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.

The necessity to protect IPRs has been widely accepted in the world considering that an intellectual property contains economically valuable information that is promotive to the social development and thus the incentives to create such valuable information shall be provided by legal instruments. Intellectual property law is so designed to grant and protect IPRs while at the same time regulate the exercise of IPRs. Three major IPRs, i.e., patents, copyrights and trademarks, are commonly stipulated by separate legislation, i.e., patent law, copyright law and trademark law, in most industrialized countries of the world. The protection of the rest is primarily fulfilled through unfair competition law as a whole or other separate instruments if provided so. However, all types of IPRs as mentioned above are protected on a national basis notwithstanding some of them may be granted under certain the international treaties.[52] Thus, the scope of protection and the requirements for obtaining protection will vary from country to country. Although there are similarities between national legal arrangements, some significant divergences in this respect have proven very costing and there thus have been international efforts towards harmonizing the national laws governing IPRs worldwide.[53] For instance, the WTO Agreement on Trade-related Aspects of IPRs (TRIPS), which was concluded in the Uruguay Round of GATT in 1994 and came into effect on 1 January 1995, represents the greatest achievement of the international harmonization of IPR laws up to date and contains the most extensive legal protection of IPRs by imposing minimum legislative norms on its member states.[54] Other important examples of the harmonization include: Paris Convention for the Protection of Industrial Property (the Paris Convention)[55], signed in 1883 and amended in 1979; Patent Cooperation Treaty (PCT), adopted in 1970;[56] Madrid Agreement Concerning the International Registration of Marks (the Madrid Agreement), adopted in 1891;[57] the Berne Convention for the Protection of Literal and Artistic Works (the Berne Convention), created in 1886;[58] Hague Agreement Concerning the Deposit of Industrial Designs (the Hague Agreement), concluded in 1925; the Treaty on Intellectual Property in Respect of Integrated Circuits (the IPIC Treaty), 1989; and the World Intellectual Property Organization (WIPO),[59]etc..

2.2 Competition and Competition Policy

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Competition and competition policy, however, are somewhat intelligible compared to IPRs. Competition, as referred to in this thesis, is merely an economic concept, which means primarily a kind of mechanism value in the market. Under this mechanism, all participants can freely enter the market and compete with each other by pursuing their economic interests and should enjoy equal treatment; meanwhile the resource can be optimally allocated and if necessary, public interest, as a whole, should be upheld first in case of interest conflict. Any barrier to entry, abuse of market power, and unfair practices aimed at unlawful commercial benefits would as a result impede competition. In a word, competition can be perceived as a fair, orderly and efficient market mechanism.

Competition policy, namely, is the legislative as well as administrative measures taken by a state to enforce this mechanism, intending to establish and regulate a healthy market in which a reasonable and efficient competitive environment can be maintained to bring about economic prosperity.[60] However, unrestrained competition that is out of order would contrarily undermine this mechanism and probably cause the impairment of parties’ legitimate rights and even the waste of resources. Therefore, competition policy mainly consists of restrictive rules as regards some particular market practices, which are deemed harmful to open competition. For the purpose of analyzing the interface between IPRs and competition policy, it is important to be aware of the distinction between competition policy and competition law.[61] Competition policy is a broader term, covering all aspects of government actions that affect the conditions under which firms compete in a particular market. Thus, trade policy, investment regulations, IPRs,[62] unfair competition law, consumer protection, regulations on service providers and product distributors, bankruptcy laws, anti-dumplings, subsidies and other state aids, and procurement practices are all components of competition policy. The term competition law or antitrust law is a narrow one usually referring to legislation, judicial decisions, and regulations specifically aimed at avoiding the concentration and abuse of market power on the part of private firms which could use that power to exclude potential competitors. However, many regulations provide exclusive rights to favored firms or stipulate exemption disciplines for purposes of achieving various social goals. Competition policy is therefore complex in its intentions and effects. Basically, it contains three principal sets of rules: anti-monopoly, anti-restrictive-competition, and anti-unfair-competition. In this thesis, discussion is generally made on the relationship between IPRs and broad competition policy as a whole while special attention will be paid to the exercise of IPRs under narrow competition law, i.e., antitrust law.

It should also be borne in mind that competition policy is primarily a national concept as well. It is always made and enforced on a national basis. Thus it also varies in its legislative form and scope from country to country in terms of different legal traditions and state interests. For example, in the US, it is essentially anti-trust laws[63] and unfair competition law[64]; in the EU, general competition rules are incorporated into the EC Treaty[65] and complemented by a series of secondary legislation;[66] in Japan, competition policy comprises decentralization law, anti-monopoly law and fair trade law[67]. In most developing countries, competition policy is still under-developed and generally, there are no narrow competition laws regulating monopoly and concentration.[68] For instance, in China, currently there is only an anti-unfair competition law[69] plus a few trade regulations such as anti-dumping measures, whereas there is no antitrust law or anti-monopoly law so far.[70] However, the competition policy discussed in this thesis mainly refers to the general principles of competition rules that are commonly taken across the world, especially those relating to IPRs, while comparative methodology will be used to look into different situations in some specific countries.

Furthermore, with the booming of multilateral trade and foreign direct investment (FDI), competition issue has gained increasing concerns at the international level.[71] For example, exporting firms in the high-income developed economies argue that anti-competitive practices of competitors in foreign market hinder their ability to penetrate those markets. Such practices maybe largely private nature, e.g. abuse of an IPR, but could be unimpeded by the absence or weak enforcement of local competition laws. Also, the rising incidence of cross-border mergers and acquisitions raise problems of jurisdictional authority in dealing with industry concentration in multiple markets. These problems and related issues have prompted a number of policymakers and analysts to call for the negotiation of a limited international agreement on multinational principles and disciplines in competition policy, e.g., within the WTO.[72] Of great importance in this concern is a careful consideration of the intimate linkages among competition law, IPRs, market liberalization and state-supported industrial policy.[73]

Finally, for the purpose of this thesis, we should look at how competition policy may affect incentives to create new intangible assets within the meaning of IPRs.[74] The first point is that competition policy in most countries guards against the creation of excessive concentration and market power through merger control. This is perceived significant on the belief that incentives to innovate are assumed to be greater when an industry is not monopolized. Secondly, competition policy may interact with innovation in respect of the application of competition rules to research and development (R&D) joint ventures, i.e., R&D joint ventures, apart from certain special circumstances, generally do not raise competitive concerns.[75] The last major concern, and the subject of this thesis, is regarding the relationship between competition policy and intellectual property rights (IPRs).

III. GENERAL INTERFACE: THE CONSISTENT PERSPECTIVE

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Now it is time to embark on clarifying how these two legal bodies interplay with each other. As having been kept alert about the complexity of the both sides of this tug-of-war, we may soon find grounds to believe that this inter-relationship is even more complicated than the subjects themselves. Generally speaking, they are inherently both consistent and contradictory.

No legislators and policymakers would create two regulatory systems which totally come against one another, nor would they in the case of IPRs and competition policy. Following we will first look at some convergence between them.

3.1 Distinction between the Existence of Rights and their Exercise

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First of all, both legal values can exist without basically conflicting with each other. It can be easily understood that if the law is designed to confer two different rights, then it would first make sure that the two are primarily compatible under itself. IPRs, as defined above, are exclusive private rights enjoyed by growers of intellectual fruits for rewarding their contribution to creating valuable information for the society. Nonetheless, unlike real property, intellectual property in its content is actually separable.[76] Usually, an IPR is not merely a single property right, but also contains personal rights. Personal right means that the creator or creators of an IPR can have the exclusive and infinite right to entitle his / her or their name(s) to the IPR concerned. Even though the IPR can be transferred or licensed to other parties, this personal right would exist permanently. For instance, a copyright would expire 50 years after the death of the author, and the public can use this copyrighted work totally for free.[77] But it cannot be further understood that the author as the creator of this work would not be recognized anymore and anybody else can challenge it or instead entitle his name to this work. In fact what expires is only the property right of this copyrighted work, i.e. the owner of this copyright cannot exclude others from using this work anymore. However, the author’s personal right derived from this IPR will never expire and its inheritors can keep claiming for it forever. The same consideration too can be imposed on patents, trademarks as well as all other IPRs. Obviously, the existence and exercise of this personal right, although also exclusive in its nature, do not fall within the context of competition policy.

In terms of the property right inherent in an IPR, the situation depends. First, as we argued above, the existence of this property right that is a legal monopoly to compensate the investment incurred by creator(s) in creating the IPR is a legitimate fact since it is secured under the law.[78] Further, it can not be taken for granted that the holder of this legal monopoly automatically enjoys a dominant position or market power in the scope of competition policy.[79] It could be possible, in the rarest cases, that a truly pioneering invention opens a complete new technology and becomes the basis of a new market, e.g., as the Xerox machine did. Unfortunately, this is not even the tip but only a crystal of the iceberg. The usual case is that, most innovations, especially inventions in the case of patents, are incremental steps in a crowded field of technology.[80] Thus in competitive product and innovation markets the awarding of IPRs hardly results in sufficient market power to generate significant monopoly behavior. Typically there are substitute goods available and competitors may invent around a patent, invest resources to learn trade secrets fairly (through reverse engineering, for example), and develop competing trademarks.[81] Therefore, an IPR just gives its holder the exclusive chance – and only the chance – to reap the rewards for his creative efforts on the market. Apparently, this exclusive chance cannot per se be understood that it is by itself contrary to or in violation of the regulations of competition policy, even though this chance may probably include the future achievement of a dominant position or market power.[82] As a matter of fact, IPRs generally create exclusivity but market power stems from the nature of the demand for the property.[83] Moreover, such a legal monopoly is also a rational one in view of the strict requirements for granting an IPR and the limited term of protection period under law.[84]

Secondly, as mentioned in the introduction part, the exercise of any IPR, if within the boundaries of the IP law under which it is granted and regulated, is generally qualified for group exemptions provided by competition law.[85] Otherwise, if the IPR exploitation exceeds these boundaries set forth by law, then it would probably lead to the violation of both IP law and competition policy, even though for the former it may be just of general principles. But when, and only when the exercise is still being acted within the boundaries of IP law whereas has adversely affected the open and fair competition, it would thus incur the prohibition under competition policy. Consequently, the two bodies of law would to some extent conflict with each other and there would thus be a dilemma where which should prevail over the other.[86]

3.2 Benefits to Competition

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IPRs and competition policy may overlap in their relationship with competition and benefits to competition. This can be first conceived from their common objectives to encourage innovation, promote competition and eventually improve economic development.[87] The intellectual property laws provide incentives for innovation and its dissemination and commercialization by establishing enforceable property rights for the creators of new and useful products, more efficient processes, and original works of expression. Such property rights, i.e. IPRs, which are exclusive will thus encourage innovation that otherwise might not be worthwhile and so lead to a more competitive economy. This should be analyzed at the time when the decision to invest or create was made: such innovation, once available, can be easily copied or imitated, without protection, it would thus not be worth investing in it since failing these exclusive rights to exploit the information created, creators might not earn enough to justify their initiatives to create.[88] For example, many artistic works can be easily copied. Without copyright authors and artists might hardly make a living, let alone the inspiration to create new works. Thus it would consequently reduce the competitive forces in the market. On the other hand, competition policy may also be invoked to protect the same incentives from anti-competitive conduct that creates, enhances or maintains market power or otherwise harms vigorous inter-firm rivalry.[89]

Secondly, the existence and protection of IPRs will also produce driving forces for more active competition in the market. Since IP laws provide creators with exclusive rights that in return would establish barriers to others and place themselves in an advantageous market status, those without IPRs would accordingly be handicapped to compete with these IPR creators or holders and their licensees in the relevant markets. Thus in order to survive the keen market competition, they would have to invest in bringing up their own innovation or obtaining the licenses from the IPR holders. Then on the purpose of or in the course of competing for possible monopoly rewards stemmed from IPRs, firms’ technological level and competitive ability would be enhanced by continuously investing on research and development (R&D). In this sense, the exclusive rights granted by IP laws would instead have a pro-competitive effect on the market development and resource allocation. For instance, trademarks enable the holder to sue those who confuse buyers into thinking that their products emanate from him. They make possible competition in qualities that are not immediately obvious to shoppers, such as the taste of packaged food. But they do not prevent others from selling identical goods unbranded or under their own mark. In the long term, protection of such rights may increase operating efficiency and so make the economy more competitive.[90]

Further, the licensing of IPRs can even play a more pro-competitive role. One of three general principles embodied in the US Antitrust Guidelines for Licensing of IPRs is that “intellectual property licensing allows firms to combine complementary factors of production and is generally pro-competitive.”[91] The licensing of intellectual property benefits the competitive process by diffusing innovation and by helping innovators to capture their rewards.[92] Commentators have argued that holders of IPRs may use licensing agreements, in attempting to accomplish a variety of goals that are not necessarily anti-competitive and indeed are probably pro-competitive. For example, the terms of licensing agreements may operate to permit the licensor to increase the sales of his innovation, to permit him more easily to come to terms with licensees or to increase product quality or a licensee’s productive efficiency. The activities just described also correspond to efforts by the licensor to increase the profitability of his exploitation of his IPRs.[93] As regards the full analysis of the profit-enhancing aspects of IPR licensing, a summary of points can be found in the Organization for Economic Cooperation and Development (OECD) Report (1989): Competition Policy and IPRs.[94] These points have been grouped into five broad categories of strategies: 1) to maximize profits;[95] 2) to develop intellectual property and to enhance demand;[96] 3) to manage risk and reduce transaction costs;[97] 4) to maintain goodwill;[98] and 5) to promote productive efficiency.[99]

3.3 Consumer Welfare Promotion

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IPRs and competition policy also share the common purpose of enhancing consumer welfare.[100] First, new valuable information that is the object of IPRs will be continuously generated in the process in which people pursue by innovation the exclusive legal rights to the economic exploitation of IPRs for a period of time. Such useful information can be used by the public either through the appropriate payment of royalty or even, just for free after the IPR on it expires or otherwise on some special conditions.[101] Thus IPRs benefit consumers by identifying effective property rights for new useful products or more efficient processes which increase the quality of goods and productive efficiency, i.e., making common wealth for public to share and promoting economic advance. A very convincing example is copyright, just for which imagine everyday there would be always new nice songs, films being created to feed those crazy fans. Without IPR system, imitators can copy innovators’ creations but do not have to pay any compensation. Rapid imitation would thus erode the innovation’s commercial value as well as the innovator or investor’s incentives to innovate further, and eventually diminish consumer welfare. Second, consumer interest can also be protected due to the fact that IP laws combat and punish those acts infringing on IPRs in the specific markets. Copyright piracy, trademark counterfeiting, as well as other IPR infringements, would not only undermine the right holders’ benefits but also damage the consumer protection. This is so because most infringing products usually have inferior qualities or lack necessary assurance, which would cause consumers’ mental or financial loss or even threaten their personal or property safety.

To this end, competition policy on the other side seeks to promote consumer welfare by removing impediments to the efficient functioning of markets. This is accomplished by preventing cartels aimed at price fixing, limiting output or otherwise restricting competition, by preventing firms from gaining market power in unjustified ways, e.g., through anti-competitive mergers with competitors, by raising the barriers to entry facing new firms, and by preventing firms with market power from abusing their dominant positions.[102] Thus although IP laws, mainly private laws, and competition policy (laws), by its nature a concept of public law, may take different regulatory perspectives and leverages towards achieving their objectives, they each find resonance in promoting both competition and consumer welfare.

3.4 Unfair Competition Law[103]

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In particular, IPRs and competition policy can enjoy a perfect harmony under the law of unfair competition[104] which is one of the three major components of broad competition policy.[105] Unfair competition law, which nowadays has been widely promulgated across the world,[106] is primarily comprised of torts that cause an economic injury to a business, through a deceptive or wrongful business practice. Generally, it aims at combating two main forms of acts[107]: trademark infringement, which is the most familiar example of unfair competition, and misappropriation, which refers to the unauthorized use of an intangible asset not protected by trademark or copyright laws.[108] Other practices that fall into the area of unfair competition include: false advertising, "bait and switch" selling tactics, unauthorized substitution of one brand of goods for another, use of confidential information by former employee to solicit customers, theft of trade secrets, breach of a restrictive covenant, trade libel, and false representation of products or services.[109]

Unfair competition law and IPRs are closely connected, i.e., they are basically complementary to each other and overlap to large extent. This close connection can be generally viewed from two perspectives: from the perspective of rights, the right of countering unfair competition is an important content of IPRs;[110] and from the angle of legal system, IPRs and unfair competition law are two “safeguards” on both sides of the “principal”, serving to watch his intangible assets as well as the fair mechanism of market competition. Following the author will seek to look into two specific aspects of this connection.

