Intellectual Property Rights and Competition Policy:
Double-edged Swords[*]
Jerry F. Xia[**]
Supervisor: Prof. Dr. Peter Malanczuk
Erasmus University Rotterdam
Faculty of Law
June 2001
TABLE OF CONTENTS
I. INTRODUCTION: THE ISSUES
II. INTELLECTUAL PROPERTY RIGHTS AND COMPETITION POLICY: THE CONCEPTS
2.1 Intellectual Property Rights (IPRs) and Intellectual Property Laws
2.2 Competition and Competition Policy
III. GENERAL INTERFACE: THE CONSISTENT PERSPECTIVE
3.1 Distinction between the Existence of Rights and their Exercise
3.2 Benefits to Competition
3.3 Consumer Welfare Promotion
3.4 Unfair Competition Law
IV. GENERAL INTERFACE: AN OVERVIEW OF THE CONTRADICTORY PERSPECTIVE
4.1 Risks to Competition: the Existence of IPRs
4.2 Risks to Competition: the Exercise of IPRs
4.3 Intellectual Property Laws v. Competition Policies
V. IPR-RELATED ANTI-COMPETITIVE PRACTICES AND RELEVANT REMEDIES UNDER COMPETITION POLICY
5.1 Acquisition of IPRs and Merger Control
5.2 Refusal to License, Compulsory Licensing and Reverse Engineering
5.3 Anti-Competitive Practices in IPR Licensing Arrangements
VI. CONCLUDING REMARKS
I. INTRODUCTION: THE ISSUES
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With the ongoing acceleration of global technological integration and the continued prosperity of international free trade, there are two game rules that today have become compulsory courses for every player in this innovation-driven world economy, i.e., intellectual property rights (IPRs) and competition policy.[1] The former, mainly dealing with patents, copyrights and trademarks, is a legal regime intended to provide exclusive rights for human’s intellectual creations such as technological inventions, artistic and literal works, commercial marks,[2] etc., while the latter, competition policy, on the other side seeks to protect the process of competition from restraints, particularly to prevent restrictive commercial practices that impede the efficient production and diffusion of goods and technologies.
The two legal projects may at the first sight look somewhat irrelative of each other since the IPR regime is essentially concerned with the recognition and protection of certain sorts of private rights[3] whereas competition policy, which although may have different definitions and components in different jurisdictions, is invariably aimed at establishing a healthy public market mechanism under which the fairness and efficiency of competition process are to be ensured.[4] Nevertheless, they are in fact inherently connected and becoming more and more frequently intersected.
The first point envisaged from above is that they are both in nature key instruments of government policy that are united in the market in search of a kind of justified value. The IPRs are not naturally enjoyed by the potential right holders until they are granted by the competent public authorities[5] under the relevant national laws or international treaties.[6] Moreover, such an official grant in itself serves no more than a legal recognition of the ownership of the relevant rights of which the scope is defined by the law. Thus generally, an entitled specific IPR would not interplay with competition policy until it enters the market and its owner starts to exploit it by exercising the exclusive rights conferred by the law. In doing so, some monopolistic market status is likely to be created by the IPR owner, which, first of all, seemingly comes into conflict with the anti-monopoly or antitrust nature of competition policy. However, this monopoly stemmed from an IPR is a legitimate one notwithstanding it excludes all third parties including actual or potential competitors from using this specific IPR without the owner’s consent. This is so in that the law is purported to reward the investment people have made in research and development (R&D), innovation and imitation in creating such an intellectual asset which is deemed contributive to improving the social and economic development of human civilization.[7] Therefore, the exercise of this exclusivity accompanied by some restraints is legally allowed under competition policy since it generally falls within the block exemptions of the latter and further, it even receives the complementary reinforcement of its protection under competition policy.[8]
Then can we accordingly arrive at a conclusion that the two legal systems embrace a graceful harmony and there is no conflict at all? The answer happens to be very negative. First of all, the monopoly nature of an IPR, as discussed above, has in advance nurtured the future possible friction against competition policy in light of the latter’s antitrust objective. Secondly, after an IPR enters the market, this nature associated with a competition advantage would very likely give rise to the proprietor’s misuse or abuse of his exclusive marketing rights (EMRs) which, however, is just contrary to the competition policy’s primary mission towards combating any prevention, restriction or distortion of competition.[9] For instance, very commonly in the exploitation of a patented technology, the proprietor in a dominant position might refuse to license his patent to any parties who are very in need of this technology and are well prepared to exploit it.[10] This refusal to license as its object or effect can possibly be used to strengthen the proprietor’s monopoly status and prevent potential competitors from entering the relevant markets, which thus causes restriction of competition. The remedy to a refusal to license is primarily available within IPR legislation itself by imposing a so-called compulsory license for non-use or abusive refusal.