Competition Policies and IPRs – Where to Look for Guidance given Policy Space

Competition policies have at times been invoked to challenge possible cases of abuse of intellectual property rights (IPR). The Hazel Tau case in South Africa and the Dobfar case in the European Union (EU) are frequently cited examples in the area of medicines of how rules set up to help ensure that the market operates fairly, can be used to check the decisions of owners who control exclusive intangible property rights.

International treaty law, however, provides only minimum guidance on when competition law may be invoked to check IPR abuse. There are three provisions in the Agreement on Trade-related Aspects of Intellectual Property Rights (the TRIPS Agreement), to which all World Trade Organization (WTO) members must adhere, that provide a basis for utilizing competition law to remedy abuses that stem from the exercise of exclusive intellectual property rights.

1. Without mentioning competition policies specifically by name, Article 8.2 envisages that measures may be taken to prevent the abuse of intellectual property rights by right holders and the resort to practices that unreasonably restrain trade.

2. Article 40.1 recognizes that licensing practices that restrain competition may have adverse effects on trade or may impede technology transfer/diffusion.  Article 40.2 states that Members may adopt appropriate measures that in particular cases could constitute an abuse of intellectual property rights having an adverse effect on competition, listing as possible (but not mandatory) examples exclusive grantbacks, clauses preventing validity challenges and coercive package licensing.

        Articles 40.3 and 40.4 of the TRIPS Agreement provide for consultation and cooperation procedures in the enforcement of antitrust measures.         While Article 40.3 of the TRIPS Agreement established a duty of cross-border assistance (i.e., provision of information to the enforcing         Member) in antitrust law enforcement for the first time in public international law, this duty is limited to control over restrictive contractual         licensing practices and conditions.

    3. Finally, Article 31(k) authorizes WTO Members to utilizing compulsory licenses as a remedy for anti-competitive practices, and exempts them         in such cases from the requirement of prior negotiations. The clause permits Members to take into account the anti-competitive practices         involved when determining an appropriate royalty rate under a compulsory license.

The demise of the so-called Singapore issues at the 2003 World Trade Organization (WTO) Ministerial meeting in Cancun, which had up until then contemplated the conclusion of multilateral treaties on investment, trade facilitation, procurement and competition, leaves only the General Assembly-endorsed United Nations Set of Principles and Rules on Competition of 1980 (the UN Set) as universal ‘soft law’ in the domain of competition. The United Nations Conference on Trade and Development (UNCTAD) developed a Model Law on Competition guided by the UN Set, and includes intellectual property as a subject within the Model Law’s application (Chapter 2). Paragraph 19 of the Commentary to the Model Law states that “[t]he reference to intellectual property is consistent with virtually all antitrust laws, which treat licences of technology as “agreements” and scrutinize them for restrictions or abuses like any other agreement, except that the legal exclusivity granted by the State to inventors may justify some restrictions that would not be acceptable in other contexts.”

Moreover, preferential trade and investment treaties, which sometimes contain have provisions that are more stringent than TRIPS norms, contain, if at all, clauses on competition policies that are often limited to a recitation of norms already reflected in their domestic competition laws and encouraging or facilitating cooperation among the treaty signatories in matters dealing with competition.

Existing treaties, therefore, allow considerable scope for countries to determine when national competition law can be invoked to curb abuses of IPRs. Countries that wish to, may consult foreign precedents to examine how decisions were made by courts and competition authorities in other countries, and how anti-trust regulations on licensing have evolved in other countries.

With respect to the former, successful cases have often focused on refusals to license. Hazel Tau concerned the refusal to license anti-retroviral medicines (ARVs) to local manufacturers in South Africa, while Dobfar, decided by an Italian court invoking EU law, involved the refusal to license a key active ingredient needed to manufacture an antibiotic. Cases based on other grounds have been relatively more difficult to establish abuse of an IPR. In one case in Indonesia, for example, the national competition authority was successfully challenged on its finding of price fixing of hypertension medicines by a multinational pharmaceutical firm and its local licensee in the courts. The decision was appealed to the Supreme Court, who affirmed the lower court decision. A factor in the decision was that a number of alternative hypertension medications were available in the Indonesian market. It should be borne in mind that not all cases of IPR abuse will be eligible for relief, i.e., only those cases where it is possible to establish that competition laws have been violated.

With respect to the latter, a recent study examines the evolution of Japan’s regulation of technology licensing and finds that the Fair Trade Commission paid attention to contractual terms such as grantback clauses in its earlier days, while more recent revisions to technology licensing guidelines emphasize economic analysis and market power. The paper notes that developing countries have shown interest in tailoring their competition regimes to their level of development along the Japanese model.  

While both case precedents and regulations in other countries offer important lessons for developing countries, it is important to remember that neither of these are binding. In the absence of detailed prescriptions on the relationship between competition and IPRs in treaties, developing countries will need to reflect on the appropriate type of regime to control instances of IPR abuse.

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