3.4.1 Protection of Intangible Assets Under Unfair Competition Law

First of all, competition policy as a whole is on the positive stance towards the protection of IPRs since any infringement of IPRs may very probably constitute the violation of competition rules, depending on the actual market acts of the infringers. More specifically, unfair competition law can play a special complementary role in helping the sound protection of intellectual creations and commercial reputations, not only those enjoying patents, trademarks or copyrights but also including all others not eligible for protection under IP laws.[111]

As mentioned above, IP law is a statutory system essentially designed to protect intangible assets.[112] And just in light of their intangible nature, there are usually special and strict requirements for the grant and protection of the rights.[113] For example, in the case of patents and trademarks, there is an official review or registration process in advance on the basis of some statutory criteria for grant.[114] If after consideration or in itself the invention or mark concerned falls outside the scope of patent law or trademark law, then there would be no grant of IPR, nor relevant protection under IP laws. Besides, the holder of this invention or mark may have not filed his application or registration yet because this is generally a voluntary process.[115] However, these intangible assets outside the protection scope of IP laws may also qualify the relevant legal protections though other than IP laws since they are in nature also useful and commercially valuable and there is also creators’ investment, intellectually or financially or both. Thus the law of unfair competition can very well fit the shoes considering its wide and flexible applicability to all market behaviors that are in violation of the good faith principle.

This can be primarily embodied on the unfair competition law’s functions of protecting industrial/commercial reputation and trade secrets.[116] The former is considered in contrast with the registered trademarks and the reputation of well-known trademarks, which are the only objects enjoying trademark law protection. Nevertheless, industrial/commercial reputation is actually a very broad concept which refers to all reputation related to any marks of goods or services provided by business operators, usually including[117] registered trademarks, (well-known) unregistered trademarks; unique company names, person names, product names, packages, decorations; origin of products, internet domains, and so on. Usually, using for a commodity without authorization any of these unique marks or names of another’s famous commodity, or counterfeiting or using similar ones of another’s famous commodity, thereby confusing buyers would constitute an unfair competition act.[118]

Another important intangible asset is trade secret (know-how) or undisclosed information, which, however, is outside the scope of patent law.[119] In today’s market competition, a trade secret is usually a “secret weapon” since it often brings business operators more competitive advantage than a patent does. Thus it is of great significance to provide for substitutive legal approach with respect to the protection of trade secrets. This approach has been customarily carried out under the framework of unfair competition law throughout the world.[120]

Moreover, unfair competition law may as well serve a good supplement to the copyright system. A typical example is the copying of a work’s title: suppose an author has just published a very popular book titled “Erasmus Bridge” and this book is being best-sold, then there is soon another book by a different author coming up with a same title but telling totally different stories. It would probably be best sold as well because readers are likely to be confused between it and the previous one. Then the latter has unfairly used the former’s market reputation stemmed for his copyright and thus has infringed the former’s legitimate rights. However, this infringement obviously cannot be sued under copyright law but instead possibly under unfair competition law if provided so.

In addition, the complementary role of unfair competition law towards IP laws can also be extended to the protection of IPRs themselves (those under IPR system, mainly patents, copyrights and trademarks) in terms of its wide coverage. In practice, it is possible that there is an impairment of IPR holder’s legitimate rights but no remedies can be looked to under the IPR system itself. This could happen because IPR regime usually has some pits as any other legal systems do. For example, under Article 99 (1) of the European Patent Convention (EPC)[121], any person can initiate an opposition procedure leading to the possible revocation of a European patent granted by giving a notice to European Patent Office (EPO) within nine months of the publication of the mention of the grant of the European patent. However, this opposition procedure in practice is often invoked by the defendants in the course of European patent infringement proceedings before the courts[122]. In many cases, this is merely a “delay tactic” exerted by infringers because once the opposition procedure is invoked, the courts have thus to suspend the proceedings and will not resume until the results of opposition procedure become available from the EPO. As well, similar tactics can also be utilized in the case of trademark cancellation.[123] Evidently, such “tactics” are of course adverse to the principle of honesty and credit and would consequently impede IPR holders from fully exercising their legitimate rights. However, the IPR regime itself, due to some circumstances, can hardly offer adequate solutions to this phenomenon, which objectively reduces the effectiveness of IPRs. Again, possible remedies are available under the law of unfair competition because the applicants of opposition procedure (defendants) might have actual competitor relationship with the IPR holders (plaintiffs) and thus such delay tactics used by the former can no doubt constitute an unfair competition act. And indeed, this is just the case in some countries. For instance, an American court once ruled that a defendant who lost the suit in a patent infringement case was to be fined three times the average compensation since he played the trick of patent revocation in middle of the proceeding, which was deemed an unfair competition act under American unfair competition law.[124]

3.4.2 Combating Unfair Competition through IPRs

On the other side, IPRs also help to crack down unfair competition acts. This function can be first witnessed from the fact that IPR system confers exclusive rights on creators while at the same time limits the existence term and protection scope of these rights as well.[125] Thus the notion of fairness has been enforced by reconciling the relationship between private rights and public interests. This is so because the maintenance and exercise of IPRs, as we fore argued, may not only accommodate the needs of right holders, but also satisfy those of consumers and even of the whole public.[126] Second, more specifically, IP laws clearly prohibit the acquisition of IPRs through unfair means. For example, the trademark law in most countries would commonly inhibit or provide as grounds for cancellation such unfair and unlawful acts in the acquisition of a trademark as frauds, fabricating truth, forging related documents, counterfeiting or translating famous trademarks, etc..[127] Thirdly, due to the variety of unfair market acts, unfair competition law can not provide a full but only the possible widest coverage. IP laws can thus combat some unfair competition behaviors which are not regulated by the law against unfair competition. In this respect, copyright system especially plays an effective role. For example, in the cases of counterfeiting or imitating of unregistered trademarks, packages or decorations of non-famous trademarks and advertisements, unfair competition law would probably not be applicable since these intangible assets do not meet the requirement of “famous” or “well-known”, i.e., they have little commercial reputation to cause serious confusion. Instead, they might be subject to the prohibitions of copyright law provided that these marks, packages, decorations or advertising words or pictures can constitute a “work” under the copyright law.[128]

Finally, apart from a complementary relationship, the system of IPRs and that of anti-unfair competition may overlap in the protection of certain specific intangible assets. For example, the package and decoration of a well-known commodity usually fall within the protections of the law against unfair competition law[129], but if qualified, can also be protected as practical arts under copyright law and as industrial designs under design law or, if provided so, patent law.[130] Under this circumstance, the proprietor can choose any of these three approaches dependent on his preference.

IV. GENERAL INTERFACE: AN OVERVIEW OF THE CONTRADICTORY PERSPECTIVE

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As argued above, IPRs and competition policy are primarily complementary because they share a common concern to promote technical progress and ultimately, to improve benefits of consumers. Thus firms are more likely to innovate if they are at least somewhat protected against free-riding. They are also more likely to innovate if they face strong competition. But the problem is that completely legitimate use of IPRs can even result the restriction of competition to some extent, at least in the short run, which thus produces a trade-off between the benefits of increased competition and the gains from further innovation.[131] Therefore, there is not always tranquility between IPRs and competition policy, but from time to time a collision as well.

Intellectual property rights (IPRs), as we introduced above, award innovators with legal monopolies while competition laws regulate monopoly for the purpose of obtaining fair and free competition. Thus seen from the nature of the legal values concerned, an inevitable tension between monopoly forces and anti-monopoly forces would happen to arise.

4.1 Risks to Competition: the Existence of IPRs

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This tension can be initially embodied as the potential risks of IPRs to competition, both from their existence and exercise. First, the fact that IPRs in their essence are entire or conditional legal monopolies conferred by the law does not per se mean that the existence of them has no negative effects at all. But only these negative effects are acceptable to some extent. As a matter of fact, it is not their legitimacy that can offset their de facto restriction of competition but instead their merits can.[132] Therefore, to allow such restriction of competition is just a result of balancing possible advantages and disadvantages involved. Second, these monopolies, although understood only legally in nature, can bring actual economic benefits to proprietors. This is so because the intellectual creations owned by proprietors are generally unknown to other parties and they enable proprietors to compete with an obvious market vantage.[133] This vantage, after being converted into real economic revenues, would ultimately become the monopoly profits of the proprietors. Thus, these legal monopolies inherent in IPRs can also fall in the context of competition policy, e.g., antitrust law or anti-monopoly law. Thirdly, legal monopolies embodied on IPRs are not only a grant by law but also enjoying strong and extensive protections under relevant statutory systems.[134] Generally, the law enforces these monopolies through two ways, i.e., on one hand, the government combats or at least limits the unfair competition acts infringing upon IPRs and on the other hand, the law confers the rights of anti-unfair competition directly on IPR holders, that is, the proprietors can directly enforce their legitimate rights by bringing judicial proceedings against infringers before the courts. Thus under the regulation of law, these legal monopolies actually differ from those purely falling within the economic meaning. The economic monopolies are those gradually acquired by market subjects in the process of competing with each other by means of continuous improvement of productive efficiency. This hence is an objective phenomenon while the former, which is only based upon the recognition and entitlement of the law, however, is determined by people’s will. Thus an economic monopoly can be broken through post-monopoly re-competition. For example, the recent thriving of Pepsi has to some extent deteriorated the dominant position of Coca-Cola in the coke market. However, the monopolies in the case of IPRs, once acquired, generally cannot be removed within the statutory period though subject to some exceptions.[135] Further, the intangible characteristic of IPRs would trigger much more possibility of infringement by third parties than on the occasion of tangible properties. People always have to pay some expenses to make clear whether the intellectual product or process they are currently using is an infringing one or not, although it is themselves who created that intellectual fruit. For example, a small company has been using an unregistered trademark and it was he himself who had it designed, but one day he could be sued for trademark infringement because another company has otherwise registered an identical trademark before he has.[136] In this sense, IPR system can under circumstances give rise to possible unfair competition,[137] reduction of efficiency as well as unnecessary waste of resources. Nevertheless, it should be reiterated that we are not accordingly denouncing the IPR system as a whole though some people really were.[138] Instead, we are only here and hereinafter checking some existing loopholes within the IPR system for necessary consideration from the point of view of competition policy.

4.2 Risks to Competition: the Exercise of IPRs

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Moreover, the exercise of IPRs, primarily IPR licensing could lead to even more serious frictions against free and open competition.[139] Although we have argued above that the right to exclude others from using an IPR does not necessary grant the owner market power under the antitrust law,[140] this exclusive right would, however, facilitate a firm’s ability to establish market power or a dominant position, or at least strengthen the existing market power or dominant position in a relevant market. Also, this market power or dominant position could be abused or misused to perform restrictive competition acts, such as a refusal to license the IPR in order to exclude or reduce competition pressure in that relevant market.[141] In Magill case,[142] the European Court of Justice (ECJ) held that although in principle the author may freely decide to grant or refuse to grant a license, this right can be abused and thus conflict with the law ruling public economic order, i.e., competition laws.

More often, serious anti-competitive effects may arise from certain apparently restrictive clauses in IPR licensing agreements aimed at unfair and unlawful monopoly profits, such as tie-in clauses, exclusive grant-back clauses, no-challenge clauses, price discrimination clauses, and so forth.[143] These effects are deemed especially detrimental in the case of horizontal licensing agreements, i.e., the licensor and licensee are actual or potential competitors at the same level. As a rule, the pro-competitive effects of IPR licensing which we discussed above basically correspond with those restraints which operate vertically.[144] Whilst anti-competitive restraints, on the other hand, are to be seen generally operate in a horizontal fashion through outright cartelization or by facilitating collusion or anti-competitively excluding entry into a relevant market. Thus such horizontal practices as a matter of fact serve to increase market power rather than capture merely economic rewards of certain innovation. In some countries,[145] the horizontal effects of an agreement normally make one of the indispensable grounds for the consideration of competent competition authority in respect of its anti-competitiveness.[146] The major elements to look at in determining horizontal anti-competitive effects are, first whether a licensing agreement that reduces innovation activity would prevent future competition in a prospective product or process market; and second, even more concerned, whether such an agreement would increase the costs of competitors.[147] For example, a transaction can prevent, or raise the cost of competitors’ access to important inputs. Furthermore, even though an IPR licensing arrangement that involves one firm selling the right to use IPR to another is inherently vertical, it could also have horizontal effects particularly if the licensor and licensee would have been actual competitors in the absence of the licensing arrangement.

For a full analysis of these horizontal effects, the OECD Report (1989) has developed a summary of points[148] as regards possible risks of IPR licensing towards competition: “1) Cartelization:[149] The single greatest concern facing competition authorities when reviewing intellectual property licensing agreements is that the agreement is a vehicle for a cartel arrangement to fix prices, limit output or divide markets; 2) Exclusionary effects[150]: Competition authorities are also properly concerned that a license agreement not operate to exclude anti-competitively other firms. That is, that the license’s features not serve to create market power or facilitate collusive activities; 3) Acquiring Market Power[151]: IPRs can be used to acquire market power apart from the exclusionary practices discussed above. This market power can be created in the market for the technology itself or in a product market if the technology is a necessary input in the product; 4) Non-price Predation[152]: Copyrights, patents and trade secrets can be used as tools of non-price predation by a firm which brings legal proceedings in bad faith in order to exclude rivals.”

Therefore, either in light of the monopoly nature of IPRs or of the economic effects of their exercise, IPRs and free, fair and open competition mechanism would very likely collide. To sum up, these conflicts are generally manifested in two situations: either proprietors in the process of exercising their IPRs might improperly expand the scope of the monopoly rights conferred on these intangible assets; or otherwise, the proprietors, relying on these legitimate monopoly rights inherent in their IPRs, might seek to pursue excessive monopoly profits or a dominant position in the relevant markets, and thus directly violate the regulations of competition laws.[153]

4.3 Intellectual Property Laws v. Competition Policies

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Further, these conflicts, when mirrored to the legal frameworks governing them respectively, would also reflect a disharmony between the two subjects on the level of law. This disharmony can be first felt from the basic characteristic distinction between these two statutory systems, i.e., private law and public law, of which the former is private-right-oriented while the latter is public-interest-oriented. Thus it is possible that the legislators of one system may have very little expertise of the other and can hardly take into account the principles and legal values of the other when they are making their own laws. On the side of IPRs, due to their high technical characteristics,[154] legislators are very likely to be required of a scientific or engineering background more than that of law.[155] Hence it is conceivable that these legislators might over-evaluate the importance of innovation (very probably because of their scientific background) and follow an abnormally strong protectionism of IPRs. The result of this potential prejudice embodied in law is the mis-defined scope and duration of IPRs. Therefore, the performers of IPR-related anti-competitive practices[156] can find very good defense under the IP law which confers such rights on them to rule out the possible application of competition policy since they have really been acting within the statutory boundaries of their rights. In practice, those competition issues arising from the misdefinition of IPRs by the legislators always bring the biggest headache for the competition authorities and courts, especially in civil law jurisdictions.[157]

On the side of competition policy, lawmakers or policy-makers may also have little knowledge about IPRs and thus they might be a bit awkward at sorting out appropriate solutions to certain IPR-related issues under competition policy. Thus unsuitable legislation of competition policy is also likely to have negative influences on necessary IPR protection. Besides, the improper enforcement of competition policy towards IPR issues might be driving things just in the opposite direction. All competition policies have responsibilities to maintain and uphold the freedom and fairness of market competition. But it is not their end to pursue the so-called “perfect competition” which, however, may just on the contrary reduce the incentives to invest in innovation. In this respect, some commentators have actually argued that intermediate levels of concentration (monopoly) are most conducive to successful R&D.[158]

Furthermore, now that we have recognized that an IPR does not per se equal to market power but can only help to establish or reinforce market power if possible,[159] it is very necessary for competition authorities to distinguish the market power stemmed from certain unlawful IPR practices which would thus be challenged from that instead acquired for other reasons. Here market power refers to the ability of firms to profitably cause one or more facets of competition, such as price, quality, variety, service, advertising, or innovation to significantly deviate from competitive levels for a sustainable period of time.[160] However, a firm would not contravene competition laws if it attains its market power solely by possessing a superior product or process, introducing an innovative business practice, or other reasons for exceptional performance.[161] In the US, this principle falls within its traditional laissez-faire antitrust policy, i.e., “if a patent or other form of intellectual property does confer market power, that market power does not by itself offend the antitrust laws. As with any other tangible or intangible asset that enables its owner to obtain significant supra-competitive profits, market power (or even a monopoly) that is solely a consequence of a superior product, business acumen, or historic accident does not violate the antitrust laws.”[162] Just in relation to this principle, the first ruling of Microsoft antitrust case has incurred tremendous criticism since the US Department of Justice (DOJ) under the guidance of Joel Klein reversed the classical laissez-faire Chicago School antitrust policy, trying to bust up the software giant Microsoft by applying Mr. Klein’s activist policy.[163] A large number of critics including Microsoft itself held that Microsoft’s dominant software realm has been acquired merely through its continuous innovation, i.e., investment in R&D and efficient management, instead of the price cartelization or illegal exercises of its advanced technologies. Thus the DOJ’s challenge has been widely regarded as an abuse of competition policy, which would consequently destroy the firm’s incentives to innovate further and eventually make consumer welfare worse off. From the point of view of IPRs, it impeded the right owner from effectively exploiting its legitimate rights as well.

