Does EU Competition Policy sufficiently promote companies investment & innovation?

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1 Does EU Competition Policy sufficiently promote companies investment & innovation? University CEU San Pablo Madrid, October 2013 Nicolas Petit University of Liege (ULg) and College of Europe

2 Purpose of the presentation Does EU Competition Policy sufficiently promote companies investment & innovation? R&D and technology transfer cooperation, abuse of dominant positions and merger control policy.

3 For real? Theological issue Measurement issue What type of innovation? commercial/technological; drastic/incremental Raft of indicators Innovation inputs: patenting activity, R&D investments, HR devoted to research Innovation outputs: new products placed in the market, etc. Rare area of EU law where no impact assessment Identification issue Innovation not primarily driven by policy Many other relevant policies: trade; intellectual property; tax policy; labor policy; education; good governance; transparency; corruption; etc. Design issue Competition rules applied through case adjudication, by a variety of organs which do not necessarily follow a structured, consistent policy agenda

4 Reframing Does competition policy undermine other policies that seek to foster innovation, and in particular IPR policy? Old debate, yet resurgence of new cases on innovation markets with IPRs Leading IP Judge Robin Jacob: competition authorities show signs of becoming anti-patent too. Examples are the recent absurd but vastly expensive pharmaindustry sector inquiry of the European Commission, and its even more recent interest in, and threat of such an inquiry into, the mobile phone industry (R. Jacob, IP Law: Keep Calm and Carry On?, Current Legal Problems (2013) 66(1):

5 Sample Technology markets: E-Books (closed), Samsung, Motorola, Google, MathWorks, Mosaid Pharma: AstraZeneca (closed), Lundbeck (closed), Servier, J&J Review of rules on Technology Transfer Agreements (BER and Guidelines) Horizontal Cooperation Guidelines: new section on Standardization Other DuPont-Honeywell Thomson Reuters Rio Tinto S&P

6 No clear signs of an anti-ip competition policy Case-law Few infringement cases Lundbeck: market sharing AstraZeneca: fraud E-Books: boycott Dropped cases Qualcomm IPcom Texts HCG, 263: Standardisation agreements usually produce significant positive economic effects D. Woods, GCLC re. TTBER review: licensing is generally pro-competitive and should be encouraged

7 Devil in the details? IP neutrality Patent = Monopoly Exotic theories of anticompetitive strategic patenting Phasing out of references to protective IP caselaw Soft licensing Antitrust bipolarity Anti-Schumpeterian enforcement philosophy?

Microsoft, 550: intellectual property rights are not in a different category to property rights as such Microsoft, fn 249: In any case, since the relevant specifications are not available for

8 Microsoft, 550: intellectual property rights are not in a different category to property rights as such Microsoft, fn 249: In any case, since the relevant specifications are not available for scrutiny, it is not possible for the Commission to determine to what extent Microsoft s claims relating to various intellectual property rights are justified. Thomson Reuters, 90: The Commission does not take a view on whether RICs are protected by intellectual property rights. S&P, 41: the mere use of numbers for reference purpose is not capable of being subject to copyright. IP Atheism

9 Patent = Monopoly CJEU, C-468/06 to C-478/06,Sot. LéloskaiSiaEE and Others v GlaxoSmithKline AEVE, [2008] ECR I-7139: 64 a medicine is protected by a patent which confersa temporary monopoly Commission Decision, Google/MMI: 54 The specificity of SEPs is that they have to be implemented in order to comply with a standard and thus cannot be designed around, i.e. there is by definition no alternative or substitute for each such patent. Therefore, each SEP constitutes a separate relevant technology market on its own. Flawed: patents rarely confer market power => substitute patents (e.g. Lipitor v Zocor); design around opportunities; unpatented substitutes (60% of patented inventions give rise to alternative in 4y)

10 Exotic Theories of Anticompetitive Harm Patent hold up => Samsung and Motorola Patent thickets => TTBER and Guidelines review Patent trolls => Mosaid Strategic patenting => Pharma sector inquiry, tool-box of strategic instruments

11 Illustration: Patent hold-up Source: M. Lemley and C. Shapiro, Patent Holdup and Royalty Stacking, (2007) 85 Texas Law Review

12 Contentious Formal rebuttal: G. Langus, V. Lipatov and D. Neven, Standard essential patents: who is really holding up (and when)?, mimeo Empirical invalidation Litigation costs are trivial (0,1% of Apple s revenues in 2012) No empirical evidence: In the recent case with Microsoft pursuing claims of hold-up against Motorola in the Western District of Washington, even Microsoft's experts conceded under cross-examination that holdup was not necessarily a problem. Instead, they stated there was no evidence of hold-up and could not identify a single license that had been held up.

