TRIPS Competition Flexibilities
by Tu Thanh Nguyen & Hans Henrik Lidgard [*]
Abstract
International trade legislation and TRIPS in particulate contain elements of a competition law system. Flexibilities in the system leave substantial discretion to developing countries, which can apply these rules to counterbalance demands imposed on them by the TRIPS system. The risk of both over- and under-enforcement should not be overlooked. Precise standards regarding competition law interpretation and enforcement for building an efficient structure is required. In spite of the mishaps with the Singapore issues in the Doha round, it still appears clear that the WTO provides the right forum for such discussions. Post-Doha it must be possible to re-establish the discussion. The way forward may well be a new Fair Trade Agreement under the WTO “umbrella”.
1. Introduction
Competition law has for long been an important tool in the developed world for fostering economic development.[1] An international legal framework for competition, especially for technology transfer-related competition, is endorsed by the international community. Notwithstanding that fact, the existing framework in primarily the TRIPS Agreement, is still rather general and does not provide clear guidance. Improved rules were the subject of WTO discussions under the Doha round in Singapore, but the subject was shelved in Cancun for obscure reasons. Based on the flexibilities in the TRIPS Agreement, developing countries – tired of technology transfer promises, which never seem to materialize - are taking action. Over sixty developing countries have now enacted competition rules as tools to support a dynamic economic development.[2] Others are currently preparing to introduce legislation.
The need for international coordination at the WTO level remains high. Pascal Lamy recently paved the way for a reopening of the discussions once the Doha round has come to an end:
“Looking beyond Doha, there are many new ideas floating around on potential areas for future work"; issues relating to competition, among other things, … These issues do not belong in the current agenda. Obviously nothing prevents us from thinking about the future but I believe serious work on any future topic should commence when the finish line of the Doha Round is firmly in sight”.[3]
The question we pose is whether competition rules serve the same purpose in developing countries as they do in the developed world, and to what extent the World Trade organization (WTO) is the right forum for supporting the international development. We focus on the impact of competition rules on technology transfer between developed and developing countries. Our aim is to investigate if, properly construed, competition law is a good response to the general globalization and sometimes excessive application of intellectual property protection, at least from the perspective of the developing countries.
2. Competition Law in the WTO
2.1. TRIPS Competition Flexibilities
Trade barriers have long been under international review. Unification of national laws on restrictive business practices was proposed as long ago as 1926 at the World Economic Conference.[4] After World War II the Havana Charter for an International Trade Organization (ITO), contained a separate chapter dealing with restrictive business practices but it was never ratified.[5]
In 1980 the United Nations established a “Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices”. The objective was to “ensure that restrictive business practices do not impede or negate the realization of benefits” arising from trade liberalization, particularly practices affecting trade and development in developing countries.[6] It was followed in 1985 by a proposed International Code of Conduct on the Transfer of Technology, which listed fourteen restrictive practices which would have been forbidden in technology transfer agreements.[7] Due to dissension between developed and developing countries, as well as changes in the world economic and political situation, the ToT Code never came into force.[8].
Although there is no coherent body of competition rules, a number of provisions in the WTO agreements are closely related to competition issues.[9] WTO competition provisions regarding private anti-competitive practices can currently be divided into three categories: (i) mandatory provisions preventing anti-competitive practices, (ii) pro-competitive provisions, and (iii) discretionary provisions preventing anti-competitive practices.[10] The provisions do not include a precise set of obligations, but they confer considerable discretion on WTO Members when deciding which practices are anti-competitive and how to sanction them under their domestic competition laws. The current competition rules, which are dispersed throughout various WTO agreements, are, however, not sufficiently precise to form a complete system and they cannot satisfactorily address fundamental relationships between trade law and competition law even though they do include an efficient dispute settlement mechanism (DSU). Competition law still remains a domestic/regional issue while cross-border private anti-competitive practices multiply. As analysed below, it is only TRIPS in the WTO package that clearly recognises the adverse effects of anti-competitive practices on trade, technology transfer and development. The question is, however, to what extent the competition rules in TRIPS create positive law or if they merely serve as non-binding references.
