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WIPO Roundtable on IP and Competition PolicyNew York, June 6 and 7, 2011
The Interface between Intellectual Property and
Competition Law in Multilateral Law – A New Perspective
WIPO Secretariat
The new perspective in its essence:
- Intellectual Property (IP) is not what you think it is
- There is no tension whatsoever between correctly dosed IP and competition
- IP and Competition Law are not contradictory, they are complementary. One should not go without the other
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Summary:
1. The function of IP: a new perspective.
2. The pro-competitive nature of IP and its limits.
3. How do IP and competition (antitrust) law interact?
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1. The function of IP: a new perspective.
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Intellectual property provides innovators with a temporary monopoly, thereby motivating them to invent.
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This view – which is generally unaccepted – seems to indicate that IP
- Has the main function of promoting creation and invention;
- is inherently anti-competitive, but society accepts it as a necessary evil.
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… But is this true?
Let us look at some examples…
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A man establishes, at Evian, a French cityon the south shore of Lake Léman, closeto the French Alps, a business of extracting, bottling and distributingmineral water that comes from the Alps. He sells the water under the brand “Evian.”
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For the last 2,000 years wine producers have produced a
sweet wine from grapes that grow on the shores of DouroRiver. In the 2nd half of 17th century itbecame worldwide known as Port wine,after the name of the city (Porto) through which it is exported.
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An employee of a multi brand car dealerorganizes a list of those suppliers who have made available good quality cars to hiscompany in the last five years.The list contains suppliers’ names, theirphone numbers and e-mail addresses,and is organized in alphabetical order.
That employee saves
that list on a computer and protects it with a password.
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Now we should wonder...
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Where is the creativity or inventiveness in naming mineral water extracted and bottled in the city of Evian with the word “Evian”?
Where is the incentive to invent in protecting the expression “Port wine” which names a wine that has been the same for 2,000 years?*
And where is the inventiveness or creativity in typing a list of trusted suppliers?
*Actually, producers can modify and improve the processes of making and bottling the wine, but they cannot change its characteristics, otherwise they will be prohibited from using the g.i.
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Nevertheless, the terms Evian and Port wine, as well as that list of suppliers, are intellectual property subject matter!...
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Now let us look at another notion of IP that is also very common...
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Intellectual property is the branch of law that protects ideas, the fruits of the human mind.
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In other words, the subject matter of IP are ideas, the products of the activity of the human mind.
But… are they?...
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So why aren’t telephone directories protected? They represent ideas: from the fundamental idea of listing the names of users in alphabetical order to the idea of advertising goods and services on yellow pages. Behind the directory there is the telephone as well as the service of telecommunications. When we hold a telephone directory in our hands we hold actually the expression of thousands of ideas. Yet, the telephone directory is NOT IP subject matter... 17
Therefore, IP is much more than promotion of invention or creation.
On the other hand, IP does protect ideas and their expressions, but it does not protect them all.
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Then, what is intellectual property?
What is the element that is common to literary works, to inventions, to names of places or of people, to designs, to lists of suppliers, etc, under the same legal branch?
And what is the element that is missing in ideas such as telephone directories and whose absence excludes them from IP?
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That common element that binds together all aspects of intellectual property is the differentiating function (and capacity) of the intangible assets that are its subject matter.
The (i) intangible nature of assets,their (ii) differentiating capacity, andTheir (iii) susceptibility of being used in
economic activities
are the elements that characterize IP.
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Those assets may be of many types such as knowledge and signs that indicate reputation without the need of their being based on invention or creation.
IP is everywhere (where a free market economy prevails) because it covers all those intangible elements that contribute to differentiate merchants and manufacturers, as well as their products and services.
It is the subject matter of IP (in all its modalities) that permit consumers to make choices.
We are surrounded by IP.21
Just take a retailer who has a shop in the Muttrah souk, at Muscat, Oman. He sells pashminas (wool scarves) which are of better quality than those found in the neighbouring stalls.
That retailer buys his pashminas from a specific supplier, an old acquaintance who has a network of contacts with the best pashmina manufacturers in Kashmir.
That piece of information – knowledge of a specific supplier – is valuable because it permits its holder to sell goods to which his competitors do not have access.
That piece of knowledge, whilekept secret, is a differentiatingintangible asset: it is IP subjectmatter.
