses dominance. It is empowered to conduct an inquiry to assess whether competition is still functioning effectively and the same is beneficial to the public in general. The TFEU was further supplemented by other regulatory measures such as Merger Control10, Individual11 and Block12 Exemptions and other Regulations which target specific industries or sectors. The task of this paper is to determine based on jurisprudence whether assessments in technology based sectors or products protected by intellectual property rights are successful or counter-productive. It shall likewise determine based on jurisprudence if corporate entities have more rights over its IP to the exclusion of other entities are deemed abuse of dominant position. It shall likewise determine if intellectual property rights of business entities is incompatible with competition law and if so, there is necessity to harmonize or balance these rights to promote the welfare of the general public. It shall likewise determine if a decision directing a business entity to share information about its product would be fair, reasonable and non-discriminatory considering that the owner of the product or technology substantially invested towards its research and development. It shall likewise examine whether assessments under these sectors would encourage healthy competition or at the very least, do not significantly lessen competition. This paper shall limit its discussion on the application of Article 10213 of the Treaty on Functioning European Union (TFEU) on intellectual property rights and/or information technology. The critical analysis shall dwell on relevant laws and jurisprudence whether assessments under this provision of the TFEU promote healthy competition in the relevant market and that no proprietary rights are surrendered by stakeholders. Discussion Article 102 explicitly prohibits abuse of dominant position by undertakings within the EU community if it may impact free trade between the Member States. Abuse of dominance may involve a single undertaking, otherwise known as the unilateral conduct or it may contemplate two or more undertakings which may denominated as collective dominance of two or more undertakings. In order that a conduct will be considered as abuse of dominance, it must be determined if the undertaking or entity is dominant in the pertinent market which shall contain its objective justification and its potential effect on the trade relations between Member States. If the answer is in the affirmative then the conduct or undertaking is abusive thus proscribed under Article 102. On the other hand, it is important to correlate European Union competition policy with the Trade Related Aspect of the Intellectual Property Rights14 or TRIPS. TRIPS not only decrees the protection of intellectual property in any trade agreement but it demands universal adoption of its provisions to ensure the compliance of every signatory nation in incorporating the intent and aim of the TRIPS in its national laws15. The enhanced protection conferred upon intellectual properties of multinational companies has encouraged research and development of new products including innovations of outdated products or technologies. It guaranteed the protection of intellectual property over a specific amount of time to give the multinational companies opportunity to recoup the cost of their investments in research and development as well as human resources. The interplay of the rights of the creator of a product or technology vis-a-vis the right of other business entities to partake of market opportunities should be balanced or harmonized to serve the interest of the consumers in general. It is therefore imperative that the laws should balance the interest of the companies over proprietary rights but it should not encourage monopoly or abuse of dominant position to prejudice consumers. The harmonization is a delicate task and the decisions of the European Courts of Justice (ECJ) on various notifications and assessments are referred to in this paper to come up with an intelligent and objective analysis. Article 102 and its operation respects the intellectual property rights of creators over their creations however it conflicts with the exigent strategy adopted by creators of inventions or knowledge to capitalize or profit on their creation and cash in violates the essence of Article 102. Cross-licensing is a strategy adopted by companies to preserve the patent rights of organizations over their creation while maximizing the use of their creation. To illustrate: In the case of Microsoft and JVC16 where Microsoft owner of windows and JVC the patent owner of several multi-media creations had cross-licensed in order to have the right to use each other’s technology as part of a consumer product. On the surface, the onus of the cross licensing agreement is to introduce innovations that will allow the seamless operation of JVC products if the consumer is using Microsoft or vice versa. The innovation has long been awaited by the consuming public since it would save the consumers money when there is a need to transfer videos that have