The European Union is generally less receptive than the United States to restraints in IP licenses or to simple refusals to license. Therefore, U.S. companies interested in licensing IP in the European Union should proceed carefully so that their IP licenses in Europe will not be deemed void in whole or in part or be rewritten by the courts.
The sources of EU competition law are Articles 85 and 86 of the Treaty of Rome, which are administered by the European Commission (the "Commission"). Articles 85 and 86 are incorporated into the laws of the member states.
A. Article 85(1)
For a particular transaction to fall within Article 85(1), three requirements must be met: (1) There must be an agreement, decision or concerted practice between undertakings (2) having as its object or effect the prevention, restriction or distortion of competition (3) affecting trade between member states. Under Article 85(2) all agreements which violate Article 85(1) are automatically void unless exempted by the Commission under Article 85(3). The Commission may grant exemptions on a case by case basis for each individual contract, a process which can take months. In the interest of efficiency, the Commission has granted block exemptions for agreements meeting certain criteria. One example of such a block exemption is the January 31, 1996 Commission Regulation on the Application of Article 85(3) of the Treaty [of Rome] to Certain Categories of Technology Transfer Agreements (hereinafter the "Technology Block Exemption" or "TBE").[97]
Because Article 85(1) declares void all agreements and practices which "may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market," unlike the American rule-of-reason approach, EU competition law automatically renders void offending contractual provisions unless exempted under Article 85(3) of the Treaty. Given this basic framework and the risk of absolute invalidity of IP licenses, it is very important that IP licenses in Europe fall within the available block exemption.
B. Article 86
Article 86 of the EU Treaty, roughly analogous to Section 2 of the Sherman Act, deals with abuses of dominant market positions. Whereas Article 85 is directed at restrictive practices between two or more undertakings, Article 86 aims primarily at the conduct of one powerful undertaking. The ECJ has defined a dominant position as "a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers."[98]
The primary test for determining whether a company has a dominant position, i.e., the power to act in disregard of its competitors, is its share of a relevant market. A market share of over 75% has been considered conclusive evidence of dominant position, while a market share of under 10% conclusively establishes a lack of dominant position. A 50% share creates a rebuttable presumption of dominant position. Where market share itself is insufficient to establish dominant position, other factors are considered, such as strong vertical integration, technological advantages, brand name, and ownership of critical intellectual property rights.
Abuses of dominant position include practices such as tying and predatory pricing. Relevant for the present analysis, abuse of dominant position in the EU can also include the imposition of discriminatory or allegedly unfair purchase or selling prices which have an adverse impact on the competitive structure of a market and refusals to deal aimed at preventing the entry of a competitor into a market or eliminating a competitor from the market.
1. The Essential Facilities Doctrine
Under the "essential facilities" doctrine,[99]the Commission has used Article 86 to require airlines to interline with one another.[100] In another case, the Commission required a ferry service to grant a competitor access to a port which it controlled.[101] The Commission held that the company which controlled the port abused its dominant position and required that it grant its competitors access to the facility on the same terms it gave to its own controlled operations.[102]
2. The Magill Case
In the Magill case, the Commission went even further, applying the essential facilities doctrine to IP rights. In 1995 the European Court of Justice decided RTE v. EC Commission ("Magill").[103] This decision establishes a number of important principles concerning the tension between antitrust and intellectual property laws. In Magill, a number of television stations in the U.K. and Ireland published their weekly television guide covering exclusively their own programs. No comprehensive weekly television guide was available. Each of the TV stations claimed copyright protection under Irish and UK laws for its own weekly program listings in order to prevent their reproduction by third parties. The TV stations only provided their program schedules free of charge, on request, to daily and periodical newspapers, accompanied by a license for which no charge was made, setting out conditions under which that information could be reproduced. Magill TV Guide Ltd. attempted to publish a comprehensive weekly television guide but was prevented from doing so by the TV stations which obtained an injunction prohibiting publication of weekly television listings.
The Commission found the TV stations' conduct violative of Article 86. The decision was upheld by the Court of First Instance of 1991, and by the ECJ. The ECJ found that only those restrictions on freedom of competition which are inherent in the protection of the actual substance of the intellectual property right are permitted. If, in an individual case, the exclusive right to reproduce a protected work is exercised in such ways and circumstances that it in fact pursues an aim manifestly contrary to the objectives of Article 86, then the copyright is no longer being exercised in a manner which corresponds to its essential function, which is to protect the moral rights in the work and ensure a reward for the creative effort.[104]
The Court found that the TV stations' refusal to provide basic information as to the channel, day, time and title of programs, based on its reliance on national copyright provisions, prevented the appearance of a new product, a comprehensive weekly guide to TV programs, which the TV stations themselves did not offer and for which there was a potential customer demand. The Court added that there was no justification for such refusal either in the activity of television broadcasting or in that of publishing TV magazines. Finally, the Court held that the TV stations, by their conduct, reserved to themselves the secondary market of weekly TV guides, by excluding all competition on that market.[105]
3. The Tiercé Ladbroke Case
In Tiercé Ladbroke S.A. v. Commission,[106] the Court of First Instance ("CFI"), held that there was no abuse of a dominant position in the refusal to supply to the owner of Belgian off-track betting shops the television pictures and sound of French horse racing. Tiercé Ladbroke S.A. ("Ladbroke") is a Belgian subsidiary of a British bookmaker Ladbroke Group PLC. Pari Mutuel Urbain Français ("PMU"), a body set up by the sociétés de courses which organize French horse-racing, has exclusive rights to organize off-course betting in France, and to take bets abroad on races organized in France and bets in France on races organized abroad. PMU, the majority shareholder in Pari Mutuel International ("PMI"), has the right to market television pictures and sound commentaries on horse races organized by the sociétés de courses. PMI granted rights to a German company, DSV, to broadcast French racing in the territory of the former West Germany, West Berlin and Austria.
