Article 82 of the EC Treaty regulates undertakings, which hold a 'dominant position', to preventing them from distorting effec

Intellectual Property Rights (IPR) cases

The abuse of refusal to supply is more complex in cases involving IPR. There is not yet a harmonization of copyrights laws of EU Member States but the ECJ has severally stated that it recognizes the existence of intellectual property rights granted by Member States.  Predictably, IPR is an area that clashes with competition law with, Steve Anderman suggesting that they seem to be ‘“private rights” subject to the “public law” norms of competition law’.  I will now consider the elements applicable to the abuse of refusal to supply in IPR cases.  

In the landmark case of Magill, an Irish publisher which appealed against an injunction preventing it from publishing a comprehensive weekly TV guide, the content over which three broadcasting authorities, RTE, ITP and BBC claimed to have copyright protection.  The ECJ upholding the CIF’s finding against the broadcasting authorities reiterated the position in Volvo v Veng that the refusal of a dominant firm to grant a licence cannot in itself constitute abusive conduct except under “exceptional circumstances”.  The exceptional circumstances were as follows:  

firstly; when the IPR holder by their refusal to provide basic information in reliance on copyright laws prevent the appearance of a new product on the market for which there is a potential consumer demand (this has its legal foundation in article 82(b); secondly, when there is no objective justification for such refusal and thirdly, when the dominant undertaking reserves by conduct, the secondary market for itself by excluding competition on that market.

These “exceptional circumstances” are supposed to represent the elements that must be applied in an abuse of refusal to supply case in an IPR situation but in practice their application is fraught with several difficulties.  The ECJ in Magill did not clarify whether all the conditions have to be fulfilled or whether they can separately constitute an abuse - it merely stated them (in approval) as reasons for which the CIF held the broadcasting authorities to the abuse of refusal to supply.  The Magill criteria were, however, strictly applied in the Ladbroke case, where the refusal to licence did not affect the complainant’s position in the secondary betting market and there was no new product involved.  Also, the court stated that mere ownership of IPR would not amount to objective justification, but it gave no positive indication as to what would.  J.T. Lang suggests that a justification would arise in situations where a reasonable owner of the facility had no interest in any downstream operation, and would have a substantial interest, acting rationally, for refusing access.  This has applied where a customer is not credit worthy and where there is a genuine shortage in supplies.  These problems have led to uncertainty as to how Magill should be applied in subsequent cases.

The third exceptional circumstance – reservation of secondary market by excluding competition on that market by a refusal to supply or license appears to be an endorsement of the Commercial Solvents ‘essential facilities doctrine’.  This gave the ECJ the confidence to emphasize on the ‘essential facilities’ doctrine in subsequent cases.

The Oscar Bronner v Mediaprint case created another foundation to apply the elements in the Magill case to an undertaking’s refusal to supply.  The ECJ refused to hold that an abuse of refusal to supply would apply where a newspaper proprietor was refused access to the home delivery service of newspapers run by the dominant competitor in the market, unless the following conditions applied: the refusal was likely to eliminate all competition in the downstream market from the person requesting access; the refusal was incapable of objective justification; the service requested was indispensable to carrying on that person’s business, and there was no  actual or potential substitute in existence for the service being refused.  The complainant was unable to show that any of these elements were present in Mediaprint’s refusal to supply and so the complaint was rejected.  

The Bronner decision is reflective of two views expressed by academics: D. Ridyard, who submits that ‘it is necessary to stand back from specific concerns of consumers and competitors, and instead … ask where essential facilities issues fit into the general objective of competition rules to protect effective competition….it is only where competition has seriously broken down or cannot be expected to operate that a case for compulsion.’, and Robert Lane, who warns: “ … care must be taken with the essential facilities doctrine lest it become too accessible a remedy for neutralising a legitimate advantage enjoyed by a (dominant) competitor …”.  It appears that Oscar Bronner was seeking to limit this advantage being enjoyed by Mediaprint as a result of its innovative home-delivery service, and the ECJ by limiting the essential facilities doctrine in this case has somewhat enhanced its reliability.