In addition, the remedies that competition authorities apply to actual violators also can have important consequences on future behavior. For example, the excessive use of compulsory licensing which is the commonly applied remedy to refusal to license,[164] could lead to increased secrecy and lower investment in R&D. Scherer has studied the impact of United States compulsory licensing decrees on subsequent investments in R&D and patenting practices of the companies involved.[165] He found that firms subject to mandatory licensing decrees did not, perhaps surprisingly, reduce their subsequent investments in R&D relative to their competitors R&D efforts.[166] On the other hand, when he examined patenting activities of firms before and after the imposition of compulsory licensing decrees, he found that patenting dropped substantially in the post-decree period and that the drop was steepest for those firms required to do the most licensing.[167] This is significant in that to the extent that innovations are held in the form of secret know-how rather than as patents, their diffusion is likely to be restricted. This stems from the fact that pure know-how agreements are likely to be more difficult to negotiate than mixed patent and know-how agreements.

Thus it is true that too loose or too strong advocacy of either side would unavoidably impair the interest of the other, but to penetrate the veil, all this is actually and ultimately subject to the state interest. This is so because a country’s contemporary political or economic needs would decisively affect the legislation and enforcement declination of the both legal bodies. For instance, when a country is in extreme need of new technologies during a specific period, its government might accordingly advocate strong or even extravagant enforcement of IPRs in order to provide people with enough incentives to innovate as much as possible. Otherwise, if a country’s national technology market has long been satiated, the government would instead tend to embrace more consideration under competition policy. Anyhow, the preference of government policies cannot per se screen the actual conflicts between these two closely inter-related systems.

As a matter of fact, the principle difference between the two legal regimes does not bear much concern but rather the areas where the objects of the two systems are intimately inter-related have gained the most attention from both academic and judicial circles.[168] In the United States, which has the best developed IP laws and antitrust laws in the world, its Supreme Court had expressly recognized the important interface between the two legal bodies as early as in the Bathtub case in 1912[169] and the Motion Picture Patents case in 1917.[170] But the tension between antitrust and intellectual property is not confined to older judicial opinions. A relatively recent Second Circuit decision notes as follows: “While the antitrust laws proscribe unreasonable restraints of competition, the patent laws reward the inventor with a temporary monopoly that insulates him from competitive exploitation of his patented art. …When the patented product is so successful that it evolves into its own economic market, … the patent laws and antitrust laws necessarily clash.”[171] Nowadays more and more countries have been aware of these possible clashes between the two systems. For example, in Korea, it is noted that “…while intellectual property rights seek to promote economic development by imposing certain restraints on competition, competition laws seek to secure economic efficiency through free competition in the market. Therefore, intellectual property rights laws and competition laws are in potential conflict.”[172] Italians hold that, “…however, these common goals (of IPRs and competition policy) are pursued by different instruments: the exclusive legal right to the exploitation of an invention for a limited period of time in the case of the intellectual property laws and the removing of impediments to the efficient functioning of markets in the case of competition policy.”[173]

In this chapter, the author has provided a general overview of the interface between IPRs and competition policy from a contradictory perspective. However, the skeleton of the issues concerned may still blur until we move further to look at some specific examples. In the following context, the author will proceed to do so by introducing a series of IPR-related anti-competitive practices.

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We discussed above that although IP licensing agreements are generally pro-competitive, they may be anti-competitive where they are a mere sham for a cartel arrangement, where they restrict competition between economic substitutes in the relevant market[174] or where they exclude new competitors from the market in respect of their technical products or processes associated with IPRs.[175] Nevertheless, the anti-competitive effects may arise not only from those horizontal IPR agreements with the result of outright cartelization, but also from all other IPR- related practices that might adversely affect competition.[176] The IPR-related anti-competitive practices are basically those in which IPR owners, for the purpose of maximizing monopoly profits or achieving supra-competitive profits, abuse or misuse their rights to the extent which cannot be tolerated by law (primarily competition laws) anymore.

To the current experiences of competition legislation and enforcement around the world, although some practices in the exploitation of IPRs are obviously contrary to the spirit of fair competition, they are generally tolerated by law[177] and do not lead to the consideration under competition policy, i.e., they are acceptable anti-competitive practices as termed by some scholars. For instance, in patent licensing agreements, patentees or licensors are usually allowed to use certain territorial restraints and ancillary restraints. This is so because these restraints are actually the components of the right to reward for innovation conferred upon an intellectual property. However, the exertion of these restraints should be based upon fulfilling some special statutory grounds.[178] Failing them, for example, if the territorial restraints seem over-detailed and would indeed cause market partition, such restraints are also deemed intolerable and would constitute anti-competitive acts in the context of competition policy. So the right to reward for innovation has been ensured by law but the question is that how much reward is necessary to compensate innovators’ investment and to encourage bringing forward “enough” innovation.[179] In other words, it is a problem that what rationales should be provided for IPR owners to appropriate their surpluses stemmed from the exercise of their IPRs in order to produce pro-competitive effects.[180] This thesis, however, does not attempt to address the balance of efficiency but rather is more likely to be a troubleshooting one. Thus next the author will seek to cover an as full as possible list of those anti-competitive problems which frequently take place in the acquisition and exploitation of IPRs and which have drawn considerable concerns from competition authorities throughout the world. Correspondingly, the author will try to introduce the commonly used legal remedies to these problems.[181]

5.1 Acquisition of IPRs and Merger Control

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First of all, anti-competitive practices can occur in the acquisition of IPRs. This can be understood from two perspectives. First, for example, a patent applicant intentionally narrows the scope of right claims[182] in his patent application for a specific technology and otherwise places the core part of this technology under the protection of know-how or trade secret law. Then once the patent is granted, licensees of this patented technology would also have to pay royalties for the know-how involved besides those for the patent granted because without this know-how the patented technology can hardly work out with the effectiveness and efficiency as expected. Such acts at the same time would also hinder the licensees from conducting further research and development on this technology. Therefore, this practice in the acquisition of IPRs can possibly be used to increase the costs of competitors and establish potential barriers to the entry of market. But if the proprietor is mainly aiming at excessive financial profits, i.e., royalties but not much concerned with cartel or trust, counter-parties may generally look to possible remedies under the law combating unfair competition acts.[183]

A second perspective is provided in the US Antitrust Guidelines for the Licensing of IPRs (1995) that certain transfers of IPRs are most appropriately analyzed by applying the principles and standards used analyze horizontal mergers. These transfers, in typical cases, are “an outright sale by an IPR owner of all of its rights to IPR and to a transaction in which a person obtains through grant, sale, or other transfer an exclusive license for IPR (i.e., a license that precludes all other persons, including the licensor, from using the licensed intellectual property)”.[184] The Guidelines also provide a hypothetical example for this anti-trust analysis of the acquisition of IPRs.[185] Company A was granted a patent on its crucial technology for which it has invested considerable sums in product development and market testing, and initial results show that with this technology it can acquire a significant market share. However, rather than enter the market as a direct competitor of company B which keeps a sole dominant position in the relevant market, A licenses to B the right to manufacture and sell products containing its patented technology, and at the same time has rejected all requests by other firms to obtain a license, despite offers by those firms of terms that are reasonable in relation to those in B’s license. Thus although A’s license to B is nominally non-exclusive, the above circumstances have indicated that it is de facto exclusive and there is a horizontal anti-competitive effect and should be subject to anti-trust controls.

5.2 Refusal to License, Compulsory Licensing, and Reverse Engineering

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The refusal of a license in itself is an important content of IPRs implied in IP law and in usual cases, it does not necessarily raise anti-competitive concern. This is again a question of difference between the existence and exercise of a right as we discussed in the previous chapter.[186] In particular of the right of refusal to license, a famous EU case, AB Volvo v. Erik Veng (UK) Ltd.,[187] first brought this difference to head before the European Court of Justice (ECJ) in 1988 and it was held that a simple refusal to grant a license is not in itself abusive, even by a dominant firm.[188] But if, and only if, a refusal to license is supposed to produce the effects of impeding, restricting or even eliminating competition, it is no doubt an offence of competition policy whatever the logic of intellectual property law.

This offence usually happens on four occasions. The first and the simplest one, is the non-use occasion, i.e., the holder is neither working the IPR (mostly, a patent) himself, nor allowing all others to do so (under license), thus withholding important technical progress from the public against the public interest. Specifically, this is a waste of economic resources and would drive down firm’s productivity, damage consumer welfare and hamper the diffusion of technologies; Second, the proprietor with certain market power may be exploiting his IPR very well, but he refuses all reasonable requests for the grant of license only for the purpose of or with an effect of preventing potential competitors from entering and sharing the relevant markets. A third case is where the proprietor sets up some unenforceable or hardly enforceable conditions for licensees to get a grant also just for the purpose of or with a result of restricting competition and reinforcing his own dominant position. For example, the proprietor declares that he only licenses to those parties who can promise to increase their sales by 20 per in the following year. In terms of the keen market competition meanwhile, this could be completely impossible due to specific circumstances. Thus, it indeed is a de facto refusal to license and is deemed to have anti-competitive effects under competition policy. The final occasion concerns the refusal to supply.[189] Here the proprietor has licensed his technology to a party, but he refuses to supply the licensee necessary devices and techniques which by their nature are indispensable for the exploitation of such a technology only for the reason that this obligation is not included in the licensing agreement. If this refusal to supply qualifies to raise an anti-competitive concern discussed above, it is also an offence under competition policy, at least under unfair competition law.[190]

However, the most advocated solution as a whole to refusal to license is that of compulsory licensing, which is usually provided by IP law itself, e.g., patent law and which is commonly used for failure to exploit a patent throughout the world.[191] For instance, Article 5A(2) of Paris Convention provides: “Each country of the Union (the Convention) shall have the right to take legislative measures providing for the grant of compulsory licenses to prevent abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work.”[192] However, some scholars have argued that compulsory licensing can have negative effects on welfare. So, its use should be limited for example to cases in which the progress of an entire industry is actually blocked by a patent.[193] If failing IP law and IP authorities, compulsory licensing can also be invoked under competition policy if necessary. This is especially the case in the EU. For example, Professor Gallini said that the patent offices often do not know when a patent application is too broad, so it seems natural to turn to the competition authorities to require a compulsory license long after the patent was granted and the investment leading to it is water under the bridge.[194] In the case of copyright, the ECJ confirmed in Magill[195] that the European Commission has the power to end an abusive refusal to license by imposing a compulsory copyright license. Furthermore, the European Commission has formulated an “essential facility” doctrine especially in respect of the remedy to refusal to license that, the preservation of effective competition requires dominant companies which owned “essential facilities” to offer access to competitors as well as customers on a non-discriminatory basis.[196]

In addition to statutory remedies, the so-called “reverse engineering” could serve a feasible self-aid role on the side of counter-parties of IPR holders when no license is expectable. Reverse engineering, which is especially associated with computer programs, can be described as “…the analysis of a competitor's program by examining its coding and structure in order to develop programs which either compete with the program which has been analyzed or interface with that program.”[197] The term reverse engineering encompasses the decompiling or disassembling of the object code into a readable source code right up to the development of a new program based on the ideas revealed by decompiling.[198] Reverse engineering is basically a legitimate process and not considered an infringement of originator’s IPR. However, it is only limited to the cases of unpatented, non-copyrightable and undisclosed innovations, i.e., know-how or trade secrets.[199] Besides, to what extent reverse engineering is allowed also differs from jurisdiction to jurisdiction. In the EU, a restrictive approach is generally advocated. Although the 1993 European Council Directive on the Legal Protection of Computer Programs[200] embraced a key feature, i.e., the allowance of a rightful possessor[201] of software to reverse engineer (decompile) it to achieve interoperability[202], there are some restrictions on the right to decompile. As a rule, decompilation is only allowed where "the information necessary to achieve interoperability has not previously been readily available”,[203]i.e., undisclosed.[204] In the United States, however, there seems to be a divided position on decompiling. The Federal Government still maintains a protectionist policy,[205] i.e., it may amend its laws to accept decompiling, while the courts have used the "fair use" provision in their copyright law to allow for it.[206] Whatever the intensity of legal approaches toward reverse engineering, many scholars have argued that it can play a pivotal role towards solving certain IPR-related competition issues.[207] On one side, third parties seeking to compete effectively may have to reverse-engineer the unpatented product or process; establish autonomous modes of production; develop effective lines of distribution; and establish their own reputations as producers of quality goods. On the other side, because this task of catching up to the originator’s head start takes time and costs money, it presumably endowed traditional innovators with a period of natural lead time in which to gain a foothold in the market.[208] Thus under the principle of “double-win”, reverse engineering can create a graceful balance between the need for IPR owners to reward for their innovation and the requirement for third parties to catch up with the pace of technological progress. Meanwhile, no right infringement arises whereas effective competition can be promoted as well.

5.3 Anti-Competitive Practices in IPR Licensing Arrangements

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Much more often, IPR-related anti-competitive practices could take place within the IPR licensing arrangements, for example, some restrictive agreements in a licensing contract may raise serious anti-competitive effects. But before we check out these agreements, it should be borne in mind again that any of these licensing agreements in itself is not necessary a violation of competition policy. Usually its effects would be tested by competition authorities under “the rule of reason”. If deemed neutral or supportive of competitive rather than anti-competitive, then it will be upheld on balance, i.e., competition policy has a so-called “safety zone”.[209] However, there are also some practices which are thought of as per se violations, such as minimum resale price fixing, horizontal market allocation, certain horizontal production or sale limitations, and certain group boycotts, etc. Further, these practices can be classified by different norms, for example, territorial restraints and non-territorial restraints; price predation and non-price predation; predatory restrictions and ancillary restrictions, etc.. Next is a brief summary[210] of those IPR-related licensing agreements that may prompt competition questions notwithstanding it may be given from different perspectives.