[11] Such IPR legislation also regulates the exercise of IPRs by limiting the period of exclusivity although the period may differ in different countries.[12] However, many, if not most, legal systems today monitor the exercise of IPRs more often within the framework of their competition policies.[13] For instance, in both the United States (US) and the European Union (EU), which have the most developed legal frameworks in the world, there is usually a second tier of regulation that is added by general competition law to ensure that the grant of exclusivity by IPR legislation is not misused by being incorporated into cartels and market sharing arrangements or monopolistic practices which deny access to markets.[14] Thus competition policy often works at cross-purposes against IPRs, as the exclusivity inherent in the acquisition and exploitation of IPRs is incompatible with certain visions of the promotion of competition. Thirdly, the clashes may not only arise from the proprietor’s market conduct, but also probably from the legislation itself and the enforcement by competent public authorities. The misdefinition of the scope of the property right by the legislator and the courts may set forth too wide or too narrow boundaries of IPR protection and exploitation. Any right holder acting within these boundaries does not misuse his rights even though his acts may produce an anti-competitive effect.[15] On the other hand, any improper or excessive use of competition policy can also to some extent hinder IPR proprietors from fully exercising their legitimate rights under law.[16]
In view of the above introductory arguments, the relationship between IPRs and competition policy has, at first glance, proven to be a very baffling one. Both fields overlap but often conflict with each other; they may use similar vocabularies in order to achieve very different ends;[17] they are contradictory to each other in nature while they are coherently intended to pursue similar objectives; any misuse or abuse of either one would undermine the legal value under the other; the legislation of both fields mutually provide promotive and restrictive regulations towards each other; etc.. Some scholars have given a figurative expression to IPRs, i.e., “a double-edged sword”.[18] In the author’s opinion, based upon the arguments contained in this thesis, competition policy can in some sense enjoy the “nickname” as well.[19] Moreover, the interface between them can be made much more complicated when being dealt with at the international level and in particular in cyberspace, for example, on the Internet.[20] Therefore, ensuring an appropriate balance between IPRs and competition policy is very vital to providing dynamic incentives for innovation and efficiency and proposing optimal solutions for resource allocation in a knowledge-based market economy.[21]
Thus the complex and evolving relationship between these two kinds of legal values as well as their bodies of law deserve close study for sufficient reasons.[22] Both of them first of all have strong political and historical tradition and they are intimately associated with citizen’s rights, government policies and consumer protection. Also, in a modern global economy, both bodies of law play significant roles in the enhancement of competition and competitiveness in national and international markets and the continued liberalization of international trade. Furthermore, the clarification and balance of this relationship are of exceptional importance to developing countries in perfecting their legal systems with regard to IPR protection and relevant competition issues.[23]
In this thesis, owing to the nature of the subject matters and the limit of the context, however, the author only seeks to conduct a fundamental but comprehensive analysis of the basic logistics as regards IPRs, competition policy and their unintelligible inter-relationship in possible plainest language. An initiative would be taken, from a consistent perspective and a contradictory one respectively, to cover the natures of IPRs and competition policy,[24] the convergence and potential conflicts,[25] IPR-related practices versus competitive requirements as well as the application of competition policy to the exercise of IPRs,[26] etc. In the concluding chapter, the author will try to foresee how the existing practice of this interface in the West would provide an important implication for most developing countries in the world.[27] As a whole, the general methodology frequently used in this thesis is to look at how certain private rights (IPRs) affect public values (competition mechanism) by reflecting on their inherent characteristics and further, to discuss how the pursuing of these public values would in turn influence the exercise of these private rights.
It might be somewhat unusual that the author was so generous with the context of an introduction chapter. However, it has now become a little convincing that such a tedious starting part is virtually quite essential in light of the very confusion envisioned in the study of both subjects that are often involved with various matters encompassing law, economics, technologies, international relations, politics and ethics.[28] Also on account of this complexity, the author has thus found the very necessity to provide a few explanatory lines on the definitions of the two “counterweights” of this “balance”: IPRs and competition policy, before starting to engage in a full analysis of the interface between the two.
