Intellectual Property Rights and Competition in Standard Setting

Objectives and tensions

Valerio Torti

• Publisher: Routledge
• Year: 2015
• ISBN:
  9781317376644
• Edition: 1
• Topic: Droit
• Subtopic: Théorie et pratique du droit

Competition and intellectual property rights (IPRs) are both necessary for a market to work efficiently and to promote consumer welfare. Properly applied, intellectual property rules define a legal framework which allows undertakings to profit from their inventions. This in turn encourages competition among firms and enhances dynamic efficiency, to the benefit of consumer welfare. Standard setting represents one of the fields where the interaction between competition law and IPRs clearly comes to light. The collaborative goal of standard setting organizations (SSOs) is to adopt and promote standards that either do not conflict with anyone's right or, if they do, are developed under condition that patents are licensed under defined terms.

This book examines the tension between IPRs and competition in the standard setting field which can arise when innovators over-exploit the rights they have been granted and hold up an entire industry. The book compares EU and U.S. jurisdictions with a particular focus on the IT and telecommunication sectors. It scrutinizes those practices which could harm standard setting and its goals, looking at misleading conducts by SSOs' members which may lead to breach the EU and U.S. antitrust provisions on abuse of market power. Recent developments in EU and U.S. standard setting are analysed highlighting the differences in enforcement approaches. The book considers how the optimal balance between IPRs and industry standards can be struck, suggesting a policy model which takes into account both innovators' interests and SSOs' goals.

Part One
IPRs, competition and the standards

1
The objectives of competition law

1 Interpreting the goals of competition

Competition, in a commercial context, can be regarded as a process encompassing firms that strive to win the customers’ business in the market place.¹ This process may lead to a firm succeeding in seeing off its competitors, by being the most efficient and innovative towards its customers’ needs. An undistorted competitive system should bring better outcomes than those achieved in a monopolistic market: lower prices and better products, wider choice for consumers and greater efficiency.²

As pointed out by the UK Government, “competition helps consumers get a good deal. It encourages firms to innovate by reducing slack, putting downward pressure on costs and providing incentives for the efficient organization of production.”³ Thus, vigorous competition between firms may be considered as a fundamental tool in order to develop strong and efficient markets.

1.1 Different policies and different objectives

Enhancing efficiency,⁴ however, is not the only objective of competition law, but other goals may be identified. These include the promotion of consumer welfare⁵ and consumer choice,⁶ the achievement of market integration⁷ and the encouragement of economic freedom, fairness and equality in the market.⁸ Uncertainty, then, has recently arisen as to the opportunity to consider the promotion of an effective competitive process as a means to achieve these goals or as an objective of competition per se.⁹

More generally, there is vigorous debate among competition authorities and governmental bodies as to the objectives of competition law.¹⁰ It is difficult to find a common view also in the literature and in the jurisprudence on what the aims of competition policy have been until now. Although it seems clear that greater weight is now given to economic rather than political objectives, there is no definitive answer or consensus on the issue.¹¹

For instance, while in the United States relevant authorities have more than once identified the maximization of consumer welfare as the proper legitimate aim of competition policy,¹² in other jurisdictions the emphasis on such a goal is less obvious. In this sense, the European Commission, while recognizing the protection of consumer welfare as one of the predominant objectives of modern competition law, has nevertheless referred also to other goals to be achieved through the enforcement of competition policy.¹³ This can be easily explained by considering that EU competition policy has so far been highly influenced by the legislative framework of the EC Treaty of Rome,¹⁴ which set out a number of additional goals.¹⁵

Contrasts have also arisen in the literature, where several authors have mentioned different and potentially conflicting goals for EU competition policy. Bishop and Walker, for instance, identify two main objectives: market integration and the economic goal.¹⁶ Motta, then, considers efficiency and European market integration as the main aims of competition, although he recognizes the role of social and political reasons.¹⁷ Ahlborn and Padilla instead identify three groups of objectives: fairness, welfare and efficiency, and market integration.¹⁸ Along the same lines, Monti indicates three core aims of EU competition law: efficiency, market integration and the protection of economic freedom.¹⁹

All these views seem to confirm that “EU competition law is a bit like a multiple personality, fascinating but complicated.”²⁰ A debate may arise, inter alia, on whether market integration is an intermediate goal, which in turn should achieve the ultimate welfare objective, or whether it is itself an ultimate goal. A second question, what is more, could also be posed in relation to the optimal standard that should be adopted in the enforcement of competition rules: should the legal test directly reflect the need for market integration or should it be better based on a welfarist approach? In this second case, should the enforcement test pursue consumer or total surplus? It is undoubted that it would be difficult to reconcile, in the legal enforcement standard, all the various objectives that may potentially be assigned to competition policy.