5.3.1 Vertical Restraints and Horizontal Restraints

We can first look at the restraints by their types. Where the licensor and licensee are in a vertical arrangement, i.e., both parties are not competitors on the same level, some necessary restrains are generally considered pro-competitive as we discussed above.[211] But harm to competition may still occur where a restraint forecloses access to, or increases competitors' costs of obtaining, important inputs, or facilitates coordination among competitors to raise prices or restrict output in a relevant market.[212] In the case of horizontal agreements, the existence of a restraint in a licensing arrangement that affects parties in a horizontal relationship does not necessarily cause the arrangement to be anti-competitive. For instance, in dealing with joint ventures among horizontal competitors, licensing arrangements among such competitors may promote rather than hinder competition if they result in integrative efficiencies. However, the case of R&D joint ventures is only an exception.[213] Under most circumstances, a horizontal restraint’s nature and necessary effect are deemed so plainly anti-competitive that it should be treated as per se unlawful, without an elaborate inquiry into the restraint’s likely competitive effect.[214] Such horizontal restraints include price fixing, allocation of markets or customers, agreements to reduce output, and certain group boycotts.[215] For example, two major horizontal competitors jointly assign a wholly owned separate corporation their patented technologies which are not blocking and with which inter-changeable consumer products can be manufactured by the two firms respectively in the absence of the joint assignment. The separate corporation then licenses the right to use the patented technologies to other consumer product manufacturers and establishes the license royalties. In this situation, there is a horizontal restraint that may merit per se treatment by competition authorities since it would cause a horizontal price fixing.[216]

5.3.2 Territorial Restraints, Exhaustion of IPRs, and Parallel Imports

Territorial restraints, namely, are those restrictions set by the licensor to confer territorial exclusivity on the licensee with respect to the geographical boundaries of the IPR licensed. There are usually two kinds of territorial restraints. The first case is called an “open exclusive license”, i.e., according to licensing agreement the licensee is the only party who can manufacture and sell the licensed IPR products in a particular territory. Here the exclusivity of the license relates solely to the contractual relationship between the owner of the IPR and the licensee, whereby the owner merely undertakes not to grant other licenses in respect of the same territory and not to compete himself with the licenses on that territory. In the second case, which is called a “closed exclusive license”, the exclusive license is joined with territorial sales restrictions and IPRs to create an absolute territorial protection under which the parties to the contract propose, as regards the products and the territory in question, to eliminate all competition form third parties, including licensees for other territories.[217] In short, it is the situation where the owner of the IPR bears a contractual obligation on other licensees not to sell those IPR products directly into a protected territory; for example, restrictions on export territories in a patent or know-how agreement. An open exclusive license is not in itself incompatible with competition policy. But the following two types of territorial restraints are generally considered anti-competitive: either the licensing agreement confers the obligation on the IPR owner or those deriving rights through the owner (other licensees) to refrain from producing or selling the relevant IPR products in that particular territory through other licenses, or it otherwise provides the licensor’s obligation not to compete, i.e., the obligation on the owner or those deriving rights from the owner to refrain themselves from producing or selling the relevant IPR products in that particular territory.[218] These restraints have actually evolved into the second case, i.e., an close exclusive license which however, is a per se violation of competition policy. This point was made clear within the EU in Nungesser[219] in which the closed license was defined as consisting of the two elements[220] as aforementioned. Here the territory can be understood either in a national context or an international context. If territorial restraints are set in a national context, i.e., the territorial restraints are limited to some specific regions within a country. It is dependent on national competition laws to assess the legitimacy of these restraints. Different countries may have different attitudes towards a territorial restraint. However, there tends to be a convergence that horizontal territorial restraints partitioning markets are basically deemed contrary to competition policy.[221] For example, in a Japanese case Yacult[222], the imposition of territorial restraints upon local retailers of the beverage was found by the Fair Trade Commission (FTC) in part to constitute a violation of the Japanese Antimonopoly Law.[223] Whilst in the United States, territorial restrictions in patent licenses have long been considered permissible under the Patent Act, which permits licenses for “any specified part of the United States”.[224] However, this is only limited to the case of vertical territorial restraints.[225] In the international context, generally, based upon the country’s legitimate jurisdiction the applicable rules to domestic territorial restraints can be directly followed as well in international IPR licensing.[226] The EU, however, has developed systematic application of EC competition laws, i.e., primarily Article 81 of the EC Treaty, the Commission’s policies and rich case laws by ECJ to regulate territorial restraints in IPR licenses between member states.[227] Obviously, any territorial restraints would in nature override the goal of establishing a common market.

In relation to territorial restraints, it is necessary to mention a concept “the exhaustion of IPRs” which, if held legitimate, would make a big limitation to territorial restraints. According to the exhaustion concept, once an IPR holder has sold a product to which its IPRs are attached, it cannot prohibit the subsequent resale of that product as his IPRs in that product are said to have been "exhausted" by the first sale.[228] This exhaustion concept mostly applies to trademarks and copyrights, but rarely to patents.[229] For instance, Article 5A(1) of Paris Convention says: “Importation by the patentee into the country where the patent has been granted of articles manufactured in any of countries of the Union shall not entail forfeiture of the patent.”[230] The exhaustion of IPRs would cause the so-called “parallel imports” or “gray markets”. The parallel imports are products, which are legitimately manufactured and marketed abroad with the consent of the owner of the IPRs but are then imported into a country or territory without the agreement of that owner or of the exclusive licensee in the place of importation.[231] In other words, they are not the pirated copies or knock-offs but the genuine products brought into a country without the authorization of a copyright, patent, or trademark holder after those goods were placed legitimately into circulation elsewhere.

The exhaustion of IPRs and parallel imports should also be discussed at the national level and international level separately, i.e., “territorial exhaustion” v. “universal exhaustion”. Generally a policy of the former, i.e., national exhaustion says that rights to control distribution end upon first sale only within a country, thereby permitting rights holders to exclude parallel imports. A policy of the latter, i.e., international exhaustion states that such rights end upon first sale anywhere and therefore permits parallel imports. However, the legitimacy and scope of the exhaustion doctrine and parallel imports are very controversial also because, on one hand they erode the ability of IPR owners and their licensees to fully exploit their rights, especially the rights to segment markets, but on the other hand they will increase choice of products available and the competition created will effectively keep prices down for the consumers.[232] Thus there is a difficult choice between individual interest and public interest. Relevant conflicts may arise in determining another important choice,[233] i.e., the choice between free trade and non-tariff barriers. This is a dilemma where to permit parallel imports would undermine the interest of domestic business operators while to prohibit them would be contrary to the tendency of international trade liberalization.

Accordingly, countries vary considerably in their legal treatment of parallel imports, as determined by their choice of exhaustion doctrine. Language in the TRIPS agreement of the World Trade Organization (WTO) also suggests that this policy choice remains the prerogative of individual countries.[234] For example, in Sweden, the ability of a Swedish patentee to impose territorial restraints within the Swedish market is limited by the exhaustion principle; once a patented item is manufactured and sold in Sweden the buyer may use it as he sees fit, free of territorial or other restraints. Territorial restraints may arise, however, in the international context and an enterprise that holds the Swedish patent has the right to prevent parallel importation of the product into Sweden, i.e., Sweden embraces territorial or national exhaustion doctrine.[235] Australia used to hold the same standard but recently it changed the idea by deregulating its import controls in major copyrighted goods because domestic prices were evidently sustained at high levels by those controls.[236] The EU, however, enforces a regime of regional exhaustion within the Union, i.e., the right to control re-sale of goods sold with the consent of the right holder is exhausted within that particular region only. Provided there has been substantive and extensive economic and judicial harmonization in that particular region, parallel imports within that region will in principle be allowed, while right holders will retain protection against parallel imports from third countries.[237] The similar doctrine is also applied by the US with respect to the domestic trade between its states. However, both the EU and the US[238] have long been strictly prohibiting parallel imports from outside their territory. For instance, in Silhouette V. Hartlauer[239] the ECJ ruled that any Member State allowing parallel imports from outside the Union would violate the EC Treaty. Nonetheless, as an exception, the EU and the US are considering permitting parallel imports of prescription pharmaceuticals from abroad.[240] In addition, one of the most topical discussions is taking place in the EU where the European Commission is trying to determine whether the EU's current regime of regional exhaustion with respect to trademarks should be extended to embrace the concept of international exhaustion, i.e., sale in any jurisdiction with the consent of the trademark proprietor exhausts (or negates) his rights arising under any other jurisdiction.[241]

All in all, the exhaustion of IPRs and parallel imports are very complicated issues which are dealing not only with IPRs and competition policies but, much more often, also with national and international trade policies and international relations. However, the discussion in the scope of this thesis offers no more than a glance at the topic merely for further clarifying the interface between IPRs and competition policy.

5.3.3 Non-Territorial Restraints and Restrictions on Competition

Non-territorial restraints are all those restrictions in IPR licensing which in themselves are not relating to territorial exclusivity but may also be associated with territorial restraints. Compared to territorial restraints, non-territorial restraints are much easier to handle since international communities basically have a common policy towards non-territorial restraints, a restrictive one. This common restrictive policy was originated from the knowledge that the Antitrust Division of the US Justice Department under the influence of the “patent misuse” doctrine developed by the US Supreme Court,[242] had developed a set of administrative guidelines to antitrust enforcement in the form of Nine No Nos for patent licensing. These so-called Nine No Nos were not subject to a rule of reason but generally viewed as per se unlawful, i.e., 1) Tie-ins; 2) Grantbacks; 3) Resale restraints; 4) Tie-outs; 5) Licensee vetoes; 6) Mandatory package licenses; 7) Royalties not reasonably related to the licensees’ sales of the patented product; 8) Restrictions on the sale of an unpatented product manufactured with a patented process; 9) Price restrictions on sales of a licensed product.[243] Although the influence of the Nine No Nos has reached all over the world,[244] they are not identically incorporated into other countries’ competition regime but instead are more or less transferred into similar rules or even complemented and enriched with further developments.[245] For instance, the European Union, serving the goal of a common internal market, has actually developed a more restrictive policy than the United States nearly towards all anti-competitive practices in IPR licenses.[246] As a consensus among the most countries in the world, the concept of the “scope of the IPR” has been commonly accepted in relation to non-territorial restraints as a partial exercise of the IPR granted by legislation and therefore one which deprives no third party of their freedom or action. In other words, where government regulations had already restricted competition, the resulting contractual co-operation in itself was not restrictive of competition.[247] However, this concept has proved to be a double-edged sword in the sense that a contractual provision which goes beyond the scope of IPR is a non-exemptible violation of competition policy.[248] Following is a list of such non-territorial restraints that the author has summarized from the current practices in most countries[249], which, however, are especially represented by the cases of the US and the EU.[250] Most of them are generally per se anti-competitive and considered unlawful under broad competition policy including the laws of anti-monopoly, anti-restrictive-competition and anti-unfair-competition. But given some circumstances, efficiency justifications would also be taken into account in some countries, for example, the US.

5.3.3.1 No-Challenge Clauses[251]

No-challenge clauses are those conditions set in an IPR licensing agreement to prevent the licensee from challenging the validity of the IPR to be licensed. Surprisingly, this practice was universally accepted as a lawful one in western countries before the 70’s. But in Lear v. Adkins[252] in 1969, the US Supreme Court changed the history by clearly establishing the ability of a licensee to challenge a patent. It held that a licensee was not estopped by virtue of its license to bring a challenge. In the EU, the Commission found in Vaessen/Moris[253] in 1979 that the presence of a no-challenge clause was a restriction of competition because it prevented the licensee from removing “an obstacle to his freedom of action” and increased the licensee’s risk to invest on the IPR to be licensed. Now it is one of the three examples of anti-competitive licensing practices listed in the TRIPS Agreement.[254]

5.3.3.2 Exclusive Grantbacks[255]

Exclusive grantback conditions are the second example of anti-competitive licensing practices listed in the TRIPS Agreement.[256] According to the US Antitrust Guidelines for IP Licensing, an exclusive grantback is an arrangement under which a licensee agrees to exclusively extend to the licensor of intellectual property the right to use the licensee's improvements to the licensed technology. Exclusive grantbacks may adversely affect competition because they substantially reduce the licensee's incentives to engage in research and development and thereby limit rivalry in innovation markets. “Compared with an exclusive grantback, a non-exclusive grantback, which leaves the licensee free to license improvements technology to others, is less likely to have anticompetitive effects.”[257] In the US, a grantback, even an exclusive grantback, is to be evaluated under the rule of reason instead of the per se rule by considering its likely effects in light of the overall structure of the licensing arrangement and conditions in the relevant markets.[258] However, under the EC Technology Transfer Regulation,[259] a block exemption is available for enterprises’ licensing agreements that contain only permitted clauses and no prohibited clauses. Thus a grantback clause imposing an obligation to assign improvements back to the licensor is a prohibited clause, i.e., a per se violation.[260]

5.3.3.3 Tie-in Agreements and Coercive Package Licensing[261]

A economic "tying" or "tie-in" or "tied sale" arrangement has been defined in the US IP Antitrust Guidelines as "an agreement by a party to sell one product . . . on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that tied product from any other supplier."[262] This concept can also be understood as a commercial practice of bundling two or more products into an integrated product so that a buyer must buy other products in order to obtain the one it wants. In IPR-license-related tying agreements, it has been held illegal in the US if the licensor conditions the ability of a licensee in order to force the licensee to accept or purchase excessive items of intellectual property or goods or services which the licensee does not desire to take.[263] Further, the US antitrust authorities, i.e., the Department of Justice (DOJ) and Federal Trade Commission (FTC) would consider a tying agreement per se unlawful and would challenge it if: 1) the seller has market power in the tying product;[264] 2) the arrangement has an adverse effect on competition in the relevant market for the tied product; and 3) efficiency justifications for the arrangement do not outweigh the anti-competitive effects.”

In the EU, a tie-in can be categorized into Article 82 (d) of the EC Treaty as “making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations, which, by their nature or according to commercial usage, have no connection with the subject of such contracts”. In this context, it is abusive because it excludes competitors as well as limits the freedom of choice of customers. Moreover, it is also viewed as a restriction of competition under Article 81(1)(c) and is applicable to the terms of IPR licenses. In addition, the EC Technology Transfer Regulation also limits the licensor’s right to place a tying requirement upon the licensee.

Package licensing or collective licensing -- “the licensing of multiple items of intellectual property in a single license or in a group of related licenses -- may be a form of tying arrangement if the licensing of one product is conditioned upon the acceptance of a license of another, separate product.”[265] Ordinary package licensing can be merited with efficiency enhancing and its competitive effects under some circumstances. Coercive or mandatory package licensing, as the third anti-competitive IPR licensing practice exemplified by the TRIPS Agreement,[266] however, is usually a per se violation of competition policy.

5.3.3.4 Field of Use Restrictions[267]and Specification of Source Provisions

Field-of-use restrictions are those provisions in a technology license, which impose an obligation on the licensee to restrict the exploitation of the licensed invention to one or more technical fields of application covered by the licensed patent or know-how. Field-of-use provisions in a vertical license are generally considered pro-competitive by most countries because they ensure that the licensee has an incentive to promote technical developments within its own field by providing the protection of exclusivity within each field as well as reinforcing other pro-competitive restraints which result in increased efficiencies. For example, in Japan, “under the Fair Trade Commission (FTC) Guidelines, patent or know-how licensing agreements which restrict the licensee to a “specified field of technology” will not be considered to be unfair.” In the EU, “field-of-use restrictions are regarded within the “scope of the IPR”[268] and thus permitted under both the patent licensing block exemption and the know-how exemption. Both exemptions find that restricting the licensee to exploitation of the technology to “one or more technical fields of application” not to be restrictive of competition within the terms of Article 81(1) of the EC Treaty.[269] The know-how exemption goes one step further and also exempts restrictions limiting the licensee to one or more product markets.[270] However, the risk from the point of view of competition policy is that the field-of-use provision could operate as a form of customer allocation arrangement between competitors. The art for competition authorities is to devise a model of regulation, which distinguishes between the two.

Additionally, there could also be a restriction on technical sources for the technology licensed, i.e., the licensee is obligated within the term of the licensing contract to take the licensor or other parties appointed by the licensor as the sole source of technical supply, raw materials, parts and components or equipment in relation to the exploitation of the technology licensed or even the licensee’s own technologies. For example, the technology transferred from the licensor might be proven not 100% to meet the licensee’s need but the licensee is restrained from acquiring new or ancillary techniques and materials to supplement or support the technology licensed from other sources than the licensor. This restriction may indirectly impede the exercise of other IPR holders’ rights and in most cases is a per se violation of competition policy.

