5 March, 2012
The overlap between competition and IP laws raises complex practical issues. Asian regulators are starting to grapple with the problem and have a tough job ahead of them
Intellectual property and competition laws both have clear aims. One is there to prevent other companies making unauthorised use of your property. The other is designed to put limits on business practices that affect competition in the market, or control what companies with a dominant position may do. Although some say the two disciplines can work together positively to promote innovation and economic competitiveness, it is where these laws overlap that things get difficult.
Asia has started to tackle this problem relatively recently, while academics and practitioners have grappled with the issue for decades in jurisdictions with more mature legal and regulatory structures. Professor Valentine Korah, emeritus professor of competition law at University College London, summarises the issue succinctly.
“Should antitrust limit IPRs that are wider than necessary to induce sufficient innovation? Even with hindsight, it is hard to determine when a right is palpably too broad,” she wrote in 2005.
From a theoretical standpoint, some academics suggest the conflicts are not so large these days. Professor Mark Furse, professor of competition law and policy at the University of Glasgow, says big steps have now been taken to bridge the divide.
“Generally the old days when the competition and IP communities would see themselves as being engaged in separate conflicting projects are I think largely over,” he tells Conventus Law. “Competition law and IP law are both about the efficient working of the economy.”
As Korah puts it: “Competition and property fundamentally pursue the same aims – consumer welfare, together with the increase of useful investment.”
A study conducted by the US Department of Justice and Fair Trade Commission (the results of which were published in 1996) played a big part in facilitating progress toward reconciliation of the two disciplines. Testimony from businesses asserted both the importance of IP protection (which they thought should not be “overbroad”) and the significance of competition as forces motivating innovation. The study made detailed recommendations concerning closer relationships between competition and IP regulators, and made the assessment that “intellectual property and competition policies inevitably aim to achieve a proper balance between appropriability and competition, and between initial and successive innovation.”
On a practical level, though, large business undertakings are still likely to find the IP/competition law interface very challenging. Most companies would feel reluctant to supply or license valuable IP to their competitors, for example. Under EU competition law, however, a refusal to do this on reasonable terms could be deemed an abuse, as a number of broadcasting companies discovered in the 1990s. The companies refused to license their weekly TV listing information to a publisher and fell foul of European laws on abuse of dominant position (RTE and ITP & others v Commission (1995)) . More recently (Christian Louboutin v Yves Saint Laurent (2011)) a company attempted to use trade mark law to get an injunction preventing a competitor making shoes with red soles. The Southern District of New York court said no, making it clear that IP law must be balanced with the needs of the public, and other companies, for fair competition.
In a paper delivered at the 2010 Fordham IP Conference, Daryl Lim, a research scholar at the Max Planck Institute for Intellectual Property, Competition and Tax Law Lim, acknowledges that IP law and competition law can work together to promote innovation and economic competitiveness, but goes on to state that “beyond an acknowledgement of broad principles in a few areas of the IP-competition interface, deep differences remain between national competition laws, particular in the regulation of abusive conduct.”
“As IP markets become increasingly complex due to market evolution and globalization,” he writes, “the challenge will be for states to establish and sustain a competition regime that inspires the confidence of its stakeholders.”
According to Lim’s paper, countries can be arranged on a scale of approaches to competition regulation, with the EU at one end and the US at the other. European regulators tend to take a more interventionist approach, striving to promote visible competition in the market and presuming that a company which is dominant has a duty not to negatively affect competition by limiting its competitors’ legitimate commercial activities.
In contrast, US law is generally less interventionist (writes Lim). “It believes more in preserving the integrity of IP so that owners have the confidence that if they succeed, they can keep their expected rewards. It embodies a strong presumption that a firm's freedom to determine market conduct achieves a better result for the market. That gives a fair amount of certainty, but it places too much faith in an over-stretched IP system.”
So where does Asia lie on the scale?
