EU Competition Law and its Relevance for the Technology Industry " " Marco Botta

Transcription

1 EU Competition Law and its Relevance for the Technology Industry Marco Botta

2 Introduction I Overview of the impact of the EU competition law (i.e. abuse of dominance) on the technology industry, with special focus on the interaction between competition law and IP Outline: 1. Introduction to Art. 101, 102 TFEU and enforcement EU competition law 2. Cases of enforcement of Art. 102 TFEU in high-tech industries 3. Conclusions Outside scope of the presentation Merger control and State aid rules Overview of Art. 101, but focus on cases related to Art. 102 Focus on abuses of dominance, not on market definition/dominance Focus on EU competition law; some references to US antitrust cases 2

3 Introduction II Growing number of competition law investigations affecting high-tech industries 1. Software & hardware producers, 2. Media and telecom companies 3. Pharmaceutical companies Reasons: 1. Evolution of the quality of analysis in competition law 2. Enforcement competition law in liberalized industries (i.e. telecom) Shift towards knowledge society = growing importance IP rights

4 Interaction of competition law and IP Common goal: Promotion of innovation, which increases consumers welfare (i.e. new products at lower prices) Opposite approaches to achieve same goal: 1. IP grants exclusive exploitation rights to inventors, in order to safeguard their incentive to invest resources in their research 2. Competition law safeguards the free competition in the market, which results in maximization of consumers welfare. IP exclusive exploitation rights = monopoly rights in competition law When IP rights are abused by restricting free competition in the market, competition law intervenes through compulsory licensees, granted on the basis of reasonable and non discriminatory terms.

5 Introduction to EU Competition Law

6 EU competition law - Same substantive rules included in TFEU since Treaty of Rome: 1) Art. 101 = prohibition anti-competitive agreements 2) Art. 102 = prohibition abuse of dominance - Enforcement mechanisms: 1) Public enforcement: EU Commission and National Competition Authorities (NCAs) EU Member States adopt administrative decisions to enforce Art ) Private enforcement: national courts EU Member States assess damage compensation claims caused by a breach of Art

7 Art. 101(1), prohibition anti-competitive agreements Broad concept of agreements which restrict competition (i.e. written agreements, secret cartels, concerted practices, associations decisions) Types of competition law restrictions 1. By object : parties to the agreement have the intention to restrict competition (i.e. secret cartel) 2. By effect : the agreement results in competition restriction (i.e. joint venture, vertical distribution agreement) Horizontal agreements Vertical agreements C A A B Competitors conclude an agreement D B which restricts by object or by A (producer) concludes with B (distributor) a effect the consumers welfare distribution agreement. As a result, C cannot distribute its products and D cannot be supplied (i.e. foreclosure)

8 Art. 101 (3), exceptions to Art. 101(1) prohibition Four cumulative conditions necessary to exempt an agreement prohibited under Art. 101(1): 1. Agreement achieves a general interest goal (i.e. improvement production, distribution, technological innovation) 2. Consumers receive a fair share of the benefits 3. Agreement causes indispensable restrictions of the competition 4. Agreement does not fully eliminate the competition in the market Only agreements which restrict competition by effect can de facto satisfy these conditions (i.e. secret cartels cannot be exempted) Vertical agreements are usually more likely to satisfy these conditions in comparison to horizontal agreements.

9 Art. 102, abuse of dominant position Two cumulative conditions to be satisfied: 1. Dominance : undertaking which can behave to an appreciable extent independently of its competitors, its customers and ultimately the consumers. (para. 38 Hoffmann-La Roche, 85/76) - Steps to assess dominance: a) Definition relevant market: geographic and product market where the firms operate b) Calculation market share of the company within the relevant market c) Large market share is a proxy of dominant position, together with other indicators (e.g. high entry barriers)

10 Art. 102, abuse of dominant position 2. Abuse : non-exhaustive list provided by Art. 102 and elaborated by ECJ case law Two categories of abuses: a) Exploitative abuses: dominant company exploits market power to directly reduce consumer s welfare (i.e. excessive pricing) - rarely sanctioned b) Exclusionary abuses: dominant company tries to exclude competitors from the market (i.e. predatory pricing, fidelity rebates, margin squeeze ) - more often investigated. 2.Abuses are ordinary commercial practices, unlawful only when carried out by dominant company = ``special duty on dominant company 3.No exception for Art

11 Enforcement Art. 102 TFEU in hightechnology industries

12 Predatory pricing Dominant firm sells its products below cost in order to exclude competitors from the market, and to impose supra-competitive prices in the long term What is the cost considered? Is predatory pricing a rational business practice by the dominant company? US Supreme Court 1993 judgement in Brooke Group: 1. Presumption that predatory pricing is unlikely = no rational business practice 2. No discussion about the cost taken in consideration Need to show recoupment : plaintiff has to show that dominant company has in the long term recovered the losses generated by the predatory pricing High standard of proof in US = no case predatory pricing after Brook Group