5.3.3.5 Non-Competition Clauses

A non-competition clause simply refers to a clause in the IPR licensing agreement that the licensee offers an assurance to the licensor not to compete with him with the IPR licensed or transferred within a specified period. This clause is often associated with a territorial license in which the licensee is required to make such an assurance that he will actually work to produce a return as a condition for the grant of territorial exclusivity. If an IPR license between undertakings that are existing competitors includes a non-competition clause, it is a clear restraint of competition and shall be prohibited by competition policy. To look at the clause within the EU, however, there may be exceptions under Article 81(3) because of the nature of the agreement. For example, if it is in a non-concentrative joint venture or an R&D joint venture or a specialization agreement, then it would not be caught by Article 81(1) because of a block exemption or Commission Notice or by virtue of its non-appreciable impact on competition. However, absent special circumstances such a clause between competing undertakings is regarded as a classic attribute of cartels and customer sharing arrangements.[271]

In a vertical relationship, however, a non-competition clause generally is pro-competitive. But there are also two major concerns of competition policy, which should be paid attention to in this situation. The first is the possibility that it will restrict the licensee in the development of commercial products from R&D in its own technology. The second is that while a non-competition clause is immensely reassuring to a licensor, it may not be indispensable given the availability of other clauses. Indispensability is part of the test in Article 81(3) but it also enters the test under Article 81(1) in the form of the ancillary restraints exception.

5.3.3.6 Exclusive Licensing and Exclusive Dealing[272]

The exclusivity within an IPR licensing agreement is usually the foremost element to determine whether this agreement would raise any competition issues. As a rule, non-exclusive licenses that do not contain any ancillary restraints on the competitive conduct of the licensor and licensee generally do not present antitrust concerns, even if the licensor and licensee are horizontal competitors. There are two aspects of efforts by licensors and licensees to establish exclusive relationships. One type of relationship included is where the licensor agrees not to create a second licensee in the territory, i.e., the open exclusive license, which follows from and is closely related to the cases involving territorial restraints discussed in the preceding context.[273] Thus here the author only looks at the second type of exclusivity that relates to commitments by the licensee to deal exclusively with the licensor, i.e., the so-called exclusive dealing.

The US IP Antitrust Guidelines provide that: “In the intellectual property context, exclusive dealing occurs when a license prevents the licensee from licensing, selling, distributing, or using competing technologies. Exclusive dealing arrangements are evaluated under the rule of reason.”[274] “In determining whether an exclusive dealing arrangement is likely to reduce competition in a relevant market, the Agencies (DOJ and FTC) will take into account the extent to which the arrangement 1) promotes the exploitation and development of the licensor's technology and 2) anti-competitively forecloses the exploitation and development of, or otherwise constrains competition among, competing technologies.” “The likelihood that exclusive dealing may have anti-competitive effects is related, inter alia, to the degree of foreclosure in the relevant market, the duration of the exclusive dealing arrangement, and other characteristics of the input and output markets, such as concentration, difficulty of entry, and the responsiveness of supply and demand to changes in price in the relevant markets.”[275]

5.3.3.7 Pricing Fixing[276] and Output Restraints[277]

There are two typical post-grant restraints over the manufacturing and sale of the product of that IPR licensed. The first one is the so-called price fixing, i.e., the licensor’s control over the resale pricing of the licensee or its sub-dealers, for example, distributors, in respect of the IPR product manufactured by the licensee after that license. In the US, the IP Antitrust Guidelines provide: “resale price maintenance is illegal when commodities have passed into the channels of trade and are owned by dealers.”[278] It has been considered per se unlawful for a licensor of an IPR in a product to fix a licensee's resale price of that product.[279] Besides, the Court also held that the parties had engaged in price-fixing in violation of the Sherman Act. In the Court's view, the price fixing was obvious: "[b]y the patentees' agreement the dominant…and the subservient…patents were combined to fix prices.[280] In the EU, the patent licensing block exemption[281] denies the benefits of the block exemption for any agreement where “one party is restricted in the determination of prices, components of prices or discounts for the licensed products”. The know-how licensing block exemption operates in the same fashion.[282]

The second aspect is regarding the output restraints. For example, the licensor imposes quality or/and quantity standards or controls over the licensed IPR product manufactured by the licensee after the license. In practice, it is generally no problem to place minimum quality specifications by the licensor as long as they are agreed upon in advance and based on objectively verifiable criteria. A quantity restraint, however, would probably present competition concerns. For instance, under the EC patent licensing regulation, a quantity restraint results in the licensing agreement losing the benefit of the block exemptions.[283] The know-how exemption regulates similarly but provides a few grounds for special exemptions.[284] In the US, it was ruled in Q-Tips Inc. v. Johnson and Johnson[285] that a pure output restraint in a patent licensing, if unaccompanied by price provisions, is not deemed a misuse of patent. However, if accompanied by a price fixing provision, both quality and quantity restraints can raise competitive problems because there is a potential cartelization.

5.3.3.8 Royalty-Related Practices[286]

In the US, royalties usually do not raise serious anti-competitive implications, unless the royalty is a subterfuge, which should be apparent from a close examination of the underlying rights, and unless the doctrine of patent misuse is implicated, in a case where a patent is relied on to impose ancillary rights on non-patented products, or beyond the patent term.[287]

In general, competition issues concerning royalty-related practices can be discussed from five aspects. First, one of the most important priorities for the licensor is to obtain an assurance of a minimum return (royalty) on the transfer of rights to manufacture and sell the licensed technology. From a competition point of view, an obligation on the licensee to pay a minimum royalty is generally not caught by competition laws. But if the minimum amount is set at too high level and accompanied by a reservation of the right to terminate exclusivity and the right to access to improvements, it is not free of restrictive effects on competition. Secondly, excessive pricing of an IPR by a dominant right holder, i.e., the licensor charging excessively higher than competitive prices for a protected IPR, would essentially undermine the benefits of licensees and restrict competition. In the EU, this is clearly prohibited by Article 82(a) of the EC Treaty.[288] The third royalty practice is discriminatory pricing, i.e., under the same conditions the licensor charges different prices for his IPR from different licensees on a discriminatory basis. In the EU, it is banned by the EC Treaty Article 82(c) which defines it as “applying dissimilar conditions to equivalent transactions with other trading parties thereby placing them at a competitive disadvantage.” Another royalty charging practice is predatory pricing, i.e., the licensor charges lower prices than average costs for the IPR transferred with an intention to eliminate competitors.[289] Under the EC Treaty Article 86, predatory pricing generally falls within the meaning of “abuse”. In AkZO v. Commission[290], the ECJ indicated two basic methods of analysis to determine whether a pricing practice is predatory: 1) pricing below average variable costs is per se abusive in the sense that no proof of intent is necessary; 2) pricing products below average total costs but above average variable costs is only to be considered abusive if an intention to eliminate competitors can be shown. Finally, there are another two main issues found in connection with the royalty terms of licensing agreement which could be regarded as abusive or unfair practices under competition policy. One relates to setting royalties according to output or total sales, which may include products not using the licensed technology or products using a changing mix of licensed technology as patents expire or know-how is made known to the public during the course of the agreement (issues closely related to the question of coercive package licensing above). The other major type of issue, and overlapping with the former, relates to the charging of royalties on unpatented products, unpatented either because the patent has expired or because it was never issued.

5.3.3.9 Pooling and Cross-licensing[291]

“Cross-licensing and pooling arrangements are agreements of two or more owners of different items of intellectual property to license one another or third parties.” They are especially used in the case of patents. “By promoting the dissemination of technology, cross-licensing and pooling arrangements are often pro-competitive.” But the pooling or cross-licensing of patents can also be used by the grantors or licensors to obtain many of the anti-competitive objectives touched upon in earlier contexts, e.g., a pool could be used in an effort to fix prices, limit output or assign territories or field-of-uses. Pools, however, merit separate treatment as they pose increased risk of collusion among competitors, while the previous parts dealt primarily with issues of vertical restraints. In the US, pooling and cross-licensing agreements are considered as a whole. These agreements may be deemed unlawful if they do not contribute to an efficiency-enhancing integration of economic activity among the participants.[292] “When cross-licensing or pooling arrangements are mechanisms to accomplish naked price fixing or market division, they are subject to challenge under the per se rule.”[293] In the EU, however, the patent licensing block exemption draws a sharp distinction between patent pools and cross-licenses. It is held that patent pools can have potential anti-competitive effects when they are a means to discriminate against third parties or when specific technologies from given companies are excluded from the pool. Thus patent pools are generally not qualified for the block exemption on technology transfer agreements[294] although they can be a possible solution in cases where no company has all necessary patents to a technology and can still apply for an individual exemption. Cross licenses or know-how exchanges between horizontal competitors can, however, only benefit from the regulation provided that the parties are not subject to any territorial restrictions within the common market on the “manufacture, use of putting on the market” of the licensed products or on the use of a licensed process”.[295]

5.3.3.10 Non-Price Predation: Alleged IPR Infringement

Finally, there is also possibility of arising anti-competitive effects in the absence of licensing agreements. The first point in this respect to look at is the situation where an IPR holder predatorily brings lawsuits against the third parties who have not infringed on his intellectual property and he clearly knows this fact. Such bad-faith litigation can in practice be used to exclude or harass competitors. Obviously, this is an unfair competition behavior and shall be banned by the law against unfair competition.[296] Another point is worth mentioning with regard to the function scope of a country’s competition authority. In Canada, the alleged infringement of an IPR generally is not viewed by its Competition Bureau as raising any issues under the Competition Act and parties are suggested to look to legal advice on other remedies, for example, judicial proceedings or arbitration.[297] But in other countries, this is perhaps the case. Thus it would be a burden of competition authorities to distinguish predation from legitimate enforcement of IPRs.

VI. CONCLUDING REMARKS

Back to Contents Back to My Academics

To sum up, IPRs and competition policy are both very complicated to deal with, but the interface between them is even more. In this thesis, the author has provided an overview, but only an overview, as regards how the two bodies of law inter-relate to each other and how they affect each other, both positively and negatively. As we discussed earlier, the two systems which take quite different instruments, however, share very common purposes. Just as stated in the ruling of Atari Games Corp. v. Nintendo of America, Inc.: “The aims and objectives of patent and antitrust laws may seem, at first glance, wholly at odds. However, the two bodies of law are actually complementary, as both are aimed at encouraging innovation, industry and competition."[298] More specifically, the existence and exercise IPRs first do not necessarily restrict competition or create market power from the perspective of antitrust law.[299] Secondly, as a matter of fact, a temporary legal monopoly underlying an IPR promotes dynamic competition in the long term only by conditionally limiting static competition in the short term.

However, the two systems are also in potential conflict. This is because the goals of competition policy described above are generally associated with efforts to promote short run allocative efficiency, that is, efforts which tend to drive prices toward marginal cost, which in turn maximizes the output of society’s resources.[300] But an innovation, i.e., intellectual property is essentially information that has a zero marginal cost of use, i.e., a given piece of information can be used by an infinite number of people simultaneously and without exhausting the information itself. Thus, the right to exclude allows positive prices to be charged for use of the information and tends to restrict output (or more accurately dissemination of the information). However, this apparent conflict can be reconciled if consumer welfare is viewed in the long run. That is, long-run consumer welfare depends on the dynamic efficiency of the economy as well as its tendency towards allocative efficiency. Dynamic efficiency includes the invention and commercial introduction of new products and processes which enhance welfare both by increasing the quality of goods and by promoting growth through increased productive efficiency.[301] Moreover, we have seen in practice that IPR licenses are generally pro-competitive. But under some circumstances, excessive IPR protection may have a detrimental effect on competition. Not only may IPR transactions restrain competition through the restriction of business activities or hinder fair competition, but such conduct may also adversely affect competition in the development of technologies.[302] Thus we have found the very necessity and significance to regulate certain IPR-related practices in the context of competition policy. Generally, the application of competition policy affects the use of intellectual property rights in two main ways. First, and most importantly, competition policy applies to the clauses used in agreements to license inventions. Second, competition policy may impose certain remedies for abuses, compulsory licensing in particular, which affects the innovator immediately and can alter future behavior as well. Thus any improper enforcement of competition policy might achieve totally contrary results, which in turn would probably undermine both private rights and public values. All in all, it is of considerable importance to develop a reasonable balance between the two legal systems.

To this end, most industrialized countries have established rather sound national regimes governing the interface between IPRs and competition policy, based upon an adequate recognition that “some licensing practices or conditions pertaining to IPRs which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology”.[303] As regards the corresponding legal approaches taken by these countries, the OECD (1989) Report and the OECD (1998) Roundtable Discussion[304] have provided some detailed summaries. For example, the US, Canada, and Japan have respectively issued their own antitrust or anti-monopoly guidelines for the licensing of IPRs.[305] In the EU, there are competition rules in the EC Treaty as well as the EC Technology Transfer Regulation.[306] Besides, they are also complemented by plenty of case laws. At the international level, Article 40 of the TRIPS Agreement has made the greatest contribution to offering an approach under the IPR regime itself[307] while the upcoming Trade-Related Antitrust Measures Agreement (TRAMS), which would be the first multilateral antitrust instrument, has been proposed by some commentators to place IPRs into the equation as well.[308]

In most developing countries, however, such an interface has not gained enough attention and the prescriptive frameworks governing it are still at infancy. In some least developed countries (LDCs), market competition still remains the primitive manner and at the same time the fundamental IPR protection can hardly be ensured, still less the interplay between the two. This to some extent is understandable because the degree of such interaction virtually depends on the economic development in a certain country, which clearly relates to the degree of market development.[309] On this basis, the TRIPS Agreement accordingly leaves both developed countries and developing countries discretionality to specify “in their legislation licensing practices or conditions that may in particular cases constitute an abuse of IPRs having an adverse effect on competition in the relevant market.”[310] At all events, the thriving international free trade and the speeding global technological integration during last two decades have provided developing countries, especially China, the world’s largest developing country, with an unprecedented timing to resuscitate their economies. Thus to survive and even to win the keen national and international market competition games in the near future, it is of tremendous significance for developing countries to catch up with the first world by making up for such three compulsory courses, tracing back to the start of this thesis, i.e., intellectual property rights, competition policy, and their interface.

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* LLM dissertation, Erasmus University Rotterdam, June 2001. The author first wishes to thank Prof. Peter Malanczuk for his supervision of this thesis during the 2000-01 Erasmus LLM Program. Special gratitude is extended to Professor Martin J. Adelman (George Washington University) for kindly sending over his casebook for reference and also, to Professor Jan J. Brinkhof (Utrecht University) as well as Mr. Michael N. Schlesinger (International IP Alliance) for their first reviews of this thesis.

** B.E. (E.E.), Beijing University of Chemical Technology, China, 1998; LL.B. (IP) Peking University, China, 2000; LL.M. (Business and Trade Law), Erasmus University Rotterdam, the Netherlands, 2001.

[1] See e.g. David J. Gerber, “Global Technological Integration, Intellectual Property Rights and Competition Law: Some Introductory Comments”, in F.M. Abbott, David J. Gerber, Public Policy and Global Technological Integration (Kluwer Law International 1997), pp. 15-22.

[2] There are some other objects protected under the IPR regime while these three types of intellectual creations usually enjoy three most important IPRs respectively, i.e., patents, copyrights, and trademarks. See further infra text under §2.1.

[3] See Uruguay Round Final Act, the Agreement on Trade-related Aspects of Intellectual Property Rights (MTN/FA II-AIC (1993)) (hereinafter the TRIPS Agreement), preamble: “Members….Recognizing that IPRs are private rights;….”. However, this is a kind of intangible property right that is different from (but comparable with) the traditional concept of private rights, which is based upon the ownership of certain corporeal property, or personal rights. See further infra text under §2.1.

[4] In this thesis, the competition policy to be discussed is a broad term which refers to any rules relating to the regulation of competition, mainly including antitrust laws, rules of anti-restrictive competition and unfair competition law. For a full discussion on the concept of competition policy, see infra text under §2.2.