Another case has cast doubt as to whether the “exceptional circumstances” list should be fundamental for determining whether a refusal to supply amounts to abusive conduct in IPR cases.  In IMS Health v NDC Health, the ECJ held that it was “sufficient”, rather than necessary that the three cumulative conditions stated in Magill must apply for a refusal to grant copyright access to be treated as abusive.  This widens the category of “exceptional circumstances”, leaving it open to more additions thus doing nothing to alter the perceived ‘witch-hunt’ of IPR holders.

In IMS, the ECJ upheld a compulsory licence order issued to IMS to grant NDC access to its copyrighted "brick structure" which had become the de facto pharmaceutical industry standard in Germany.  I don’t think that the “exceptional circumstances” criterion was appropriate for determining an abuse in this case because the facts of the two cases differed.  The ECJ appeared to ignore the fact that there was no new product for which there was potential consumer demand in the market.  The fact that NDC was likely to be eliminated from the market because of IMS’s efforts to make its brick-structure the de facto industry standard leads me to infer that the elimination of competition on the market and dominance, are the two most fundamental elements for applying the abuse of refusal to supply.

The pending Microsoft case provides further analysis for the application of these ‘certain elements’ to the abuse of refusal to supply in an IPR scenario.  This case involved a complaint by Sun Microsystems of Microsoft’s refusal to provide adequate information about interface codes, which would allow software by Sun to interoperate seamlessly with Microsoft’s Windows PC Software.  The Commission holding Microsoft in abuse of its near monopoly ordered it to grant a compulsory copyright licence to competitors for a reasonable remuneration.

The Commission stated that by case law, it was entitled to take into account “other circumstances of exceptional character when assessing a refusal to supply”, and would take a “decision based on the results of a comprehensive investigation”.  Anderman argues that this represents a failure of the Commission to fit this particular case into the “exceptional circumstances” framework because the ‘factual nexus of the Microsoft case offered a new paradigm’ for doing so.  I respectfully disagree with this opinion, and instead applaud the Commission’s decision to look more widely because, for example, Microsoft’s refusal to licence has not, as Ridyard points out, "eliminated all competition" from the secondary market for server software, even if it has given Microsoft a competitive advantage’ - Microsoft enjoyed a 60 per cent market share in the relevant market with other rivals enjoying between 5 and 15 per cent each.  While the first and the second “exceptional circumstances” could be seen to apply in this case, the third element (elimination of competition) is not satisfied if we are to follow IMS in requiring that all the three “exceptional circumstances must apply.  

Final Thoughts

My final thoughts on the application of the abuse of refusal to supply are contained in a comment by Mark Furse, that the principles behind the abuse of the refusal to supply “may also add to the concerns of those who would argue that dominant undertakings are required to operate under a regime that is more taxing than that of smaller firms”.  The pattern in the majority of these cases seem to be one of the ECJ applying protectionist measures to smaller competitors and customers.  This raises the possibility of whether competition law is in actual fact protecting the smaller competitors rather than competition in itself.  

I also value highly an interesting point raised by Glasl, that ‘trade liberalisation must be balanced with the economic equilibrium of a universal service provider’ – their financial stability must be guaranteed in order to achieve the policy objective in the specific market.  The Magill decision threatened the financial stability of the broadcasting authorities.

In countries like the USA and Japan, undertakings are not hindered by the constraints of belonging to a common market.   Their unrivalled high levels of technology should serve as a reminder to the Commission and the ECJ of the need to balance competition law with the freedom of contract.  The lack of incentive to innovate that could arise out of issuing compulsory licences could lead to complacency in the EC thus making undertakings even less competitive in the long run.  ‘Intellectual property is the engine of growth in most high technology industries.’ and thus ‘The analysis of competition in high-tech dynamically competitive industries … illustrates the need to apply the competitions laws flexibly.’ 