been created using Microsoft to be played in regular video players. However, it was posited that the agreement will foster if not strengthen the dominant position of Microsoft as a provider of operating system for personal computers. Bundling the functionality provided by the technology shared by JVC will enable Microsoft to corner the video production industry at the expense of the actual video production industry. It was stressed that the agreement will enable Microsoft to capture the market segment that uses JVC products that would considerably increase its market share thereby strengthening its dominant position. While in the case of Sot. Lelos kai Sia EE et.al. v Glaxo Smith Kline17, it was promulgated that the undertaking on the relevant market concerning medicinal products was abusive of its dominant position when it may impact parallel exports carried out by other wholesalers within the EU. Any undertaking that may bring about any disruption resulting from the refusal to supply any orders in the ordinary course of business from the other wholesalers is characterized as abusive of its dominant position. It is clear that dominant position per se is not arbitrarily or whimsically concluded since any allegation of abusive conduct is investigated. The undertaking must be proven that it would result in abusive conduct. In the Glaxo Smith Kline case, it was established that the restriction imposed on parallel importation is indeed an abuse of dominant position. The ECJ has consistently ruled that any restriction or disruption in the free exercise of trade that would impede competition within the relevant market is considered an abuse of dominant position. This is shown in the disposition of the ECJ when commenced an inquiry against Rambus18 when it was accused of “patent ambush”19 when it took part in the Joint Electron Devices Engineering Council (JEDEC), a US industry standard-setting organisation. It was asserted that Rambus abused its royalties for its 'Dynamic Random Access Memory' (DRAM) chips' patent when it was adopted as standards by the JEDEC20. The conduct of Rambus is considered as misrepresentation and deception as it deliberately failed to disclose of the existence of patents and patent applications and this misconduct was compounded when JEDEC used the DRAM chips as industry standards. It was found that Rambus purposely hid the relevant information that it had patents and patent applications to the JEDEC when the industry standards were being determined and set. Rambus later profited from its deceptive conduct by claiming high royalties for those patents. However, any wrongdoing or abusive conduct by Rambus was negated by its voluntary commitment to set a threshold on its royalty rates for its products that conform with the JEDEC standards for the next five years21. The settlement had effectively terminated the Commission's inquiry but it took the opportunity to warn patent holders to disclose honestly and openly their intention or objective before their technology or product is adopted as an industry standard. Pursuant to Article 9 of EC Regulation No 1/2003, the Commission initiated proceedings against IBM for having a dominant position on the maintenance market for its mainframe hardware and operating system software products.22 The Commission stated that IBM is providing maintenance services for IBM mainframes and that IBM might have imposed unreasonable supply conditions, with regard to certain inputs required for the maintenance of these mainframes23. Given these circumstances, competitors of IBM would have competitive disadvantage and it is also found that theits conduct is in violation of Article 102 of TFEU. The Commission extracted a commitment from IBM for the expeditious availability of critical spare parts and technical information under commercially reasonable and non-discriminatory terms and to allow third parties to enforce the commitments/agreements. It has also ruled that IBM must submit a number of standard contract clauses detailing how the obligations undertaken will be implemented.24 A dominant position does not automatically entail abuse unless it shown that it harms the other entities. However, if abuse of dominance is established then the aggrieved party may litigate and seek restitution as illustrated in the case of Telekomunikacja Polska25. It was alleged that Telekomunikacja Polska had abused its dominant position by refusing to supply Alternative Operators with its wholesale broadband Internet access products which inhibited the development of competition on the retail broadband market in Poland. It was held that Telekomunikacja Polska abused its dominant position in the Polish broadband access markets by refusing to give access to its network and supply BSA and and LLU wholesale products. Telekomunikacja Polska demanded unreasonable conditions as well as created an atmosphere that limited the access to subscriber lines. It was further held that Telekomunikacja Polska’s abusive conduct in the wholesale market was capable of restricting competition in the retail market. Its refusal to supply would possibly reduce the