[5] Unlike other IPRs, the acquisition of a copyright is not based on an application and grant procedure but instead takes place at the moment the author accomplishes his work. See further infra text under §2.1

[6] Generally, IPRs are granted and protected under national law whereas there are also some international instruments such as Patent Cooperation Treaty (PCT) and European Patent Convention (EPC) under which a so-called international patent and European patent can be respectively granted. However, the protection of such patents will be still based on the national laws of designated countries of the patents. See further infra text under §2.1.

[7] See e.g. C. Taylor and Silberstone, The Economic Impact of the Patent System (Cambridge, 1994), at p. 198; F.M. Scherer, Industrial Market Structure and Economic Performance (2^nd edn. 1990).

[8] For example, in the European Union (EU), IPR licenses basically fall within the exceptions provided by Article 81 (3) EC Treaty. On the other side, the unfair competition law as a major component of broad competition policy usually helps to combat certain anti-competitive acts infringing on IPRs. See further infra texts under II & III. See also e.g. Valentine Korah, An Introductory Guide to EC Competition Law and Practice, (Hart Publishing, sixth edn, 1997), chapter 8-9.

[9] For a detailed discussion on restrictive practices in the acquisition and exploitation of IPRs, see infra text under V.

[10] See e.g. Dawson Chem. Co. v. Rohm & Haas Co., 448 U.S. 176, 215 (1980); Martin Adelman,” Licensing, Misuse & Patent * Antitrust”, (US) Patent Casebook, chapter 19, (West Group, Copyright 1996).

[11] See e.g. Paris Convention for Protection of Industrial Property of March 20, 1883, as amended in 1979, (hereinafter Paris Convention) Art.5 (A); See also the TRIPS Agreement, supra note 3, Art.30. For a full discussion on compulsory licenses, see further infra text under § 5.2.

[12] Pursuant to Articles 12, 18 and 33 of the TRIPS Agreement, the protection terms of copyright, trademark, patent are respectively: (copyright) “…no less than 50 years from the end of the calendar year of authorized publication, or, failing such authorized publication within 50 years from the making of the work, 50 years from the end of the calendar year of making.”; (trademark) “Initial registration, and each renewal of registration, of a trademark shall be for a term of no less than seven years...”; (patent) “The term of protection available shall not end before the expiration of a period of twenty years counted from the filing date.” See further below under §2.1; see also, e.g. W. Cornish, Intellectual Property: Patents, Copyright, Trademarks and Allied Rights (Sweet & Maxwell, 3^rd edn; 1996).

[13] See e.g. the OECD Report: Competition Policy and Intellectual Property Rights (Paris 1989), hereinafter cited as “OECD Report”; available at OECD website <http://www.oecd.org>.

[14] In the USA, e.g. Antitrust Guidelines for the Licensing of Intellectual Property, (hereinafter US IP Guidelines) issued by US Department of Justice and Federal Trade Commission, 1995; in the EC, e.g. Commission Regulation No. 240/96 on the application of Article 81 (3) of the EC Treaty to certain categories of technology transfer agreements. See further, e.g. Steven D. Anderman, EC Competition Law and IPRs: The Regulation of Innovation, (Clarendon Press. Oxford 1998), pp. 3-8.

[15] See Theo Bodewig, “On the Misuse of Intellectual Property Rights”, Max-Plank-Institute for Patent Law, (Munich, 1995)

[16] For a full analysis of this point, see infra text under §4.3.

[17] See e.g. Spencer Weber Waller and Noel J. Bryne, “Changing View of Intellectual Property and Competition Law in the EC and the USA”, vol. XX:1, Brooklyn Journal of International Law (1993).

[18] See e.g. Steven D. Anderman.(1998) , supra note 14, at p.73; See further e.g. Windsurfing International Inc. v. Commission (1996) ECR 611.

[19] This is the reason why the title of this thesis was set forth so. See further infra text under §4.3.

[20] See e.g. J. Beckwith Burr, “Competition Policy and IP in the Information Age”, Villanova Law Review, vol. 41 (1996) pp. 193-205.

[21] See Robert D. Anderson et Nancy T. Gallini, Executive Summary of Industry Canada’s Research Volume on Competition Policy and Intellectual Property Rights in the Knowledge-Based Economy (University Calgary Press, 1998).

[22] See also Spencer Weber Waller and Noel J. Bryne, supra note 17.

[23] See further e.g. Jayashree Watal, IPRs and Developing Countries in the World Trade Organization: The Way Forward, (Oxford Uni. Press, 2000)

[24] See infra texts under II. III. & IV.

[25] See infra texts under III. IV.

[26] See infra text under V.

[27] See infra text under VI.

[28] See United Nations Conference on Trade and Development (UNCTAD) Publication, The TRIPS Agreement and Developing Countries (Geneva 1996), para. 32, at p. 13

[29] One of the most important concerns is the protection of IPRs in international trade. See e.g. M. J. Ferrantino, "The Effect of Intellectual Property Rights on International Trade and Investment", Weltwirtschaftliches Archiv, Vol. 129 (1993), pp. 300-331.

[30] See e.g. K.E. Maskus and M. Penubarti, "How Trade-Related are Intellectual Property Rights?", Journal of International Economics, Vol. 39 (1995), pp. 227-248.

[31] Actually people may use IPR-related products or processes everyday, such as a patented electronic toothbrush, a copyright-reserved book and more often, all kinds of trademark-contained merchandises, etc.. As well, people as consumers might be often affected by IPR-related issues, such as the piracy of copyright products, counterfeiting of trademarks, etc.. See further e.g. S. Besen, “An Introduction to the Law and Economics of Intellectual Property”, The Journal of Economics Perspectives, 5, No.1 (Winter 1991) pp. 3-28.

[32] See e.g. Michael P. Ryan, Knowledge Diplomacy: Global Competition and the Politics of Intellectual Property, foreword, p. vii (Brookings Institution Press, Washington, D.C., 1998)

[33] Traditionally, people have thought of property as either movable property (e.g. a book or a bicycle) or immovable property (e.g. a house or land). A characteristic of both forms of property is their intangible shape. In contract, intellectual property law confers property rights on intangibles. See further e.g. W. Cornish (1996), supra note 12.

[34] For example, under Chinese Patent Law, a patent can be granted to inventions, utility model and designs (Patent Law of the People's Republic of China, Article 2.) while in the United Kingdom, industrial designs would fall outside the scope of the patent law but protected by a specific legislation (UK Designs Act). See further e.g. Flora Wang, “An Overview of the Development of China’s Patent System”, Mark A. Cohen, Chinese Intellectual Property: Law and Practice, Chapter 1, (Kluwer Law International, 1999); See further also at UK IP Office website <http://www.intellectual-property.gov.uk>.

[35] For instance, the TRIPS Agreement, as the most comprehensive multilateral agreement on intellectual property to date, does not provide a clear definition of intellectual property but only tries to establish minimum standards of protection for a range of IPRs in its member states. See e.g. Weerawit Weeraworawit, Commentaries on the TRIPS Agreement, (World Bank Publication, 1999). See also “Overview of the TRIPS Agreement” at the WTO website <http://www.wto.org>.

[36] See “What is intellectual property?” at the World Intellectual Property Organization (hereinafter WIPO) website <http://www.wipo.org>.

[37] See “TRIPS: What are intellectual property rights?” at the WTO Website <http://www.wto.org>.

[38] See also “What is intellectual property?” at the WIPO website, supra note 36 and “TRIPS: What are intellectual property rights?” at the WTO website, supra note 37.

[39] See the WTO website, supra note 37.

[40] See the TRIPS Agreement, “Part II Standards Concerning the Availability, Scope and Use of Intellectual Property Rights”, sections 1-7, supra note 3.

[41] The original creators of works protected by copyright, and their heirs, have certain basic rights. They hold the exclusive right to use or authorize others to use the work on agreed terms. This exclusive right has a time limit, according to the relevant WIPO treaties, of 50 years after the creator's death. See the WIPO website, supra note 36.

[42] A trademark provides protection to the owner of the mark by ensuring the exclusive right to use it to identify goods or services, or to authorize another to use it in return for payment. The period of protection varies, but a trademark can be renewed indefinitely beyond the time limit on payment of additional fees. See idem.

[43] Geographical indications are protected in accordance with national laws and under a wide range of concepts, such as laws against unfair competition, consumer protection laws, laws for the protection of certification marks or special laws for the protection of geographical indications or appellations of origin. See idem.

[44] The design may consist of three-dimensional features, such as the shape or surface of an article, or of two-dimensional features, such as patterns, lines or color. In most countries, an industrial design must be registered in order to be protected under industrial design law. As a general rule, to be registrable, the design must be "new" or "original". The term of protection is generally five years, with the possibility of further periods of renewal up to, in most cases, 15 years. See idem.

[45] A patent provides protection for the invention to the owner of the patent. The protection is granted for a limited period, generally 20 years. Patent protection means that the invention cannot be commercially made, used, distributed or sold without the patent owner's consent. See idem.

[46] An “integrated circuit” means a product, in its final form or an intermediate form, in which the elements, at least one of which is an active element, and some or all of the interconnections are integrally formed in and/or on a piece of material and which is intended to perform an electronic function. A “layout-design (topography)” is defined as the three-dimensional disposition, however expressed, of the elements, at least one of which is an active element, and of some or all of the interconnections of an integrated circuit, or such a three-dimensional disposition prepared for an integrated circuit intended for manufacture. The obligation to protect layout-designs applies to such layout-designs that are original in the sense that they are the result of their creators' own intellectual effort and are not commonplace among creators of layout-designs and manufacturers of integrated circuits at the time of their creation. The exclusive rights include the right of reproduction and the right of importation, sale and other distribution for commercial purposes. Certain limitations to these rights are provided for. See also “Overview: the TRIPS Agreement” at the WTO Website <http://www.wto.org>, supra note 35.

[47] Trade secret protection exists as long as the information is kept secret or confidential by its owner and is not lawfully and independently obtained by others. The owner of a trade secret may recover damages resulting from the improper disclosure or use of its trade secret by another. See idem.

[48] See the WIPO website and WTO website, supra note 38.

[49] See supra notes 12, 41-7.

[50] See e.g. US IP Guidelines (1995), supra note 14 , “II. General Principles”, Art. 2.0 (a): “for the purpose of antitrust analysis, the Agencies regard intellectual property as being essentially comparable to any other form of property”; see also Laurence R. Hefter and Robert D. Litowitz “What is intellectual property?” the US Department of State Publication, available at the State Website <http://usinfo.state.gov>.

[51] Individual use for non-beneficial purposes, however, is not an infringement. See further e.g. W. Cornish (1996), supra note 12 and S. Besen (1991), supra note 31.

[52] Refer to supra note 5.

[53] See e.g. Laurence R. Hefter and Robert D. Litowitz, supra note 50.

[54] See e.g. Weerawit Weeraworawit, Commentaries on the TRIPS Agreement, supra note 35.

[55] See supra note 11, text available at the WIPO Website <http://www.wipo.org>.

[56] See supra note 11, dealing with international patent application and grant, treaty text available at the WIPO Website <http://www.wipo.org>.

[57] Text available at the WIPO Website <http://www.wipo.org>.

[58] Text available at the WIPO Website <http://www.wipo.org>.

[59] Established on the basis of the Treaty Establishing the WIPO in 1967, which became a specialized agency of the United Nations (UN) in 1974, mainly operating three kinds of activities: registration, the promotion of intergovernmental cooperation in the administration of intellectual property and specialized programs. Full information is available at the WIPO Website <http://www.wipo.org>.

[60] See further e.g. Edward M. Graham and J. David Richardson, Competition Policy for the Global Economy. Institute for International Economics (Washington D.C. 1997).

[61] See e.g. Keith E. Maskus, “Competition Policy and Intellectual Property Rights in Developing Countries: Interests in Unilateral Initiatives and a WTO Agreement”, the WTO/World Bank Conference on Developing Countries’ in a Millennium Round WTO Secretariat, Center William Rappard (Geneva, 1999)

[62] Here it merely refers to those competition rules that regulate certain exercise of IPRs, not the IPR system as a whole.

[63] i.e. Sherman Antitrust Act of 1890, codified as amended 15 USC (1994); Robinson-Patman Act of 1936, codified as amended 15 USC (1994); Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 USC, codified as amended at 15 USC (1994); Antitrust Guidelines for the Licensing of IP, 6 April 1995, all available at the US Department of Justice, Anti-trust Division Website < http://www.usdoj.gov/atr>, supra note 14.

[64] For example: US Federal Trade Commission (FTC) Regulations –Title 16; Prevention of Unfair Methods of Competition - U.S. Code, Title 15, Subchapter VI; Uniform Deceptive Trade Practices Act; Restatement of The Law of Unfair Competition (Tentative Draft 1993); § 1125 of the Lanham Act; etc, all available at <http://www.megalaw.com/top/unfaircomp.php3>.

[65] Treaty Establishing the European Economic Community, 25 March 1957 as consolidated up to 1999 (Amsterdam Treaty, hereinafter the EC Treaty), e.g. Art. 81-87.

[66] For example, Commission Regulation 1983/83 –Group exemption for exclusive dealing agreements, O.J.1983, L173/7, C101/2, CMR 2733 (1983), etc. See more examples at European Commission Competition Division Website < http://europa.eu.int/comm/competition>

[67] See e.g. Scott Morton, “Antitrust Laws in Countries Other than the United States”, Essay on Competitive Strategy, US Department of Justice, Anti-trust Division, available at <http://www.usdoj.gov/atr>

[68] However, more and more developing countries have become aware of the importance of competition laws. For example, in former socialist countries, there has been a recent emergence of competition law. See further Tibor Varady, “The Emergence of Competition Law in (Former) Socialist Countries”, American Journal of Comparative Law, 47 Am. J. Comp. L. 229 (Spring, 1999).

[69] Law of the People's Republic of China for Countering Unfair Competition (Adopted on September 2, 1993, became effective as of December 1, 1993), English text available at <http://www.jus.uio.no/lm /china.unfair.com petition.law.1993/doc.html>.

[70] However, China is just planning promulgate an anti-monopoly law representing one of its efforts to join the WTO. See further e.g. China Competition Law Database at <http://www.apeccp.org.tw/doc /China. html>. For a full introduction of China’s competition policy, see infra text under VI.

[71] See further e.g. Edward M. Graham and J. David Richardson, Global Competition Policy. Institute for International Economics (Washington D.C. 1997).

[72] See further e.g. Michael J. Trebilcock and Robert Howse, “Trade and Competition Policy”, The Regulation of International Trade, second edition (Routledge, 2000), chapter 17, at pp. 464-483; see also e.g. Sir Leon Brittan, “Competition Policy and the Trading System: Towards International Rules in the WTO”, paper presented to the Institute for International Economics, (Washington D.C. 1997).

[73] See also e.g. Keith E. Maskus (1999), supra note 61; see further e.g. Eleanor M. Fox, “Competition Law and the Agenda for the WTO: Forging the Links of Competition and Trade”, Pacific Rim Law and Policy Journal 4 (1), 1-36 (1997).

[74] See e.g. Shanker A. Singham: SYMPOSIUM: THIRD ANNUAL LATIN AMERICAN COMPETITION AND TRADE ROUND TABLE: “Competition Policy and the Stimulation of Innovation: TRIPS and the Interface Between Competition and Patent Protection in the Pharmaceutical Industry”, 26 Brooklyn J. Int'l L. 363 Brooklyn Journal of International Law (2000); see also OECD Report(1989), supra note 13, at p.6.

[75] See OECD Report: Competition Policy and Joint Ventures, paras. 58, 317, OECD (1986).

[76] See further e.g. W. Cornish, supra note 12.

[77] See supra note 41.

[78] See supra text under §2.1.

[79] See e.g. US IP Guidelines, (1995), supra note 14, “2. General Principles”, Art. 2.0 (b).

[80] See further e.g. Dam, “The Economic Underpinning of Patent Law”, vol. 23, Journal of Law and Economics (1994), at p. 247.; See also Theo Bodewig, supra note, 15.

[81] See e.g. Keith E. Maskus (1999), supra note 61.

