""""Marco Botta "13.3.2014

EU Competition Law and its Relevance for the Technology Industry

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

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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

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.

Introduction to EU Competition Law

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. 101-102 2) Private enforcement: national courts EU Member States assess damage compensation claims caused by a breach of Art. 101-102

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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)

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.

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)

Art. 102, abuse of dominant position2.´´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. 102

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Enforcement Art. 102 TFEU in high-technology industries

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

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

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

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

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

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

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

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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. 102 6) EU Commission's decision upheld by General Court and ECJ

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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???

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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

Conclusions

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

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

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