The negotiating history of TRIPS reflects the concerns of developing countries regarding the adverse effects of IPR-related anti-competitive practices. In contrast, developed countries with established rules for control of these practices initially showed little interest in having such rules in the TRIPS.[11] As a result of mutual concessions, TRIPS does contain in Articles 8.2, 31(k), and 40 provisions akin to competition rules.[12]
Under the heading “principles”, Article 8.2 states:
Appropriate measures, provided that they are consistent with the provision of this Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology.
This article recognises WTO Members’ competence to formulate or amend their domestic legislation and to adopt appropriate measures in order to prevent three inter-dependent kinds of IPR-related practices: (i) abuses of IPRs by right holders; (ii) practices that unreasonably restrain trade; and (iii) practices that adversely affect international technology transfer. Such restrictive practices cover both unilateral abuses by companies and contractual restraints on IPR-related trade. Article 8.2, read in conjunction with Article 48.1 (regulating compensation for the injury of a third party caused by abuses of IPR enforcement procedure),[13] can also apply to anti-competitive abuse of IPR enforcement such as sham litigation.[14] However, due to the scope of TRIPS, Article 8.2 does not apply to other potentially anti-competitive arrangements with a primary object that does not directly relate to IPRs, such as of mergers and acquisitions.[15]
Article 40, as a lex specialis provision to Article 8.2 regarding anti-competitive practices in contractual licenses, provides:
1. Members agree that some licensing practices or conditions pertaining to intellectual property rights which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology.
2. Nothing in this Agreement shall prevent Members from specifying in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market. As provided above, a Member may adopt, consistently with the other provisions of this Agreement, appropriate measures to prevent or control such practices, which may include for example exclusive grantback conditions, conditions preventing challenges to validity and coercive package licensing, in the light of the relevant laws and regulations of that Member.[16]
Articles 40.3 and 40.4 contain procedural rules concerning consultation and cooperation between a WTO Member enforcing its measures regarding licensing-related competition control and another Member whose national or domiciliary is alleged, under the former’s competition law, to engage in licensing-related anti-competitive practices.
Article 31(k), regarding unilateral abuses of IPRs, acknowledges that the remedy of compulsory licensing is available to correct such unilateral anti-competitive practices. It waives certain conditions in cases of compulsory patent licensing used to remedy anti-competitive practices. Article 31(k) reads:
Members are not obliged to apply the conditions set forth in subparagraphs (b) and (f) where such use is permitted to remedy a practice determined after judicial or administrative process to be anti-competitive. The need to correct anti-competitive practices may be taken into account in determining the amount of remuneration in such cases. Competent authorities shall have the authority to refuse termination of authorization if and when the conditions which led to such authorization are likely to recur;[17]
Accordingly, if the conduct of a patent holder is held in judicial or administrative proceedings to involve anti-competitive practices, the competent authorities of a WTO Member may authorise a compulsory license without (i) prior negotiations with the patent holder and (ii) any requirement to predominantly supply the patent-embodied products to the domestic market. Furthermore, the amount of remuneration payable in such a case may be less than in the case of a commercial license transaction. These remedies are often applied under domestic legislation.
2.2 Open-ended Nature
TRIPS competition rules are of an open-ended nature, as the result of concessions between developed and developing countries.[18] They do not stipulate precise obligations making the exercise of IPRs subject to the application of competition law principles. They merely provide WTO Members with substantial discretion to enact and enforce domestic competition legislation. In sum, Articles 8.2, 31(k), and 40 of TRIPS recognise the interventionist power of Members to control IPR-related anti-competitive practices.