Later, DSV, PMI and PMU and its sociétés de courses declined the request from Ladbroke for the right to broadcast French racing live in its Belgian betting shops. Ladbroke then filed a complaint with the Commission under Article 86 against PMU, PMI, DSV and the sociétés de courses.
The Commission found no violation, holding that the sociétés de courses and PMU were not collectively dominant because they were not united by economic links in a way that showed that they no longer acted independently of the market. Furthermore, it held that they had not discriminated against Ladbroke in the Belgian market by granting DSV rights for the German and Austrian markets.
On Ladbroke's appeal, the CFI held that the Commission had correctly defined the product market by holding that betting and racing coverage were separate markets. Furthermore, the CFI held that the Commission had correctly concluded that the Belgian betting market was national since there was no significant cross-border betting activity with France, and that therefore the ancillary racing coverage market was also national.
The CFI also held that since no license had been granted for sound and pictures in Belgium, the sociétés de courses were not discriminating against Ladbroke in favor of any other undertaking in Belgium. Furthermore, considering that the geographic markets are on a national scale, it was not possible to conclude that the refusal by the sociétés de courses to exploit their intellectual property rights in Belgium was arbitrary on the basis of the policy followed by the sociétés de courses on other geographically distinct markets, namely Germany and Austria.
Distinguishing the case from Magill, the CFI stated that in Magill "the refusal to grant a license to the applicant prevented it from entering the market in comprehensive television guides, whereas in this case, the applicant is not only present in, but has the largest share of, the main betting market on which the product in question, namely sound and pictures, is offered to consumers whilst the sociétés de courses, the owners of the intellectual property rights, are not present on the market. Accordingly, in the absence of direct and indirect exploitation by the sociétés de courses of their intellectual property rights on the Belgian markets, their refusal to supply cannot be regarded as involving any restriction of competition on the Belgian market."
Although not articulated on the face of the decision, it may be that the CFI and the Commission's decisions in Ladbroke were based on the lack of the anti-competitive effect in a relevant market. The relevant geographic markets were national in scope, and the defendants were not operating in the same geographic market as Ladbroke. Ladbroke was active, with a substantial market share, in the Belgian market for off-track betting and, unlike Magill, was not being foreclosed from a market by the refusal to license. At the same time, the respondents, PMU, PMI, DSV and the sociétés de courses were not themselves active in Belgian off-track betting and therefore were not trying to monopolize that market for themselves.
4. The SACEM Case
In the case of Lucazeau et al. v. SACEM et al.,[107] owners of certain discotheques played recordings of works protected by the Sociéte des Auteurs Compositeurs et Editeurs de Musique ("SACEM"), a French copyright management society, without benefit of a license agreement. The discotheque owners said royalties imposed by SACEM were too high, discriminated improperly between types of discos, and refused without justification licenses for only the kinds of music they were interested in. The discotheque owners did not have the alternative of obtaining a license from a copyright society in another member state, because of reciprocal exclusive dealing contracts between the national copyright societies. The ECJ found that the fact that SACEM's fees were higher than those in other countries was evidence of abuse and illegality under Article 86, unless SACEM could explain the difference:
Article 86 of the Treaty must be interpreted as meaning that a national copyright-management society holding a dominant position in the substantial part of the common market imposes unfair trading conditions where the royalties which it charged to discotheques are appreciably higher than those charged in other Member States, the rates being made on a consistent basis. That would not be the case if the copyright-management society in question were able to justify such a difference by reference to objective and relevant dissimilarities between copyright management in the Member State concerned and copyright management in the other Member States.[108]
This decision appears to be heavily influenced by the policy to create a single common market and to avoid discriminatory licensing fees which are not based on different costs of doing business in different parts of the common market. In addition, the reciprocal exclusive dealing contracts added an Article 85 dimension to the case. Nevertheless, the referral back to the member state court creates a serious risk that the law of abuse of dominant position in this area will not be enforced uniformly. In SACEM, the issue of royalties was remanded to the French court for an actual determination of whether the royalties were excessive.[109]