rate of entry and expansion of competitors on the retail market for DSL services thus it would remain as the largest DSL supplier on the retail market. It is likewise evident that the refusal of Telekomunikacja Polska to supply access to its wholesale products would delay the growth of its competitor including the development of alternative infrastructures. So also, it was declared that Telekomunikacja Polska’s refusal to supply would have negative impact on the end-users who are likely to be prejudiced by the limited broadband access. In the case of Intel, a formal complaint under Article 3 of Regulation No. 17/62 was filed by Advanced Micro Devices (AMD) on the 16th of October 200026. The complaint was further supplemented through the allegations and the facts that were added in November 200327. In July, 2005, The European Commission conducted on-the-spot inspections under Article 20(4) of Regulation (EC) No 1/2003 in four Intel locations in the United Kingdom, Germany, Spain and Italy and a number of Intel Customers in the United Kingdom, Germany, France, Spain and Italy28. It was ruled that Intel abused its dominant position in the market within the definition given by Article 82 of EC (Now Article 102 of TFEU) by being in the dominant position in the market as they are obliging their purchasers, even if it is on the purchasers’ own accord, to obtain most or all requirements from the undertaking. The abuse of dominant position includes the setting of discounts for customers who have acquired all requirements29. The decision of the court concludes that Intel’s granting of fidelity rebates is akin to the circumstances enunciated in the Hoffmann-La Roche case-law and they have decided that Intel should fulfill the requirements of the said case-law30. Conclusion The European Union’s aim of protecting the European open market economy is much more pronounced and defined under the provisions of TFEU 102 that focuses in the prevention, creation, formation of abuse in dominant positions. TFEU 102 therefore mandates that agreements that could create abuse of dominant positions be reviewed, evaluated and analysed for the purpose of protecting the European open market economy against unfair pricing, competition and the control of supply of essential products. To ensure that European Union members are not held hostage by a single or multiple undertakings when it comes to the supply of products that could create shortage or unstable prices resulting in abuse of its dominant position. The Intellectual Property Rights under the European Union is aimed at protecting individual rights of creators over their creations for them to enjoy its fruits to the fullest allowable by law. However, there are instances where the Intellectual Property Rights of creators infringe if not threaten the stability of the European open market economy. Cross-licensing, bundling and product tying are strategies employed by multinational organization to go around TFEU Article 101 in particular section b – limit or control production, markets, technical development, or investment31. However, such practices contradicts TFEU Article 102 in particular the provision in the abuse of dominant position. As indicated in the cases mentioned herein cross-licensing, bundling, product tying supports the creation of dominant positions in the market that impedes if not contravene the essence of a free and open market economy that supports a healthy competition. The practice of cross-licensing, bundling and product tie to build a better consumer product is an option often arrived at for the ultimate benefit of the customers or clientele of companies. However, as ruled by the Commission there are instances wherein such practice also limits the option of the consumer of mixing and matching various creations for his own use and enjoyment. In several instances cross-licensing, bundling and product tying only benefits the most dominant company to the detriment of smaller companies. The cases have indicated the restrictive character of the provisions of the law. However, it is necessary to protect commerce in the European open market economy and quite possibly the economic survival of the European Union. It is likewise important to stress that it does not take into consideration the exigency of circumstances. It failed to take into account life savings inventions or other creation such as pharmaceutical products and other life saving implements and gadgets. There could be situations wherein cross licensing is essential in making pharmaceutical products more potent and effective. The same can be said about creations that can make it efficient and more environmentally friendly the operation of certain consumer products. There are instances that the bundled products are made cheaper than the unbundled one. The most dominant position presupposes that the company can make products cheaper because of the economies of scale it produces its products. By tying-in or bundling the products, the cost of associated to the attached product will be without its manufacturing cost. The law in its current form and the ruling on cases that adopt