Article 40.1 acknowledges that some licensing practices or conditions are anti-competitive. Article 40.2 lists exclusive grant backs, no-challenge provisions and coercive package licensing as anti-competitive practices in contractual licensing. The list is not exhaustive as Article 40.2 expressly states that these practices are only examples.[19]
As WTO law should not be “read in clinical isolation from public international law”,[20] TRIPS “shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose”. Thus, the term “anti-competitive practices” in TRIPS may be interpreted very broadly. If similarly interpreted, Articles 8.2, 31(k), 40.1, and 40.2, taken together, may be largely applicable to any anti-competitive practices relating to all of the IPRs covered by the TRIPS. This view is supported by the fact that Article 37.2 recognises that Article 31(k) can be applied mutatis mutandis to layout-designs, while Article 8.2 establishes principles, and Article 40 applies to all contractual licenses.
TRIPS provides grounds for compulsory licensing as a remedy correcting anti-competitive practices in general and IPR-related anti-competitive practices in particular. Nothing in the Agreements prevent WTO Members from enacting their own laws allowing the grant of compulsory licensing together with injunctions, damages, fines, etc provided that due process is respected.
TRIPS establishes minimum standards for intellectual property protection and the competition provisions are (as a concession) an exception.[21] If minimum IPR standards are ensured, no affirmative obligation exists to introduce competition rules to promote trade or dissemination of technology.[22] A complaining Member must prove that a private firms’ anti-competitive conduct is the effect of an action, i.e. direct involvement, rather than a non-action by another Member.[23] Article 40.1 is only a non-committal, non-binding chapeau.[24] It is left to Members’ domestic law to determine which practices are forbidden as anti-competitive. When a country introduces competition rules Articles 8.2 and 40.2 require that the measures must be “consistent” with TRIPS (consistency requirement), and “appropriate” (appropriateness requirement).
2.3. International Support
Subsequent activities in different international fora confirm that competition rules, especially in the area of technology transfer, are believed to be important to developing countries’ socio-economic development. Developing countries have been urged in different ways to take action in this field in order to protect their national interests and consumer welfare.
The Resolution adopted by the United Nations General Assembly on international trade and development in 2005 states:
[It is important to strengthen and enable] trade, investment and business environments through the adoption of appropriate domestic measures and conditions to encourage local, regional and international investment and efforts to prevent and dismantle anti-competitive practices and promote responsibility and accountability of corporate actors at both the international and the national levels, thereby enabling developing countries’ producers, enterprises and consumers to take advantage of trade liberalization, and encourages developing countries to consider establishing competition laws and frameworks best suited to their development needs, complemented by technical and financial assistance for capacity-building, taking fully into account national policy objectives and capacity constraints.[25]
The resolution underscores the principle that domestic competition laws and regulations in developing countries should not be enacted as mere copies of western countries’ laws, but rather must suit the development needs of the developing world. What works in developed economies is not necessarily the right “medicine” for the developing world. This reflects the gradual changes in focus of antitrust/competition legislation over time, especially in the US and the EU. The transition from developing to developed country status with a full-fledged market economy requires time and gradual adaptation. Developing countries also need time to gradually tailor and enforce their domestic competition law to meet their particular socio-economic contexts. UNCTAD,[26] WIPO, and WHO also strongly support the application of TRIPS competition flexibilities in developing countries so as to promote access to technology. The objective is to ensure that technology transfer takes place under fair and reasonable conditions. Domestic laws should be used by developing countries to eliminate any anti-competitive conduct in technology transfer.
The 2007 session of the WIPO General Assembly adopted the WIPO Development Agenda consisting of 45 recommendations, organised into six clusters, which have been under discussion in the WIPO Committee on Development and Intellectual Property. The interface of IPRs and competition is addressed by four recommendations. WIPO supports (i) measures helping developing countries curb IPR-related anti-competitive practices through providing technical assistance and cooperation to those countries; (ii) norm-setting activities relating to competition and IPR-related competition flexibilities; (iii) pro-competitive IPR licensing practices; and (iv) opportunities within the WIPO for exchanges of information and experience on IPR-related competition issues[27].