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Who visits Maceió, capital of the State of Alagoas,in Brazil, and wants to buy handicrafts, will needto go to the traditional market. There he/shewill find a true maze of small shops placedalong narrow aisles, geometrically laid out. Theshops are all identical and display very similararticles (handicrafts of all sorts, in particularcotton lace). After walking across the wholemarket (which will take many hours), howcan the visitor remember the exact shop in whichhe/she found the articles he/she wants to buy(and the prices he/she is willing to pay)?Very probably, the consumer took a mental noteof one differentiating element that will allow him/her to come back to the shop without the need towalk along the whole maze again. For example,number 42. Next time he/she wants to comeback, the consumer will go directly to shop nr. 42.
42 is a differentiating asset of that shop.42 is the subject matter of IP.*
*42 is a shop sign. It was covered by a sui generis regime of protection in many countries, but currently it is covered either by unfair competition or by the provisions that applies to trade names. The fact that 42 adheres to the bulding does not change the fact that it is protected whereas it means a certain reputation.
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The same goes for patents. No company invents for the sake of the public good or because of the kind souls of their CEOs. Companies invent to compete for (and in) the market. Just think of the hundreds of different cell phone models, each with different functions and capabilities, covered by hundreds, if not thousands, of patents. Why do those phones work differently? Because they embody new technologies that are aimed at making new products different (not necessarily better – they can simply be cheaper) and more attractive to consumers. Technical knowledge is nothing else than product differentiation.
In other words, the core function of IP is to differentiate.
To say that IP has the function to promote invention is the same as saying that...
...a car has the function to brake!...
One component of the car, yes, serves the function of braking. Likewise, one component of IP serves the function of promoting invention.
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But the car has other components likewise important: the accelerator, the wheels, the windows, the engine, the body, the bumpers...
Separately, those components perform different functions: some make the car move, others protect against accidents, others make the car more comfortable or prettier...
Together, they contribute to the same and core function of the car: to transport people from one place to another.
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So is IP: besides patents and utility models, IP covers copyrights, distinctive signs, repression of unfair competition, layout-designs, etc.
Separately, those components perform different functions.
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Distinctive signs ensure that consumers make informed choices and reduce the transaction costs in their search; in doing so, some signs protect reputation, others identify the origin, others certify quality.
Patents, utility models, layout-designs encourage companies in a number of sectors to sink money into inventing, but their function is to reduce transaction costs in the social evaluation of inventions as compared to the other systems of promotion of inventions (patronage and trade secrets).
Repression of unfair competition ensures that competitors will abide by honest values.
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However, together, those components contribute to the function that is common to all IP: to permit merchants and manufacturers to differentiate from their competitors as well as to permit them to differentiate their products and services.
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Because of that general and common function, IP is based on core concepts such as: novelty, inventiveness (non-obviousness), originality, secrecy, distinctiveness, reputation.
All these concepts are synonymous with differentiation.
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And because it is about the protection of differentiating assets, IP
- only thrives on markets where rivalry amongst manufacturers and amongst merchants exists;
- only produces positive effects on those markets where acts of confusion (of any sort, from mergers to piracy and counterfeiting) are prosecuted and punished
- is inherently pro-competitive
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2. The pro-competitive nature of IP and its limits
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However, only IP that generates/promotes/ensures differentiation is pro-competitive
IP that tolerates or generates confusion is anti-competitive
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There may be IP that is anti-competitive. That is IP that covers assets that are not genuinely differentiating (too much IP) or that is unavailable to protect genuinely differentiating assets (too less IP). In other words, that is IP in the wrong dosage.
And there is IP that, in spite of being in the right dosage, is used in a way that, being contrary to the objectives of the law, harms competition. That is abuse of IP.
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a. IP is pro-competitive only when it comes in the right dosage
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The problem:
How can we find the right dosage? How can we ensure that IP only protects those intangible assets that are genuinely differentiating?
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Solution: to ensure that the grant of IP rights does not diminish pre-grant existing levels of competition.
Opinion of the King’s Bench in Darcy v. Allen (1603)): This same [monopoly] leadeth to the impoverishing of divers Artificers and others, who before by labor of their hands in their Art or Trade had kept themselves and their families, who now of necessity shall be constrained to live in idlenesse and beggary […]. And the Common Law in this point agreeth with the equity of the Law of God, as appeareth in Deut. cap. xxiv. ver. 6. Non accipies loco pignoris inferiorem et superiorem molam, quia animam suam apposuit tibi; You shall not take in pledg the neathet and upper milstone, for the same is his life; by which it appeareth, That every mans Trade doth maintains his life, and therefore he ought not to be deprived or dispossessed of it, no more than of his life.