and comply with the intent and essence of TFEU 102 and the patent law has limited perspective in terms of the benefit to the consumers of the combined product. While the commission’s intent is for the benefit of the entire market that would include small companies and the consumers, their ruling as of late in this regard are for the protection and promotion of competition for the abstract or oblique premise that a healthy competition will eventually benefit the consumers. While the longer view of the situation of the market and the economy in general should be taken into account the shorter and more immediate benefits that would accrue to the consumer in the short term should as well be taken into consideration. Products are not created overnight the same is true for the market if not the competition by the time competition catch up that will enable them to create a similar product that will give competitive pricing the benefits of a cheaper model would have been lost due to the time it took for the competition to catch up. The same can be said in the context of quality. The provisions of TFEU 102 and the decided cases that used it as its foundation have managed to hinder the progress or advancement of technology only to ensure that competition can catch-up with the innovation that only large companies can think about. TFEU 102 also transgresses the rights of creators to reap the benefits of their labour by stopping if not delaying strategies that would enable them to maximize the enjoyment of the fruits of their creation. Cross-licensing, bundling and product tie in are strategies normally employed by creators of inventions or knowledge to introduce the functionality and the versatility of their creations. These strategies are the shortest and fastest way for inventions or creations to be enjoyed by the consuming public. There are also instances when spreading the cross licensing to several other companies translate to lower profit if not lower quality as far as the final product is concerned due the economies of scale. Better products are spawned from the foundation created by its predecessors limiting or frustrating the creation of these products fashioned from the fruits of cross licensing because it violates the provisions of TFEU 102 will only produce mediocrity. TFEU 102 as it is currently worded seems to induce the market to wait for competition to come to fore before allowing such agreements to prosper. It should be noted that normally only the company who holds the dominant position in the market has the capability, resources and infrastructure that can afford or has the capability to produce cheaply innovative products that uses technology from several patent holders. Innovations should not be nor should be held in abeyance for the purposes of allowing competition to catch-up with the demands of the market. The TFEU 102 should not protect mediocrity or allow itself to be used as a means to hold hostage the consuming public because the other competition is not able to catch-up with the technology. The Commission’s duty is to the consumer. The protection of the market, economy by preventing the creation of monopolies or cartels comes second it should be the consequence of such duty and not the primary purpose. Bibliography Primary Sources Cases IBM Maintenance Services (Case COMP/39.692) Commission Decision (C(2011) 9245) [2011] OJ 18/6 Retrieved from http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2012:018:0006:0007:EN:PDF Retrieved on 3 May 2012 Intel (Case COMP/C-3/37.990) [2009] OJ 227/13 Retrieved from http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2009:227:0013:0017:EN:PDF Retrieved on 3 May 2012 Joined Cases C-468/06 to C-478/06 Sot. Lelos kai Sia EE et.al. v GlaxoSmithKline Microsoft (Case COMP/C-3/37.792) Commission Decision C(2008) 764 Final[2008] OJ C 166/20 Retrieved from http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2009:166:0020:0023:EN:PDF Retrieved on 3 May 2012. Rambus (Case COMP/38.636) Commission Decision (2010/C 30/09[2009], OJ C30/17 Retreived from http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2010:030:0017:0018:EN:PDF Retrieved on 3 May 2012 Telekomunikacja Polska (Case COMP/39.525) Commission Decision C(2011) 4378) [2011] OJ C 324/07 Retrieved from http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2011:324:0007:0010:EN:PDF Retrieved on 3 May 2012. EU Legislations Agreement on Trade-Related Aspects of Intellectual Property Rights [1994] OJ L 336 Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (the EC Merger Regulation) Council Regulation (EEC) No 1534/91 of 31 May 1991 on the application of Article 85 (3) of the Treaty to certain categories of agreements, decisions and concerted practices in the insurance sector European Communities Act [1972] Consolidated Version of the Treaty on the Functioning of the European Union [2008] Treaty of Lisbon [2007] OJ C 306/02 World Trade Organization [1995] Secondary Sources Books Akman, P., ‘The European Commission’s Guidance on Article 102 TFEU: From Inferno to Paradiso.’ (2010), 73 MLR 605. 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