[82] See e.g. US IP Guidelines, (1995), supra note 14, chapter 2, “General Principles”, Art. 2.2 and Canada Competition Bureau Intellectual Property Enforcement Guidelines (April 2000), (hereinafter Canada IP Guidelines) Art. 25. See also e.g. OECD Report (1989), supra note 13, p.14; and Parke Davis v. Probel, ECR 1968, 55, 72; Deutsche Grammophon v. Metro, ECR 1971, 487, 501. See further e.g. Rober A. McTamaney, “Antitrust and IPRs: A Devil is in the Details”, The New York Law Journal (February 2, 1998) at p.1.

[83] See OECD Report (1989), p. 15; supra note 13.

[84] Refer to supra notes 41-47.

[85] See supra note 8.

[86] See further infra texts under IV.& V.

[87] See e.g. US IP Guidelines, (1995), chapter 1, supra note 14.

[88] See e.g. Valentine Korah (1997), supra note 8, chapter 8-9.

[89] See Canada IP Guidelines (2000), supra note 82, Art. 3.

[90] See also Valentine Korah, supra note 8.

[91] See e.g. US IP Guidelines, (1995), supra note 14, chapter 2, “General Principles”, Art. 2.0 (c); see further idem. Art. 2.3.

[92] See OECD Report (1989), supra note 13, foreword.

[93] Idem. at p.17.

[94] Idem. pp. 17-21.

[95] The intellectual property holder can engage in a variety of actions through licensing to try to gain the maximum profits possible out of his innovation. Idem., pp. 18-9

[96] The owner of intellectual property may use restrictions to increase the incentives for a licensee to develop the innovation by protecting the licensee from the “free-riding” on those developments by other licensees. For example, so called “field-of-use” restrictions can guarantee a licensee who develops improvements which are not patentable in a particular field of use that other licensees (or even the licensor) who contributed nothing to the improvement will not be able to appropriate its economic benefits. Idem., at p.19

[97] There are a variety of ways that a licensor can use licensing restrictions to reduce the level of risk facing him or his potential licensees, including risks stemming from uncertainty about the utility of the licensed product or process, uncertainty about demand for the licensed product or for a product made using a licensed process, uncertainty about the outcome of litigation and uncertainty about the abilities of the licensee. Idem., pp. 19-20.

[98] A licensor may seek to use restrictions in a licensing agreement in a variety of ways to maintain his reputation for quality. One is to tie the use of a protected product or process to the purchase of some other input affecting the product’s operation or the efficiency of the process Another type of quality control function is related to the quality of pre- and post-sale services provided by dealers in patented products. Idem., at p. 21

[99] A patentee may face a particular problem when his patent is on a product, which is used as an input in manufacturing another product and is not required to be used in a fixed proportion in the manufacturing process. That is, the same quantity of final output can be obtained by using various proportions of the patented input and other inputs. The problem essentially is that the patentee’s consumers will select the-proportion of patented/nonpatented inputs according to the relative prices of those inputs. To the extent that the patentee seeks to capture the surplus generated by his input, he induces his licensees to substitute other, less efficient inputs for his, reducing their productive efficiency and possibly limiting the overall market for the final product. Idem., at p. 21.

[100] See e.g. US IP Guidelines, (1995), supra note 14, chapter 1.

[101] For example, for the use of individual, or academic research, school teaching, etc, supra note 51. See further e.g. W. Cornish, supra note 12.

[102] See OECD Report (1989), supra note 13, chapter 2.

[103] Unfair competition law or anti-unfair competition law may have different forms from country to country, for example, in Japan it is the Law of Unfair Competition Prevention while in Taiwan, it is Fair Trade Law. However, the World Intellectual Property Organization (WIPO) has a multilateral instrument: Act Against Unfair Competition (OF JUNE 7, 1909; AS LAST AMENDED ON OCTOBER 25, 1994).

[104] In this context, unfair competition does not refer to the economic harms involving monopolies and antitrust legislation.

[105] Refer to supra discussions under §2.2.

[106] See e.g. WIPO Publication: Protection against unfair competition: analysis of the present world situation. (Geneva, 1994).

[107] Unfair competition can be broken down into two broad categories. First, the term "unfair competition" is sometimes used to refer only to those torts that are meant to confuse consumers as to the source of the product. The other category, "unfair trade practices", comprises all other forms of unfair competition. See further e.g. at Cornell Law School Website <http://www.law.cornell.edu>, and Peter Joachim Kaufmann, Passing off and Misappropriation in the Law of Unfair Competition: an Economic and Comparative Legal Analysis, (Utrecht University, 1985).

[108] These intangible assets are, for example, well-know unregistered trademarks, unique company names, product names, wrappings, decorations, origin of product, internet domains, etc. See further e.g. at Cornell Law School Website <http://www.law.cornell.edu> and Peter Joachim Kaufmann, supra note 107.

[109] Idem.

[110] See e.g. Paris Convention, supra notes 11, 57, Art. 1 and the Treaty Establishing the World Intellectual Property Organization (the WIPO Treaty), supra note 59, Art 2., both available at WIPO Website <http://www.wipo.org>.

[111] See also the WIPO Treaty, supra note 59, Art. 2.

[112] See supra note 33.

[113] See supra notes 41-47.

[114] i.e., a patent application or a trademark registration should first be filed to competent IP authorities and then this application or registration would be considered according to statutory criteria set forth in advance by law. It there is match, then a grant. See further e.g. W. Cornish, supra note 12.

[115] The holder can decide to file his application or registration at any time, however, subject to the “first-to-file” limit, i.e. who files first gets the grant first. See further idem.

[116] See further e.g. supra note 107.

[117] Refer to supra note 108.

[118] See China Anti-unfair Competition Law, supra note 69, Art. 5.

[119] See supra note 47.

[120] For instance, Articles 16 and 17 of German Anti-unfair Competition Law, Article 1 of Japanese Law of Unfair Competition Prevention Law, Articles 19 and 20 of Taiwan Fair Trade Law and Article 5 of Law of People’s Republic of China Against Unfair Competition Law, etc. Section 17 of the WIPO Act Against Unfair Competition and Section 7 of the TRIPS Agreement, on the other hand, represent some multilateral efforts in this regard. See supra notes 3, 69, 103.

[121] Convention on the Grant of European Patents (EPC) of 5 October 1973, text as amended by the act revising Article 63 EPC of 17 December 1991, and by decisions of the Administrative Council of the European Patent Organization of 21 December 1978, 13 December 1994, 20 October 1995, 5 December 1996 and 10 December 1998. “Part V. Opposition Procedure”. The text is available at the website of the European Patent Office (EPO) <http://www.epo.org>.

[122] Here referring to national courts of EPC parties since a European patent granted by EPO is also be protected on the national basis of those designated countries. See EPC Parts I & VIII.

[123] See e.g. Trademark Law of the People's Republic of China, (Adopted on August 23, 1982, amended on February 22, 1993); “Chapter V. Adjudication of Disputes Concerning Registered Trademarks”, Articles 27-36; English text available at <http://www.chinlaw.com>.

[124] See Xiushan Ma, “Patent System and Anti-unfair Competition”, vol. 4, Journal of Intellectual Property Rights (PRC, 1993), at. p. 19.

[125] See supra notes 41-47.

[126] See WIPO Publication (1994), supra note 106.

[127] See e.g. Article 25 of the Implementing Regulations for the Trademark Law of the People’s Republic of China (First Revision Approved by the State Council of the People's Republic of China on January 3, 1988, Second Revision Approved by the State Council of the People's Republic of China on July 15, 1993); English text available at <http://www.chinlaw.com>. supra note 123.

[128] See supra note 41.

[129] See supra note 120.

[130] See supra note 34.

[131] See 1998 OECD Roundtable Discussion on Competition Policy and Intellectual Property Rights, DAFFE/CLP(98)18 (hereinafter cited as OECD Discussion (1998)), Executive Summary, pp. 7-12, available at the OECD Website <http://www.oecd.org>.

[132] For example, IPRs’ pro-competitive effects to economy and promotion of consumer benefits, see supra texts under §3.2 and §3.3.

[133] See e.g. supra text under §3.2.

[134] See further e.g. Willard K. Tom and Joshua A. Newberg, “Antitrust and IPRs: from “Separate Spheres to Unified Field”, vol.166, Antitrust Law Journal (1997), at p.171. See also supra texts under §2.1 and §3.4.

[135] See supra text under §2.1, supra notes 41-47.

[136] Hereby we suppose the latter has sufficient grounds to register this trademark successfully.

[137] See supra text under §3.4

[138] For example, Brian Martin presents the case against intellectual property, approaching the issue from a different background to most of us in the free software movement. See further Brian Martin, “Against Intellectual Property”, in Information Liberation, (1998), full text available at <http://danny.oz.au/free-software/advocacy/against_IP.html>.

[139] See further e.g. Keith E. Maskus, The Protection of IPRs in the Global Economy: Analysis. Evidence, and Policy, Institute for International Economics (Washington DC, 1999).

[140] See Canada IP Guidelines (2000), supra note 82, Art. 25.

[141] As regards the definition of a relevant market, see e.g. Valentine Korah, (Hart 1997), supra note 8, pp. 79-86. See further regarding refusal to license below under §5.2

[142] RTE v. Commission (1995) ECR I-173.

[143] There will be full examples of anti-competitive IPR practices in infra text under V.

[144] See supra text under §3.2

[145] For example, Canada, see Canada IP Guidelines (2000), supra note 82.

[146] Idem. Art. 61.

[147] Idem. Art 62.

[148] OECD Report (1989) supra note 13, pp. 22-25.

[149] See further idem. pp. 22-23.

[150] See further idem. pp. 23-24.

[151] See further idem. at p. 24.

[152] See further idem. pp. 24-25.

[153] See e.g. Xianlin Wang, “To Reconcile the Conflicts between IPRs and Anti-Monopoly Law”, (News Sina.com, 2000), <http://www.sina.com.cn>.

[154] Especially in the case of patents, for example, the examiner of a biological patent absolutely needs a biological background.

[155] For example, the legislators of a Computer Program Act should of course have the basic knowledge regarding what a computer program consists of and how it works, similarly when in case of patent, design, etc..

[156] See infra text under V.

[157] See Theo, supra note 15.

[158] See e.g. M.I. Kamien and N.L.Schwartz, Market Structure and Innovation, 95, (1982) pp. 218-19. See also, D.H. Ginsburg, “Antitrust, Uncertainty and Technological Innovation”, 24 Antitrust Bulletin at p. 635-6.

[159] See supra texts under §3.1 & §4.1

[160] In a Canadian case R. v. Nova Scotia Pharmaceutical Society et al., [1992] 2 S.C.R. 606), market power was defined as “the ability to behave relatively independently of the market.” Another Canadian case DIR v. The NutraSweet Co., (1990) 32 C.P.R. (3d) 1(Comp. Trib.), defined it as the ability to maintain prices above competitive levels for a considerable period. Cited by Canada IP Guideline, supra note 82, footnote 2,.

[161] See Canada IP Guidelines, supra note 82, Art. 12.

[162] United States v. Grinnell Corp., 384 U.S. 563, 571 (1966); see also United States v. Aluminum Co. of America, 148 F.2d 416, 430 (2d Cir. 1945) (Sherman Act is not violated by the attainment of market power solely through "superior skill, foresight and industry"). Quoted by the US IP Guidelines (1995), supra note 14, Art. 2.2, which provides further that: “…Nor does such market power impose on the intellectual property owner an obligation to license the use of that property to others. As in other antitrust contexts, however, market power could be illegally acquired or maintained, or, even if lawfully acquired and maintained, would be relevant to the ability of an intellectual property owner to harm competition through unreasonable conduct in connection with such property.”

[163] See e.g. Gary S. Becker and Kevin M. Murphy. Mr. Becker, “Rethinking Antitrust”, Wall Street Journal, (February 26, 2001).

[164] See further discussion on refusal to license and compulsory licensing in infra text under §5.2

[165] F.M. Scherer, Innovation and Growth, (1984), pp. 257-69.

[166] Idem., at p. 216.

[167] Idem., pp. 207-08.

[168] See e.g. Robert D. Anderson et Nancy T. Gallini, “Competition Policy and Intellectual Property Rights in the Knowledge-Based Economy”, Industry Canada Research Series, vol. 9 (1998), supra note 21.

[169] Standard Sanitary Mfg. Co. v. United States, 226 U.S. 20 (1912).

[170] Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502, 513 (1917). See further Willard K. Tom and Joshua A. Newberg (1997), supra note 134.

[171] SCM Corp. v. Xerox Corp., 645 F.2d 1195, 1203 (2d. Cir. 1981); see also Crucible, Inc. v. Stora Kopparbergs Bergslags AB, 701 F. Supp. 1157, 1160 (W.D. Pa. 1988) (following SCM analysis of § 7 of the Clayton Act and § 2 of the Sherman Act). See further e.g. Willard K. Tom and Joshua A. Newberg (1997), supra note 134 and Martin J. Adelman, US Patent Case Book, supra note 10.

[172] See OECD Discussion (1998), supra note 131, at p.174

[173] Idem. at p.145.

[174] See Canada IP Guidelines (2000), supra note 82, Art. 12.

[175] See OECD Report (1989), supra note 13, at p. 10.

[176] See e.g. Qichang Liu, “On IPR-Related Anti-Competitive Practices and Relevant Legal Remedies”, vol. 4, Journal of Intellectual Property Rights (PRC, 2000).

[177] See e.g. Willard K. Tom and Joshua A. Newberg (1997), supra note 134.

[178] For instance, there used to be the Patent Licensing Block Exemption (2349/94) and the Know-how Block Exemption Regulation (556/89) by EC Commission, now incorporated into EC Technology Transfer Regulation (240/96), supra note 14.

[179] Some commentators believe that, in a number of industries at least, market conditions are such that innovation would occur even without the exclusive patent right and attendant allocative inefficiencies. A number of factors have been identified, including the “first mover” advantage and fear of losing market share to competitors who innovate. See further F. Machlup, The Production and Distribution of Knowledge in the United States, pp. 175-176 (1962). See also F.M. Scherer, Industrial Market Structure and Economic Performance, pp. 444-47 (2d ed. 1980): “firms may innovate even without patent protection where there are (1) natural imitation lags, e.g. from the time it takes to gain necessary know-how, (2) the “advantages of competitive product leadership”, e.g., the product differentiation advantage of being first or (3) where there are market structure characteristics apart from patents which will inhibit rapid entry and imitation.”

[180] See further e.g. Keith E. Maskus, “Comparing Intellectual Property Rights with Competition Policy, Environmental Protection, and Core Labor Standards”, Working Paper for Institute for International Economics. (Jan. 2000)

[181] The remedies to these IPR-related anti-competitive practices will be provided from a comparative perspective and on a universal basis, i.e., not limited to the legal regime of one specific country but looked at the commonly used measures throughout the world.

[182] For the importance of right claims and how they work under patent system, refer to, e.g., the European Patent Convention (EPC), supra note 5, “Part. III, Application for European Patents”, available at the EPO website <http://www.epo.org>

[183] See further supra text under §3.4

[184] US IP Guidelines (1995), supra note 14. Art. 5.7.

[185] Idem. Example 11.

[186] See supra text under §3.1

[187] Case 238/87, AB Volvo v. Erik Veng (UK) Ltd., 1988 ECR 6211.

[188] See further Nicholas Green, “IP and the Abuse of A Dominant Position under EU Law: Existence, Exercise and the Evaporation of Rights”, Vol. XX:1, Brooklyn. Journal of International Law. (1993).

[189] See further Steven D. Anderman, (Clarendon Press 1998), supra note 14. pp. 195-204,

[190] See further supra text under §3.4

[191] See e.g. Intellectual Property Code of Philippine, Chapter X, available at <http://www.chanrobles. com/legal7patents.htm>.

[192] See supra notes 11, 55, Art. 5A(2).

[193] See supra arguments under §4.3, supra notes 165-167; see further e.g. Valentine Korah, “Compulsory Licenses and Incentives to Invest in Innovation and Compulsory Licenses”, OECD Discussion (1998), supra note 131, pp. 365-71.