Conclusion

My analysis of the fundamental elements of an abuse of refusal to supply identifies three broad requirements of the accused undertaking – dominance, refusal to supply an essential facility, and being caught by the Magill “exceptional circumstances” criteria (if the firm is an IPR holder).  However, the ECJ does not appear to apply Magill strictly.  In fact, it seems to me that the principles in Commercial Solvents – of when there is a special relationship between the dominant undertaking and the customer, refusal to supply should become an obligation to supply, and whether by refusing to supply the dominant undertaking eliminates competition in the same or a secondary market – are the most decisive factors in its findings of abuse (along with dominance of course).   It is inevitable that as there is as of yet no harmonization of national copyright laws in the EC, IPR will continue to play second fiddle to competition law.  Dominant undertakings must ensure that the exercise of their IPR do not constitute an abuse of refusal to supply.  The new economy is innovation driven and as such IPR feature prominently among the dominant firms.  While a failure to disclose information could threaten the existence of competitors in the market, a compulsory requirement to disclose such information could be sometimes detrimental to the licensor’s commercial stability.  Trying to fit each case into these ‘elements’, ‘exceptional circumstances’ and other fixed rules of abuse does not augur well for commercial practice.  The Oscar Bronner extension of the ‘essential facilities’ doctrine and the Magill criteria doctrine to include an “indispensability” test, in this authors opinion, represents exceptionally good law and is the way forward in terms of balancing competition law with the freedom of contract.

BIBLIOGRAPHY

Primary Sources

Case T-219/99, British Airways v Commission [2004] 4 CMLR 1008

C418/01 IMS Health GmbH & Co OHG v NDC Health GmbH & Co KG [2004] All E.R. (EC) 813

Case COMP/C-3/37.792 Microsoft March 24, 2002

 Oscar Bronner GmbH & Co KG v Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co KG (C-7/97) [1999] 4 C.M.L.R. 112

Case T-504/93, Tierce Ladbroke SA v Commission [1997] ECR II-923

C-333/94P Tetra Pak v Commission (Tetra Pak II) [1996] ECR I-5951 at 6008

C-241-241/91 P, RTE & ITP v Commission [1995] E.C.R. I-743

Leyland DAF v Automotive Products [1994] 1 BCLC 245 (CA)

C-53/92P Hilti AG v Commission [1994] ECR I-667

Commission Notice on Access Agreements in the telecommunications sector [1988] OJ C265/3 at 68

Decision 94/19 (Sea Containers/Stena Sealink) (Sealkin I) OJ 1994 L15/8

Volvo AB v Erik Veng (UK) Ltd (238/87) [1988] ECR 6211.

C-85/76 Hoffman la Roche & Co v Commission [1979] ECR 461

Case 27/76 United Brands Co v Commission [1978] ECR 207

Case 77/77 BP v Commission [1978] ECR 1513

Secondary Sources

Anderman, S., “Does the Microsoft Case Offer a New Paradigm for the “Exceptional Circumstances” Test and Compulsory Copyright Licenses under EC Competiton Law?” Working Paper

Jones, A., & Sufrin, B., EC Competition Law Text, Cases, and Materials 2nd edition, Oxford : Oxford University Press, 2004

Steiner, J. & Woods, L., Textbook on EC Law 8th edition, Oxford: Oxford University Press, 2003

Lang, J.T., “Anti-Competitive Non-pricing Abuses under European and National Antitrust Law’” in B. Hawk (ed.) [2003] Fordham Corp L Inst 235, 272-3

Schmidt, H., “Article 82’s ‘Exceptional Circumstances’ that Restrict Intellectual Property Rights” [2002] ECLR 210-16

 Ridyard, D., “Essential Facilities and the Obligation to Supply Competitors” [1996] ECLR 438, 447-8, 450, 451

Lane, R., EC competition law, Harlow: Longman, 2000

Furse, M., “The Essential Facilities Doctrine in Community Law” [1995] ECLR 469-474

Glasl, D., “Essential Facilities Doctrine in EC.  Anti-Trust Law” [1994] ECLR 306

Lind, R.C. and Muysert, P., “Innovation and Competition Policy: Challenges for the New Millennium”, [2003] ECLR 87 – 92

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