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Is there a conflict between competition law and

intellectual property rights?

Edward WhitehornHead, Competition Affairs Branch

Carrie TangAssistant Legal Adviser

Office of the Telecommunications Authority

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Competition law

Concerned with business activity

Requires the application of economic theory

Prohibits business conduct which harms competitive markets

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Objectives of competition law

Protects the competitive process

Economic efficiency

Prevents the harmful effects of monopoly

Secures consumer benefits such as lower prices, wider choice and more innovation

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Market power

Important concept in competition law

Often defined as the ability to restrict output and raise price

Is more likely to exist where there are small number of suppliers or one dominant supplier

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Definition of the relevant marketEconomic concept

Defines the boundaries of competition between firms

Identifies the actual competitors

Needs to be defined in terms of product or service and geographical area

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How is a market defined?

By considering substitutability – the likely response to a price increase

Consider both the demand side (consumers) and the supply side (producers)

Essential first step in any competition case work

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Scope of application

(i) Anti-competitive agreements

(ii) Abuse of a dominant position

(iii) Mergers and acquisitions

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Hong Kong competition law

Applies only to telecommunications and broadcasting sectors

Introduced in telecommunications in June 2000

Mergers and acquisitions added but not yet in force

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Application of Competition Law to Intellectual Property Rights

1 Market power derived from Intellectual Property Rights (IPR)

2 Abuse of such power

3 Licensing of patents, copyrights and trademarks

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Competition Law in the Telecommunications Market

Section 7K(1) – Anti-Competitive Practice

“A licensee shall not engage in conduct which, in the opinion of the Authority, has the purpose or effect of preventing or substantially restricting competition in the telecommunications market.”

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Competition Law in the Telecommunications Market

Section 7K(2) – Factors to Determine Anti-Competitive Practice

agreements to fix the price in a telecommunications market;

an action preventing or restricting the supply of goods or services to competitors;

agreements between licensees to share any telecommunications market between them on agreed geographic or customer lines;

the conditions of relevant licences.

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Competition Law in the Telecommunications Market

Section 7L(1) – Abuse of Dominant Position

“A licensee in a dominant position in a telecommunications market shall not abuse its position”

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Competition Law in the Telecommunications Market

Section 7L(3) – Factors to Determine Dominance“In considering whether a licensee is dominant, the Authority shall take

into account relevant matters including, but not limited to- the market share of the licensee; the licensee’s power to make pricing and other decisions; any barrier to entry to competitor into the relevant

telecommunications market; the degree of product differentiation and sales promotion;such other relevant matters as may be stipulated in the guidelines.”

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Market Power and IPRSimple existence of an IPR does not mean

that the holder automatically acquires a monopoly for the purpose of competition law.

The European Court of Justice said in Magill TV Guide/ITP (1989) 91/89R that:

“So far as dominant position is concerned, it is to be remembered at the outset that mere ownership of an intellectual property right cannot confer such a position.”

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Market Power and IPR

Definition of relevant market required

Look at substitutability of product

Other factors include physical characteristics of the goods, the prices, intended use, and nature of buyer

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Abuse of IPR – Exclusive Licence

Exclusivity of an IP licence by a dominant player holding a telecommunications licence may infringe section 7L.

Exclusivity of a licence by any commercial undertaking holding a dominant position within the common market that may amount to an abuse may infringe Article 82 of the EC Treaty.

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Abuse of IPR – Exclusive Licence Refusal to license an IPR can amount to an abuse of

dominant position, thus may infringe Article 82. The Commission in the Magill Case held that since the

broadcasters had control over access to their weekly listings, they each had a de facto monopoly in the market for weekly listings which was turned into a legal monopoly.

The Commission decided that each broadcaster had abused its monopoly over the listings, the raw material for the magazine, by refusing to allow publication by Magill of a guide including this material thereby transferring the listings monopoly to the separate market for magazines.

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Abuse of IPR – Exclusive LicenceThe ECJ in the case, Nungesser v Commission

(Maize Seed) Case 258/78 [1982] ECR 2015, held that the application of Article 81 of the EC Treaty depended on the nature of the territorial protection granted to the licensee.

Open Exclusive Licence vs Absolute Territorial Protection.

Open Exclusive Licence : not caught by Article 81Absolute Territorial Protection: breach of Article 81

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Abuse of IPR – Refusal of licence In Erawu-Jacquery v La Hesbignonne Case

27/87 [1988] ECR 1919, another case involving plant breeders’ rights, the ECJ held that a prohibition on the sale or export of basic seeds was not within Article 81 since considerable investment had been made in developing the basic seed.

The court had to strike a balance between the scale of research and investment into the technology and the restriction of competition.

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Licensing of Patents, know-how, trademarks or copyright

Hong Kong do not have any specific regulations governing the licensing of patents or know-how, trademark or copyright.

The Commission Regulation No. 240/96 covers technology transfer agreements and rules government patent licensing agreements and agreements for licensing of know-how.

Purpose of Regulation

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Ford Spare Parts Facts:

Ford refused to grant licences to produce spare parts which were protected under UK design copyright

Held: Anti-competitive and operated against public interest However, court could not order a company to grant

copyright licences

Situation remedied by the Copyright, Designs and Patents Act 1988

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BBC and ITV / Publication of Programme Information

Facts: BBC refused to make available their programme

schedules, in respect of which they owned the copyright, to magazines which wished to publish a weekly publication containing details of all programmes.

Held : Refusal to supply the information was anti-

competitive Again there was no provision for compulsory

licences of copyright

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Windsurfing v Commission [1986] ECR 611

Facts: Windsurfing International granted patent licence for the

production and sale in Europe of sailboards to Ten Cate.

The rigs were patented but not the sailboards

Held : the following provisions fell within Article 81 (anti-

competitive) an obligation on the licensee to mount the patent rig only on

boards approved by the licensor

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Windsurfing v Commission [1986] ECR 611

an obligation on the licensee to sell the rig only as complete sail boards

an obligation on the licensee to pay royalties based on the net selling price of the whole product

an obligation on the licensee to affix to boards a notice stating “licensed by Windsurfing International”

an obligation on the licensee to acknowledge the marks “Windsurfer” and “Windsurfing”

an obligation on the licensee to restrict production to a specific plant

an obligation on the licensee not to challenge the validity of licensed patents

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Thank you