The discussion on the objectives of competition policy, further developed in the next sections, is thus relevant as far as it helps to understand which test should be applied in the enforcement of the competition rules. The enforcement test, indeed, may diverge from the ultimate competition policy aim.

The optimal solution finally suggested reveals its clear effectiveness also when applied in the context of standard setting. In particular, the importance of the test selected will be further explained in light of the aim to guarantee the optimal functioning of standardization processes, although a more effective policy framework seems also to be necessary to this purpose. In that particular environment, the interests of IPRs owners, consumers and licensee-manufacturers could be often at odds. The adoption of one legal test over another, when enforcing competition law against anticompetitive practices, may lead to very different outcomes, which may eventually boost or compromise the whole standardization process.

Hence, it is clear the need to identify a priori the ultimate objective of competition law and the optimal test in the enforcement of the rules. The next sections are therefore devoted to define the scope of the debate and to identify possible answers to the mentioned questions.

2 Competition law as a means to achieving different aims

A report of the International Competition Network (ICN) Unilateral Conduct Working Group has taken into consideration some interesting issues concerning competition.²¹ The document, based on the responses of different ICN members and non-governmental advisors to a questionnaire developed by the group, has analysed the objectives of unilateral conduct rules as described by the respondents. This report may be used as a starting point for a catalogue of the possible goals of competition law more generally.²²

Among these goals, it usually appears more reasonable to identify a primary objective.²³ The better view, indeed, seems to be that the pursuit of different goals as primary objectives may not always be achieved and reconciled at the same time. Other socially desirable objectives may thus be achieved through competition law, but only in so far as they are consistent with the primary aim. These considerations hold true even when applied in the analysis of conduct in standardization processes.

The most part of respondents identified several goals of unilateral conduct laws, regulations and policies, namely: ensure an effective competitive process; promote consumer welfare; enhance efficiency; ensure economic freedom; ensure a level playing field for small and medium-sized enterprises; promote fairness and equality; promote consumer choice; achieve market integration; promote competitiveness in international markets.²⁴ To the list, a further objective not mentioned by the respondents should be added: promoting total welfare.

As a premise, the goals of Articles 101 and 102 TFEU (former Articles 81 and 82 of the EC Treaty) should be read in a harmonious way, being the origin of these rules identical. The same concept holds for the antitrust provisions of the US Sherman Act, Section 1 and Section 2. Differences, however, may arise between the various systems of competition policy, such as the US, the EU and the UK.²⁵ This means that competition is the expression of the values and concerns of a particular society. Therefore, its objectives may vary with the change of political thinking and societal needs.²⁶ The latter, it must be remembered, also form the basis of standard setting developments.

2.1 Ensuring an effective competitive process

First, a critical question needs to be addressed: what is an effective competitive process? Concerns, indeed, may arise about its exact meaning. While the legislator of some countries concluded that the meaning of “free competition” should be left to the judiciary interpretation, others suggested that effective competition can be deemed to exist where all firms have an opportunity to succeed or fail, according to their potentiality to compete.²⁷ It could be further defined as a process of rivalry among firms on a given market (a definition, however, that according to some authors, would not provide a proper standard for distinguishing between anticompetitive and non-anticompetitive conduct).²⁸ Such a process, then, seems to be a dynamic and (potentially) self-initiating market phenomenon, where products are supplied by firms able to produce them in the most efficient way.²⁹ Accordingly, antitrust enforcement agencies should intervene only in those cases where the “spontaneously-occurring competitive process falters as result of anti-competitive conduct.”³⁰

Competition law, in other words, should ensure that a free undistorted competitive process be maintained in the marketplace, while it should not be enforced in case an undertaking legitimately strengthens its economic position. In this sense, for instance, the Protocol introduced by the Lisbon Conference refers to the need to maintain a system ensuring that competition is not distorted.³¹ This requirement, as confirmed in Metro, implies, inter alia, the existence of workable competition, which is the degree of competition needed in order to ensure the achievement of the objectives of the European Union.³²

2.1.1 Effective competition: a means or an aim?

Whether ensuring an effective competitive process should be recognised as a means to achieve other goals (e.g. the protecti...