[194] See Nancy T. Gallini and Michael Trebilcock, “IPRs and Competition Policy: A Framework for Analysis of Economic and Legal Issues”, OECD Discussion (1998), supra note 131, pp. 325-51.

[195] RTE v. Commission (1995) ECR I-173.

[196] See e.g. Containers v. Stena Sealink (1995) CMLR 84. See further e.g. Sergio Baches Opi, “The Application of the Essential Facilities Doctrine to Intellectual Property Licensing in the European Union and the United States: Are Intellectual Property Rights Still Sacrosanct?” Fordham Intellectual Property, Media & Entertainment Law Journal (11 Fordham I. P., Media & Ent. L.J. 409, 2001).

[197] See Gerald Dworkin, "The Concept of Reverse Engineering in Intellectual Property Law and its Application to Computer Programs," 1, The Intellectual Property Law Journal, (1990), at p. 164.

[198] Decompiling is only a part of reverse engineering but is the key process as it reveals the ideas behind the computer program. See further e.g. Rohan Mishra, “Reverse Engineering in Japan and the Global Trend Towards Interoperability”, E Law - Murdoch University Electronic Journal of Law, vol. 4, No 2 (June 1997).

[199] See generally J. H. Reichman, “Legal Hybrid Between the Patent and Copyright Paradigms”, 94, Columbia Law Review (1994).

[200] Council Directive on the Legal Protection on Computer Programs, Council Directive 91/ 250, 1991 O.J. 42.

[201] Idem., preamble, para. 4.

[202] Interoperability is defined as "the ability to exchange information and mutually to use the information that has been exchanged. "[L]icensee or...another person having a right to use a copy of a program...," idem., Art. 6(1)(a).

[203] Idem, Art. 6(1)(b)

[204] See supra note 47.

[205] This protectionist position is due the heavy lobbying of groups like the Business Software Alliance (BSA) which comprises companies like Microsoft and IBM.

[206] See e.g. Sega Enterprises Ltd. v Accolade, Inc. 977 F.2d 1510 (9th Cir. 1992).

[207] See e.g. J.H. Reichman, “Beyond the Historical Lines of Demarcation: Competition Law, IPRs, and International Trade after the GATT’s Uruguay Round”, Vol. XX:1, Brook. Journal of International Law (1993).

[208] See e.g. Hanns Ullrich, Standards of Patentability for European Inventions: Should an Inventive Step Advance the Art? 106 (1977); and Ralph S. Brown, “Design Protection: An Overview”, 34 UCLA Law Review 1388.

[209] The US IP Guidelines Art. 4.3 announced the creation of an antitrust "safety zone" for intellectual property licensing arrangements. The safety zone applies where: (1) the restraint is not facially anti-competitive -- of a type that ordinarily warrants condemnation under the per se rule; and (2) the licensor and its licensees collectively account for no more than 20 percent of each relevant market affected by the restraint. See further e.g. Robert. T. McTamaney, “Antitrust and IPRs: the Devil is in Details”, vol. 98.2., the New York Law Journal, (1998).

[210] OECD Report (1989) also has a detailed summary as regards how these IP licensing agreements are regulated in its member states, while in this thesis, the author seeks to analyze them in from general perspectives, supra note 13.

[211] See supra note 147. See further e.g. supra text under §3.2

[212] See also e.g. Robert. T. McTamaney, supra note 209.

[213] See OECD Competition Policy and Joint Ventures, paras. 58, 317, OECD (1986), supra note 75.

[214] Federal Trade Commission v. Superior Court Trial Lawyers Association, 493 U.S. 411, 433 (1990); National Society of Professional Engineers v. United States, 435 U.S. 679, 692 (1978).

[215] US IP Guidelines, supra note 14, Art. 5.1.

[216] Idem. Example 9.

[217] See e.g. Nungesser v. Commission (1982) ECR 2015, para.53.

[218] See M. Siragusa, “Technology Transfer under EEC Law, A Private View”, Fordham Corp. Law Inst. 95 (1983).

[219] See supra note 217.

[220] Typically it is embodied as 1) the contractual ban on exports, i.e., the obligation upon the owner or those deriving rights through the owner to prevent third parties from exporting the relevant IPR products into the designated territory with the exclusive licensee’s authorization for use or sale in that territory; 2) the exclusive licensee’s use of his exclusive rights, both contractual and under the IPR, to prevent all imports of the relevant products into that particular territory or exports to other territories. See further Steven D. Anderman.(1998) , (Claredon Press. Oxford), supra note 14, at p. 97.

[221] See further supra texts under § 4.2 and §5.3.1

[222] The Yakult case (1965), involving the sale of a fermented milk product by local bottlers. See full description in OECD Report (1989), at p.50. supra note 13.

[223] The FTC “Guidelines for the Regulation of Unfair Trade Practices with respect to Patent and Know-how Licensing Agreements” On February 15, 1989.

[224] 35 U.S.C. Section 261. See also, Ethyl Gasoline Corp. v. United States 309 US 436 (1940).

[225] See supra text under §5.3.1

[226] See e.g. Dunlop Co. v. Kelsey-Hayes Co. US 484 F.2d 407 (6th Cir. 1973).

[227] See further OECD Report (1989), at p.59 supra note 13 and Steven D. Anderman.(1998), supra note 14.

[228] See International Commerce Chamber (ICC) Policy Statement “the Exhaustion of IPRs”, by Commission on IPRs”, Jan. 2000, available at ICC Website <http://www.icc.org>.

[229] There is still possibility of patent parallel imports, depending on a country’s recognition of the IPR exhaustion concept.

[230] See Paris Convention, supra note 11, 55, Art. 5 A. (1). See also e.g. Article 6 of the TRIPS Agreement, supra note 3.

[231] See “Parallel Imports of Trademarks and Copyrights” at Legal Studio <http://www.legalstudio.com>.

[232] For example, the table below shows an indication of how much savings a consumer may expect with the relaxation of the rules for parallel imports of cars: (Extracted from an article in The Straits Times "Continental Car price dip likely", Karamjit Kaur, 25/5/2000)

	Authorized Dealer	Parallel Importer	Savings
Volkswagen Beetle	$140,000	$133,000	$7,000
Toyota Camry	$145,900	$139,800	$6,100
Honda Odyssey	$152,388	$144,800	$7,588
Mercedes E200	$228,000	$209,800	$18,200
BMW 520	$205,000	$188,800	$16,200

[233] See Jiang Chen, “An Analysis of Trademark Parallel Imports”, East China Institute of Politics and Laws (2000), available at < http://www.east-law.com/faxueyuanjiu/yanjiu008.htm>

[234] See Article 6 of the TRIPS Agreement, supra note 3.

[235] OECD Report (1989), supra note 13, at p. 57.

[236] See e.g. OECD Discussion (1998), supra note 131, at p. 76.

[237] See e.g. Valentine Korah (6^th edn, 1997) supra note 8, pp. 218-233.

[238] See e.g. Article 526 of the US Tariff Act.

[239] Case C-355/96 Silhouette V. Hartlauer (1998) ECR, and see further e.g. Frederick M. Abbott and D. W. Feer Verkade :“The Silhoutte of a Trojan Horse: Reflections on Advocate General Jacobs’ Opinion in Silhoutte v. Hartlauer”, Journal Business Law, 1998 September Issue, at p. 419.

[240] See further ICC Policy Statement, supra note 228.

[241] See further e.g. Willy Alexander, “Exhaustion of Trade Mark Rights in the European Economic Area”, 24 European Law Review. Feb. (1999) at p. 62.

[242] Under the impetus of Mr. Justice Douglas. See e.g. Morton Slat Co. v. G.S. Suppiger Co. 314 US 488 (1941); United States v. US Cypsum Co. 333 US 364 (1947), see further Martin J. Adelman, Case Book, supra note, 10.

[243] See Oppenheim Weston and McCarthy, Federal Antitrust laws Tenth Commentary (4^th, edn., 1981) 885-7. See also Steven D. Anderman, (1998), supra note 14, pp.61-62.

[244] For example, as Hartmut Johannes, the administrator within DGIV (the European Competition Directorate) with responsibility for IPRs put it in 1978, “In the art of antitrust, the Americans are the teachers and the Europeans are the pupils.”

[245] See further e.g. OECD Discussion (1998), supra note 131.

[246] See further e.g. E. M. Fox, “Trade, Competition, and Intellectual Property – TRIPS and its Antitrust Counterparts”, vol. 29:48, Vanderbilt Journal of Transnational Law (1996), at p. 481

[247] See Steven D. Anderman (1998), supra note 14, at p. 73.

[248] See e.g. Windsurfing International Inc. v. Commission (1996) ECR 611, supra note 18.

[249] On the basis of the OECD Report (1989), supra note 13, Chapter 5.

[250] On the basis of the US IP Guidelines (1995). supra note, 14; the EC Treaty Art. 81-2 and the EC Technology Transfer Regulation (Commission Regulation 240/96, 1996 O.J. (L 31) 2.), supra notes 14, 66.

[251] See relevant approaches by OECD countries in OECD Report (1989), supra note 13, pp. 84-86.

[252] Lear v. Adkins, 395 US 653 (1969).

[253] Vaessen/Moris (1979) 1 CMLR 511 paras. 34-5.

[254] See the TRIPS Agreement, supra notes 3, 254, Art. 40 (2).

[255] See relevant approaches by OECD countries in OECD Report (1989), supra note 13, pp. 82-84.

[256] See also the TRIPS Agreement, supra notes 3, 254, Art. 40 (2).

[257] See US IP Guidelines, supra note 14, Art. 5.6.

[258] Idem.

[259] Commission Regulation 240/96, 1996 O.J. (L 31) 2., supra note 14.

[260] See E.M. Fox, supra note 246.

[261] See further US IP Guidelines, supra note 14, Art. 5.3 and OECD Report (1998), supra note 13, at p.72.

[262] Eastman Kodak Co. v. Image Technical Services, Inc., US 112 S. Ct. 2072, 2079 (1992). See US IP Guidelines, supra note 14, Art. 5.3.

[263] See, e.g., United States v. Paramount Pictures, Inc., 334 U.S. 131, 156-58 (1948) (copyrights); International Salt Co. v. United States, 332 U.S. 392 (1947) (patent and related product).

[264] Cf. 35 U.S.C. 271(d) (1988 & Supp. V 1993) (requirement of market power in patent misuse cases involving tying).

[265] See US IP Guidelines, supra note 14, Art. 5.3.

[266] See the TRIPS Agreement, supra notes 3, 254, Art. 40 (2).

[267] See relevant approaches by OECD countries in OECD Report (1989), supra note 13, pp. 82-84.

[268] See supra note 248.

[269] Patent Exemption, OJ No. L 219/15 (16th August 1984), Art. 2(1)(3), and Know-how Exemption, OJ No. L 61, (4th March 1989), now incorporated into the Technology Transfer Regulation EC No. 240/96. supra note 14.

[270] Know-how Exemption, supra notes, 14, 269, Art. 2(1)(10).

[271] See Steven D. Anderman.(1998), supra note 14, pp. 127-8.

[272] See US IP Guidelines, supra note 14, Art. 5.4; see relevant approaches by OECD countries in OECD Report (1989), supra note 13, pp. 63-70.

[273] See supra text under §5.3.2.

[274] See Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961) (evaluating legality of exclusive dealing under section 1 of the Sherman Act and section 3 of the Clayton Act); Beltone Electronics Corp., 100 F.T.C. 68 (1982) (evaluating legality of exclusive dealing under section 5 of the Federal Trade Commission Act).

[275] See US IP Guidelines, supra note 14, Art. 4.1.1 and Art. 4.1.2.

[276] Idem., Art. 5.2, and see relevant approaches by OECD countries in OECD Report (1989), supra note 13, pp. 48-55.

[277] See relevant approaches by OECD countries in OECD Report (1989), supra note 13, pp. 55-57.

[278] Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 408 (1911).

[279] United States v. Univis Lens Co., 316 U.S. 241 (1942); Ethyl Gasoline Corp. v. United States, 309 U.S. 436 (1940).

[280] United States v. Line Material Co, 333 U.S. 287 (1948).

[281] See supra note 269.

[282] See supra note 270.

[283] Patent Exemption, supra note 269, Article 3(5).

[284] Know-how Exemption, supra note 270, Articles 3(7) and 4(2).

[285] Q-Tips Inc. v. Johnson and Johnson, 109 F. Supp 657 (D.N.J. 1951).

[286] See further e.g. Steven D. Anderman.(1998), chapters 8, 16, 17, 18; supra note 14. See relevant approaches by OECD countries in OECD Report (1989), supra note 13, pp. 78-82.

[287] See further OCED Discussion (1998), supra note 131, pp. 207-271.

[288] The EC Treaty Art. 81(a): a dominant firm is prohibited “directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions.”, supra note 66.

[289] i.e., other IPR holders of the substitutive technologies in the relevant market.

[290] AkZO v. Commission, (1993) 5 CMLR 215.

[291] See further US IP Guidelines, supra note 14, Art. 5.5 and see relevant approaches by OECD countries in OECD Report (1989), supra note 13, pp. 86-88 and OECD Discussion (1998), supra note 131, at p. 280.

[292] Compare NCAA 468 U.S. at 114 (output restriction on college football broadcasting held unlawful because it was not reasonably related to any purported justification) with Broadcast Music, 441 U.S. at 23 (blanket license for music copyrights found not per se illegal because the cooperative price was necessary to the creation of a new product).

[293] See United States v. New Wrinkle, Inc., 342 U.S. 371 (1952) (price fixing).

[294] Commission Regulation No. 240/96, Art. 5.1 (1)

[295] Idem., Art. 5.2 (2)

[296] See further supra texts under §3.4 and §4.2, supra notes 165-7.

[297] Canada's Competition Act (R.S., c. C-23, as amended), Section 29.

[298] US Case, 897 F.2d 1572, 1576 (Fed. Cir. 1990). See further e.g. Martin Adelman, supra note 10.

[299] US IP Guidelines, Art. 2.0; Canada IP Guidelines, Art. 25, supra notes 14, 82.

[300] See OECD Publication: Concentration and Competition Policy, paras. 11-12, OECD (1979); See further J.A. Ordover. “Economic Foundations and Considerations in Protecting Industrial and Intellectual Property”, 53 Antitrust Law Journal (1984) at p. 503 & pp. 510-11.

[301] F.M. Scherer, Innovation and Growth, (1984), pp. 257-63.

[302] See OECD Discussion (1998), supra note 131, at p.149.

[303] See the TRIPS Agreement, supra note 3, Art. 40(1).

[304] See supra notes 13, 131. However, to the author’s update knowledge, the OECD actually issued a new version of report on competition and IPRs in 1998. Unfortunately, the author failed to access it.

[305] i.e., US IP Guidelines, supra note 14; Canada IP Guidelines, supra note 82; and Guidelines for the Regulation of Unfair Trade Practices with Respect to Patent and Know-how Licensing Agreements, announced by Japanese Fair Trade Commission (FTC), on May 24, 1968.

[306] See supra notes 14, 66.

[307] For a detailed discussion on the TRIPS’ approach to IPR-related anti-competitive practices, see e.g. UNCTAD, the TRIPS Agreement and Developing Countries, 1996, supra note 28, pp. 53-57.

[308] See e.g. Keith E. Maskus, “Competition Policy and IPRs in Developing Countries”, (Geneva, 1999), supra note 61.

[309] See OECD Discussion (1998), supra note 131, at p.179.

[310] See the TRIPS Agreement, supra note 3, Art. 40(2).

Intellectual Property Rights and Competition Policy:

Double-edged Swords*

Jerry F. Xia**

I. INTRODUCTION: THE ISSUES

II. INTELLECTUAL PROPERTY RIGHTS AND COMPETITION POLICY: THE CONCEPTS

Back to Contents Back to My Academics

2.1 Intellectual Property Rights (IPRs) and Intellectual Property (IP) Laws

III. GENERAL INTERFACE: THE CONSISTENT PERSPECTIVE

IV. GENERAL INTERFACE: AN OVERVIEW OF THE CONTRADICTORY PERSPECTIVE

VI. CONCLUDING REMARKS

Jerry F. Xia **