II. INTELLECTUAL PROPERTY RIGHTS AND COMPETITION POLICY: THE CONCEPTS
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2.1 Intellectual Property Rights (IPRs) and Intellectual Property (IP) Laws
No other legal subjects have been attracting so extensive social and academic concerns as intellectual property rights (IPRs) during the last two decades.[29] We may have all noticed that IPRs not only receive increasing significance in trade-related practices, whether at the national level or international level,[30] but also are closely involved with people’s daily life.[31] Ironically, it is actually very common that there is a general lack of knowledge among average citizens as regards what an IPR really is; how the system of it works and how it is connected with human society and economy.[32] But this lack should be understandable first in view of the very intangible characteristic of IPRs, that is, it cannot be defined or identified by its own physical parameters, as contrasted with the traditional property concept instead based on its tangible shape, movable or immovable.[33] Besides, people from different countries may also have inconsistent understandings of the meaning and scope of a specific intellectual property right because of the different tradition and legal ethics developed upon IPRs in these countries.[34]
However, there has been no unanimously unified definition of intellectual property as a whole at the international level although a large number of international agreements, treaties, and conventions have been concluded in order to harmonize national IP legislation.[35] Even so, a general concept which is widely recognized in the world can be given that “intellectual property refers to creations of the mind: inventions, literary and artistic works, and symbols, names, images, and designs used in commerce;”(World Intellectual Property Organization, WIPO)[36] or “intellectual property rights are the rights given to persons over the creations of their minds. They usually give the creator an exclusive right over the use of his/her creation for a certain period of time”(WTO)[37]. Both the WIPO, which is the most extensive international organization on IP co-operation and protection, and the WTO TRIPS Agreement, which is the most comprehensive multilateral agreement on IPRs, divide IPRs into two categories: industrial property and copyright. The former includes inventions (patents), trademarks, industrial designs, geographic indications of source, and trade secrets while the latter, i.e., copyright covers literary and artistic works such as novels, poems and plays, films, computer programs, musical works, drawings, paintings, photographs and sculptures, and architectural designs.[38] Also protected through copyright are copyright-related (sometimes referred to as “neighboring”) rights, which refer to the rights of performers (e.g.actors, singers and musicians), producers of phonograms (sound recordings) and broadcasting organizations.[39] Otherwise, in a full list, there are basically seven specific IPRs[40] i.e. 1) copyright and related rights (a legal term describing rights given to creators for their literary and artistic works)[41]; 2) trademarks (a distinctive sign which identifies certain goods or services as those produced or provided by a specific person or enterprise)[42]; 3) geographical indications (a sign used on goods that have a specific geographical origin and possess qualities or a reputation that are due to that place of origin)[43]; 4) industrial designs (the ornamental or aesthetic aspect of an article for industrial use);[44] 5) patents (an exclusive right granted for an invention, which is a product or a process that provides a new way of doing something, or offers a new technical solution to a problem);[45] 6) layout-designs (topographies) of integrated circuits;[46] 7) undisclosed information (trade secrets and know-how) (information that is secret or not generally known in the relevant industry and that gives its owner an advantage over competitors).[47]
Apart from intangibility, intellectual property rights have another two remarkable features in contrast with other forms of property rights:[48] 1) territorial boundaries, i.e., they can only be protected within the areas (countries) within which they are granted; 2) time limit, i.e., they can only be enjoyed within the limited term stipulated by the law.[49] However, IPRs still share many of the characteristics associated with real and personal property and therefore are regarded as being essentially comparable to any other form of property under competition law.[50] For example, intellectual property is an asset, and as such it can be bought, sold, licensed, exchanged, or gratuitously given away like any other form of property. Further, the intellectual property owner has the right to prevent the unauthorized use or sale of the property within the protection term conferred by law, and any such unauthorized use, if involved with any commercial benefits or purposes, would commit an infringement of the IPR and can be stopped or even combated under the law providing protection for that IPR.[51] It is thus this right that is an exclusive one, and that, as fore-argued, would facilitate very much the proprietors to establish a dominant position or monopolistic market power by excluding all others from using the IPR created.