13 Predatory pricing in EU Predatory pricing recognized by ECJ as Art. 102 violation in AKZO (C-62/86). Double standard of proof: 1. Prices below average variable costs (=cost per unit) are per se predatory 2. Prices between ``average total costs (=variable + fixed costs) are predatory if the intention of predation is demonstrated AKZO test confirmed by ECJ in Wanadoo judgement (C-202/07): 1. Facts: France Telecom provided ADSL service through Wanadoo subsidiary, and it also sold wholesale internet access to Wanadoo competitors (= other ISP proving ADSL to final consumers). Wanadoo provided ADSL services below costs, forcing ISPs out market 1. ECJ confirmed EU Commission s decision sanctioning France Telecom 2. Unlike Brooke Group, ECJ ruled that EU Commission was not required to show recoupment Conclusions: Consumers are short term better off due to predatory pricing, but not in long term. US and EU standards of proof diverges in relation to predatory pricing

14 Essential facility doctrine Type of abuse which derives from the refusal to deal type of abuse The owner of an essential facility (i.e. dominant company) is obliged to provide access to the facility to its competitor at a reasonable access price. The facility cannot be replicated and in the lack of access the competitor would exit the market = restriction of competition Doctrine relevant for IP (i.e. compulsory licensing) and for network industries (i.e new entrant can ask the former monopolist to get access to its network) Concept originated in US case law, BUT rejected in 2005 by US Supreme Court in Trinko case US approach: essential facility doctrine undermines the incentives for the owner of the facility to invest in it Essential facility doctrine accepted in EU

15 Introduction of essential facility doctrine in the EU Recognized by the ECJ in Oscar Bronner (C-7/97) Facts: Oscar Bronner was small Austrian publisher. He wanted to rely on the home distribution service provided by a well-known Austrian newspaper. Legal question: was the home distribution network an essential facility? ECJ: 3 conditions to be satisfied for Art. 102 violation: 1. The refusal to grant access to the essential facility would eliminate the competition (i.e. Oscar Bronner would exist from newspaper market) No objective justification from owner of the essential facility Access to the distribution network is indispensable = no possible replication of the essential facility ECJ ruling: indipensability condition not satisfied; home distribution service could be replicated by Oscar Bronner = strict conditions to be satisfied

16 EU essential facility doctrine and IP Recognized by the ECJ in Mac Gill (C-241/91) Facts: Mac Gill published weekly lists of TV programs. Irish and UK TV refused to share the lists of their TV programs with Mac Gill = copyright ECJ ruling: 1.IP rights deserve special protection 2.BUT, violation of Art. 102 appears when 3 conditions are satisfied: a) Refusal causes exclusion of competition in downstream market Lack of justification for the refusal Refusal prevents introduction new product for which there is consumers demand 3. New product condition not present in Oscar Bronner = indispensability?? 4. Mac Gill conditions are alternative or cumulative?? 1. GC judgement in IMS Health (T-184/01) confirms Mac Gill conditions and it clarified that 3 conditions are cumulative

17 Essential facility doctrine in Microsoft case Facts: Microsoft sanctioned in 2004 by EU Commission for 2 types of infringements Art. 102: 1. Refusal to grant to competitors (i.e. Sun Microsystem) interoperability informations concerning its operating system for servers 2. Windows operating system sold only together with Media Player (next slide) GC confirmed EU Commission s decision (T-201/04). GC confirmed Mac Gill conditions, BUT new product condition became new technological development (i.e. Sun Microsystem would not produce a new product thanks to interoperability information); Mac Gill conditions broadly interpreted by GC 1. Conclusions: 2. ECJ and GC constantly refine conditions essential facility doctrine = legal uncertainty?? 3. ECJ and GC elaborate general criteria, which do not always fit well with the peculiarities of the industry

18 Essential facility doctrine in Google - Google investigated during the last years by US Federal Trade Commission (FTC) and by EU Commission for possible violation competition law - In designing its search algorithm, Google was accused to prioritize in the list of results its own web-sites (e.g. maps, shopping) = Google discriminated web-sites of its competitors - Claim put forward by Google competitors: Google is a gate-keeper of internet access; Google should grant non-discriminatory treatment among different web-sites in its search results = application essential facility doctrine?? - Different results in US and EU: 1) US FTC closed the case in January 2013 = no breach competition law 2) EU Commission concluded settlement with Google in December 2013 = Google accepted to implement non-discriminatory search for European users 18