13 Empirical data (telcos, Darts IP) Domaine: Brevets Tribunal: Europe Type de décision: Judiciaire Type de première action:action en contrefaçon Niveau de décision: 1ère instance Nature de la décision:action au fond Domaine technique:- Télécommunications (3)

14 Empirical data (digital communications, Darts IP) Domaine: Brevets Tribunal: Europe Type de décision: Judiciaire Type de première action: Action en contrefaçon Niveau de décision: 1ère instance Nature de la décision: Action au fond Domaine technique:-communication digitale (4)

15 Empirical Data (Samsung, telcos)

16 Empirical data (Samsung, Digital Communications)

17 Phasing out of IP-Protective Case Law No reference to exercise/existence dichotomy No reference to specific subject matter Reversal of Magill/IMS Health in CFI, T-201/04, Microsoft Corp. v Commission (but reversed by GC, T-167/08, Microsoft Corp. v Commission) No reference to Magill/IMS Health in: Horizontal Cooperation Guidelines Draft Technology Transfer Guidelines

18 Soft Licensing 2 cases only of compulsory licensing by agency Magill Microsoft Only the tip of the iceberg Other agency decisions Rambus S&P Thomson Reuters EU and national courts case-law

19 Antitrust Bipolarity Litigate! Cases Lundbeck Servier J&J Texts Draft TTBER and Guidelines remove anti-litigation clauses from safe harbour No challenge clauses Termination clauses Settlement (pay for delay) Settle! Samsung commits not to seek injunctive relief in the EEA with regard to all its SEPs for tablets and smartphones Licensing framework consists of: (i) a negotiation period of up to 12 months and (ii) a third party determination of FRAND terms by either a court or arbitrator, as agreed by the parties. If the parties cannot agree on either submitting to court or arbitration, the parties will have to submit to arbitration.

20 Anti-Schumpeterian Approach? Unsettled debate over relationship between competition and innovation: Schumpeter v. Arrow v. Aghionet al. But Commission may have a preference: Rio Tinto Alcan, 77 and 79 Follow-on innovation (competition in the market) > drastic innovation (competition for the market)? Interoperability orders Cisco/Tandberg Intel/McAfee Draft TTBER: all exclusive grant backs outside of safe harbour

Black Swans Nicholas Banasevic, Global Competition Review, 8 October 2013 NassimNicholas Taleb, The Black Swan: The Impact of the Highly Improbable, 2007 It s important to remember

21 Black Swans Nicholas Banasevic, Global Competition Review, 8 October 2013 NassimNicholas Taleb, The Black Swan: The Impact of the Highly Improbable, 2007 It s important to remember that antitrust intervention in IP is very rare Some of the cases [at the moment] are very high-profile, that s why they get more prominence. But [antitrust intervention] is over-stated.

22 Antitrust Black Swans (or Grey Swans ) Definition and examples An event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight (Wikipedia) September 2001, WW1, financial crisis, Fukushima meltdown Antitrust grey swan : decisional activity that cannot be well anticipated but that has a sizable impact, and that is validated in retrospect as bound to happen (through contextual observations) Innovators discount risk of antitrust intervention ex ante, and then make inappropriate adjustments ex post

23 Antitrust Grey Swans (1) Cannot be anticipated Very nature of antitrust enforcement is to come ex post Antitrust provisions have an elastic, open ended scope One size fits all policy: no clear distinction amongst sectors or type of IP, though some may necessitate antitrust deference Patents > trademarks Pharma > high tech Illustration: Xatalan case (Italy)

24 Antitrust Grey Swans (2) Retrospective predictability: It was bound to happen Many statements expressing suspicion at IP in the context of general declarations, non-binding legal instruments (such as guidelines, communications and notices) or through other channels (public speeches, policy reports, etc.) Companies should spend their time innovating and competing on the merits of the products they offer not misusing their intellectual property rights to hold up competitors to the detriment of innovation and consumer choice. (Almunia)

25 Antitrust Grey Swans (3) Astronomical consequences Remedies Fines But also settlements under Article 9 proceedings Firms forfeit right of access to court (e.g., Samsung)!

26 Conclusions Antitrust intervention, even if rare, may have extreme consequences on innovators conduct Maybe it is IP policy that is broken Patent system in need of reform? Posner talking of patent proliferation or minefield => 400,000 patents on software Then change IP policy? More predictable, ex ante rules Targeted at patents No Grey Swan effect

Intellectual property and competition policy

EUROPEAN COMMISSION Joaquín Almunia Vice President of the European Commission responsible for Competition Policy Intellectual property and competition policy IP Summit 2013 (Paris) 9 December 2013 SPEECH/13/1042