European competition law applied to patents

Quite paradoxically, the patent establishes a monopoly for its holder and authorizes it to derogate from the general principles of free competition. Yet this is precisely what European competition law seeks to combat.

Therefore, it is important to understand the articulation between patent law and European competition law.

Distortion of competition

Principle

TheArticle 101 TFEU provides that a business cannot prevent, restrict or distort normal competition.

Restrictions required

However, such behavior may be acceptable if it improves the production or distribution of products or promotes technical or economic progress. However, there is a big "but". This is only acceptable:

  • if there are only absolutely necessary restrictions to achieve this goal; and
  • if this does not allow companies (which have such behavior) to eliminate competition.

De minimis doctrine

Principle

In order to facilitate the determination of what is a material impairment of competition, the Commission has published a doctrine communication de minimis (2001).

So, theArticle 101 (1) TFEU is not applicable if the total market share of the companies involved does not represent, on the market concerned:

  • 10 % for agreements between competitors (mainly horizontal agreements),
  • 15 % for agreements between non-competitors (mainly vertical agreements), and
  • 10 % for mixed agreements (therefore horizontal and vertical) or if their nature is not clear.

Exceptions

There are, however, exceptions:

  • Characterized or flagrant restrictions: fixing prices, limiting production or sales, sharing the market, etc.
  • the cumulative effect theory, that is, " when competition in a relevant market is restricted by the cumulative effect of agreements to sell goods or services contracted by different suppliers or distributors ».
  • when the market shares do not exceed the threshold of more than 2 % for two successive calendar years.

However, exceeding these thresholds does not necessarily mean that the restriction is "material". There is a case-by-case approach. In addition, SMEs (i.e. companies with fewer than 250 employees, and whose annual turnover does not exceed 50 million euros or whose total annual balance sheet does not exceed 43 million euros) are not affected.

Technology transfer agreements

Principle: authorization of such agreements

Speak Commission Regulation No. 316/2014 of March 21, 2014, Europe has more precisely framed technology transfer agreements or license agreements in which the licensor imposes specific conditions on its licensee (notably at the commercial level and not at the level of the use of a product with IP rights).

The principle is therefore thatArticle 101 (1) TFEU does not apply to technology transfer agreements which place restrictions on competition, under the following conditions:

  • if the IP rights are valid;
  • if the combined market share held by the parties does not exceed 20% on the relevant market or markets (case of horizontal agreements);
  • if the market share held by each of the parties does not exceed 30% on the relevant market or markets (case of vertical agreements).

Clauses remaining prohibited

However, it is prohibited to:

  • If companies are competitors
    • fix selling prices to third parties (or limit the ability to fix them);
    • limit production for each of the parties to the agreement (as part of a reciprocal agreement);
    • share customers or a market (especially for reciprocal agreements and under conditions);
    • limit the licensee's own rights over its own technologies.
  • If companies are not competitors
    • set a minimum sale price to third parties;
    • limit the territory or customers (under conditions).

Furthermore, it is impossible to prohibit in the license agreement:

  • being able to question the IP rights granted;
  • the fact of having to transfer any IP related to the improvements made on the conceded technologies.

Dominant position

Principle

TheArticle 102 TFEU provides that any abuse of a dominant position on the European market must be avoided.

It is true that the dominant position is not in itself a problem: it is the abuse of this position that is problematic.

Some examples of IP abuse

In the area that interests us, abuse can be:

Essential patents

Principle

An essential patent is a patent whose exploitation is " essential for any competitor planning to manufacture products that comply with the standard to which they are linked »(CJEU Huawei c / ZTE, July 16, 2015, C-170/13).

Most often, the standardization organizations (or SSO for "Standard Setting Organization") are completely independent and are not organized around Europe or around the member states. Among the important standardization bodies, we can name:

  • European Committee for Standardization (CEN),
  • European Committee for Electrotechnical Standardization (CENELEC),
  • European Standardization Association for Consumers (ANEC),
  • European Telecommunications Standards Institute (ETSI),
  • European Computer Manufacturers Association (ECMA),
  • Institute of Electrical and Electronics Engineers (IEEE).

Declaration of essential patents

Most often, the members of the standardization organizations undertake to have to declare their patents essential to the standard in question.

For example, article 55 of the 3GPP regulation states:

Individual Members should declare at the earliest opportunity, any [Intellectual Property Rights] which they believe to be essential, or potentially essential, to any work ongoing within 3GPP. Declarations should be made by Individual Members to their respective Organizational Partners.

It is quite rare that this essentiality is verified at the time of the declaration, even if it is always possible to question it in the context of a dispute.

In return for this declaration, and according to the standardization bodies, any third party wishing to implement the standard must:

  • pay a single license to the standardization body which distributes its profits (eg MPEG standard) (but this is very very rare among standardization bodies); or
  • negotiate with each declared patent holder,
    • without the license conditions being regulated by the standardization body or
    • according to the "FRAND" conditions.

FRAND Conditional Licenses

Principle

A FRAND license means that the license must be:

  • Fair : the license must not include terms which unduly limit competition;
  • reasonnable : the price of the license should not be prohibitive in view of the advantage provided by inventions covered by industrial property rights;
  • Non-Discriminatory : Any third party must be treated in the same way, and if this is not the case, it must be able to be justified.
Interpretation of the CJEU

The company ZTE was trying to find a license agreement with the company Huawei, but it considered that the conditions requested were not quite reasonable.

As the agreement was slow to be reached, the Huawei company decided to initiate an infringement action against ZTE.

ZTE (Huawei vs ZTE, C ‑ 170/13, July 16, 2015) argued that the infringement action brought by Huawei Technologies constituted an abuse of a dominant position on its part, since Huawei Technologies' requests were disproportionate to a third party (ZTE) willing to pay for a license, but who did not arrive not to reach an agreement with the rights holder.

ZTE therefore argued that the behavior of Huawei Technologies was contrary toArticle 102 TFEU.

Dominant position linked to refusal to grant a license?

Furthermore, the CJEU considers that refusing to grant a FRAND license may constitute an abuse of a dominant position.

In these circumstances and having regard to the fact that a commitment to issue licenses on FRAND conditions creates legitimate expectations with third parties that the holder of the BEN effectively grants them licenses on such conditions, a refusal of the holder of the BEN to grant a license under these same conditions can constitute, in principle, an abuse within the meaning of Article 102 TFEU.

Dominant position linked to infringement proceedings?

According to the CJEU, an infringement action is not in itself an abuse of a dominant position.

Thus, the CJEU distinguished two types of infringement action:

  1. Actions to stop the damage or to recall products,
  2. Actions to obtain accounting data and damages

Regarding point 1, there is no abuse of a dominant position if, cumulatively:

  • prior to the commencement of the action, the patentee has,
    • warned the alleged infringer that one of his actions was potentially infringing by designating the IP right concerned and specifying how it is infringed, and,
    • transmitted to this counterfeiter, after the latter has expressed its willingness to conclude a license agreement under FRAND conditions, an offer of license specifying in particular the royalty and its calculation methods;
  • the alleged infringer continuing to exploit the IP right did not act promptly on this offer, “in accordance with recognized commercial practice and in good faith ”, which must be determined on the basis of objective elements and in particular implies the absence of any delaying tactics.

In short, you will understand, there is still a lot of subjective…

Regarding point 2, the CJEU considers that there is no abuse of a dominant position under any assumption, the request for accounting information and the request for damages having no direct impact on competition in the commercial sense.

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