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Too much IP
IP that covers non sufficiently differentiating assets=it generates confusion (competitors are not able to develop/acquire alternative assets)
Examples:patents for unmodified genes; copyright on TV program lists; copyright on technical solutions; trademarked words of common use; trademarked signs with a technical function
IP in the right dosageBerne Convention, Article 14bis (1) and 14ter (1) original Madrid Agreement for the Repression of False or Deceptive Indications of Source on Goods, Article 1 (1) false or deceptive Paris Convention, Article 5(C) (2) and Article 6quinquies (B) distinctive character; Article 10bis (3) (i) confusion (ii) to discredit (iii) to misleadLisbon Agreement, Article 3, usurpation or imitationTreaty on Intellectual Property in respect of Integrated Circuits (1989), Article 3 (2) (a) originalTRIPS Agreement, Article 14.1 capable of distinguishing; Article 16.1 likelihood of confusion; Article 22.3 to mislead the public; Article 25.1 new or original; Article 27.1 new, involve an inventive step; Article 39.2 (a) secret
Too less IP
IP that fails to cover differentiating assets=it generates confusion (less efficient competitors are able to imitate more efficient competitors; they destroy differentiation)
Examples:refusal to protect/register sounds, colors, smells, etc, as trademarks; insufficient rules of enforcement
b. IP in the right dosage can be used (abused, misused) in an anti-competitive manner
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The problem:
How can we identify the rules that ensure that IP, correctly dosed, shall not be used abusively, in a way that is contrary to the objectives of the law and that undermines competition?
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The solution: to define clearly the objectives of the law and establish the criteria to identify unilateral and bilateral abuses. The use of IP rights should not stand against a reasonable level of post-grant competition.
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Uses of IP (to assert the right to say ‘no’)=it is in the core of IP pro-competitiveness because it ensures rivalry
Enforcement, licensing and assigning
Abuses of IP (in general)=uses against the objectives of the law
Paris Convention, Article 5(A)(2) the abuses which might result from the exercise of the exclusive rights conferred by the patentTRIPS Agreement Article 8.2 to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology. Article 41 against [the] abuse [of enforcement procedures]; Article 48.1 who has abused enforcement procedures ... such abuse; Article 50.3 to prevent abuse. Article 53.1 and to prevent abuse.
( Examples: Vitamin Technologists, Inc. v. Wisconsin Alumni Research Found., 146 F.2d 941 (9th Cir. 1945), cert. denied, 325 U.S. 876 (1945), City of Milwaukee v. Activated Sludge, Inc., 69 F.2d 577 (7th Cir. 1934)).
Abuses (unilateral or collusive) of IP (with anti-competitive effects*)
Treaty on Intellectual Property in respect of Integrated Circuits (1989), Article 6(3)(b) in order to secure free competition and to prevent abuses by the holder of the right.TRIPS Agreement Article 40.2 constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market.
(Examples: Kobe, Inc. v. Dempsey Pump Co., 198 F.2d 416 (10th Cir. 1952), Blount Mfg. Co. v. Yale & Towne Mfg. Co., 166 F. 555 (D. Mass. 1909), TRIPS Agreement, Art. 40.2).
* Certain WIPO Member States believe that the Berne Convention, Appendix, Article III (excessive prices) is also relevant.
3. How do IP and competition (antitrust) law interact?
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IP and Competition Law provide for the legal structure of free markets. They are not contradictory. They are complementary. One should not go without the other.
- There is no competition without IP
- There is no IP without competition
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Intellectual property needs competition law
(IP differentiates competitors; if competitors start operating (i.e., abusing) IP in a manner that eliminates competition or rivalry, the result is the suppression of the need for differentiation and, thus, of IP; abusive IP has in it the seed for self-destruction. Thus, competition law is needed to ensure that IP keeps differentiating. The granting and the management of IP rights should be informed by the principles of competition)
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Competition law needs intellectual property
(IP ensures that firms have the tools to differentiate themselves and their products from their rivals; without such guaranty, differences would simply vanish: competitors would be very similar, their products or services would be indistinguishable, and consumers would be at a complete loss; rivalry would disappear. Therefore, when enforcing antitrust, IP rights’ differentiating function should be ensured, if not enhanced).
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