19 Abuse of judicial and administrative remedies - New type of abuse recognized by the ECJ in Astra Zeneca (C-457/10): 1) Astra Zeneca is a major pharmaceutical company operating in Europe 2) In 1988, Astra Zeneca marketed Losec (pills against gastritis) 3) In 2000, Astra Zeneca's patent for Losec was close to expiration; Astra Zeneca implemented 2 strategies to lengthen the duration of patent: a) Astra Zeneca applied for Supplementary Protection Certificates (SPC) in different EU Member States giving wrong info to patent offices b) Astra Zeneca de-register patent for Losec in some EU Member States, and it replaced with a similar patent 4) Producers of generic drugs submitted complaint to the EU Commission: conduct by Astra Zeneca did not allow them to market generic drugs = restriction of competition 5) EU Commission imposed a fine on Astra Zeneca for violation Art ) EU Commission's decision upheld by General Court and ECJ 19

20 Abuse of judicial and administrative remedies II - ECJ's judgement in Astra Zeneca in relation to SPC: 1) Astra Zeneca provided wrong info to patent offices when applying for SPC 2) Astra Zeneca relied on SPC with the intent to restrict competition = generic drugs could not enter into the market - Similar abuse: abuse of judicial remedies: 1) EU Commission has opened investigations vis a vis Motorola and Samsung 2) Motorola and Samsung owned Standard Essential Patents (SEPs) relevant for 3G smart phones 3) SEPs adopted as int. standards = competitors should pay royalties to Motorola and Samsung to use SEPs under Fair and Reasonable non-discriminatory terms (FRAND) 4) Motorola and Samsung asked for injunctions in national courts against competitors which relied on SEPs without paying royalties 5) Request of injunction as abuse judicial remedy??? 20

21 Abuse of IP rights ECJ's judgement in Astra Zeneca in relation to selective patent de-registration: 1)De-registration patent is allowed under IP law (i.e. Directive 65/65) 2) Lawful conduct under IP law can breach Art. 102 = special duty dominant company Abuse of IP rights was also at the core of 2010 EU Commission s settlement decision sanctioning Rambus for infringement of Art. 102 due to patent ambush Facts: Rambus was accused of hiding the existance of a number of patents on RAM devices. After a standard setting body adopted the innovation covered by Rambus s patent as standard setting, Rambus revealed the existence of the patent, asking hardware producers to pay a license

22 Conclusions

23 Conclusions Growing number of EU competition law cases in technology industries during the last decade Growing tension between IP and competition law (i.e. Rambus and Astra Zeneca) US and EU diverge in relation to Art. 102: US does not recognize essential facility doctrine, and very restrictive approach vis a vis predatory pricing. US Supreme Court s concerns over competition law intervention in technology industries: Risk to hamper innovation (i.e. compulsory licensing in essential facility doctrine) Market structure in technology markets quickly changes (i.e. low entry barriers)= technology markets self-restore free competition Chicago school influence Avoid excessive private enforcement competition law

24 Conclusions II ECJ/GC support EU Commission s intervention in technology markets through competition law investigations. Main concern: avoid distortion of competition which may hampers integration of the common market EU Courts have introduced new types of abuses to deal with market behaviours in technology markets (i.e. margin squeeze), sometimes facing difficulties in developing consistent legal standards throughout different industries (i.e. different criteria for essential facility doctrine in Oscar Bronner, Mac Gill, Microsoft) Areas for further research: Abuse of judicial and administrative remedies Abuse of IP rights

25 Bibliography BANASEVIC N., HELLSTRÖM P., Whane the Chips Are Down: Some Reflections on the European Commission s Intel Decision. Vol. 1, N. 4, Journal of European Competition Law and Practice, (2010). BORNICO L., WALDEN I., Ensuring Competition in the Clouds: the Role of Competition Law? Vol. 12 ERA Forum (2011). EILMANSBERGER T., IP and Antitrust in the European Union. South-Western Journal of Law and Trade in the Americas, (2007). EILMANSBERGER T., The Essential Facilities Doctrine under Art. 82, What Is the State of Affairs After IMS Health and Microsoft? Vol. 16 King s Law Journal (2005). FAELLA G., PARDOLESI R., Squeezing Price Squeeze under EC Antitrust Law. European Competition Journal (2010). FERNANDEZ M., Margin Squeeze in the Telecommunications Sector: an Economic Overview. Vol. 29, N. 2, World Competition (2006). MAGGIOLINO M., MONTAGNANI M.L., Astrazeneca s Abuse of IPR-Related Procedures: a Hypothesis of Anti-Trust Offence, Abuse of Rights and IPR Misuse. Vol. 34, N. 2, Wold Competition, (2011). SCHERER F., Abuse of Dominance by High Technology Enterprises: a Comparison of US and EC Approaches. Vol. 38, N. 1 Economia e Politica Industriale (2011). SLUIJS J., LAROUCHE P., SAUTER W., Cloud Computing in the EU Policy Sphere. TILEC Discussion Paper DP , August TEMPLE LANG J., European Competition Law and Intellectual Property a New Analysis. Vol. 11 ERA Forum (2010).