“For the most part, they tend to lean towards the EU side,” says Jim Jeffs, an in-house counsel with a US-based multinational corporation. An explanation (or excuse) often given for this trend is that the US is a common law jurisdiction while most Asian countries (with the exceptions of Hong Kong, Malaysia, India and Singapore) are civil law jurisdictions, similar to the EU.
“This seems to me to be a distinction without any substance. Being common law or civil law does not appear to me to have any relevance to the IP/competition law interface,” argues Jeffs, before raising another possible explanation.
“Many of these jurisdictions have significant histories of heavy control of the markets by the government, and the government enforcers seem to me to be uncomfortable with giving too much freedom to business. They view the competition laws as a means of re-asserting that control.”
For whatever reasons, most of Asia’s significant economies now boast a system of competition law, and many tend toward interventionism. China makes an interesting example: all eyes were on it in 2007 as it introduced its Anti-monopoly Law (AML), drawing heavily on EU competition law precedent when doing the development and drafting. Inevitably not all opinions of the resulting legislation were positive.
“When the Chinese AML was being enacted there was strident critique in some US quarters at the approach taken to IP rights, which certain US commentators saw as being overly invasive,” comments Furse.
“In the case of the Chinese [competition authorities], the few actual cases in which the authorities took action seem to suggest that the primary concern is not to promote competition, but to protect domestic industries, so long as it is not grossly in violation of its WTO commitments,” says Dr Kening Li, a partner of Pinsent Masons in Shanghai.
Choosing a European-style approach certainly makes it easier, in theory, for China to give preference to domestic industries. And there are those who point to China’s use, or non-use, of the AML’s merger-control provisions as evidence of a protectionist attitude. One of the early decisions made under the AML was to block Coca Cola’s acquisition of a Chinese domestic fruit juice producer; needless to say, it made headlines worldwide. Meanwhile, the country’s state-owned monopolies (such as China Mobile and Sinopec) have so far been left untouched.
The AML includes some provisions dealing with the competition/IP interface: Article 55, for example, covers competition law issues with the abuse of intellectual property rights. The approach here has also generated some controversy.
“Article 55 says if you abuse IP rights, then the AML must be applied; if you stick to IP laws, you don’t need to apply the law,” says one lawyer who practises and lectures on IP law in China. “There was an outcry in the US [over this] … and the US used it to put pressure on the Chinese.”
Understanding the culture
The lawyer feels China’s approach to IP could be connected to cultural issues.
“Some people in China don’t think IP is an absolute thing – they think it’s a good thing, but not absolute. They feel it should be relaxed for those who are catching up,” he says. “In the antitrust field, they want to protect IPRs, but where something is needed, for example to create a market, they are more willing to compromise than in the US or even in the EU.”
This comment partly reflects the hypothesis explored by Harvard Law School professor William Alford in ‘To steal a book is an elegant offence’. In his book, Alford posits that, although many inventions have come from the region, Asia does not have a historic tradition of protecting intellectual property but instead engaged in an early form of open-sourcing: sharing innovative technologies rather than seeking to protect them under law.
He writes: “Imperial China did not develop a sustained indigenous counterpart to intellectual property law, in significant measure because of the character of Chinese political culture.”
It is hard to find practitioners who agree with Alford’s theory (and he admits himself that the proposition runs “contrary to the assertions of Chinese scholars and the expectations of Western theorists”). Li, for example, counters that in the past the US was not eager to protect IP either – “depending on how far into the past you look.”
“Traditional societies, including the Chinese society, did have the notion of protecting certain trade secrets … the skills and secret recipes of some Chinese medicine were restricted to pass within the family and only to the first born son,” he says.
“It is fair to say, though,” continues Li, “that the modern notion and system of industrial property or intellectual property protection originated and fully developed in the West.”
Until quite recently, most important technological IP rights were owned by Western economies, and this gave rise to the perception in some parts of Asia that IP was a barrier to development built and maintained by the West. Alford writes that initial attempts by Americans and Europeans to introduce IP law to China met with difficulties “because they failed to consider the relevance of such models for China and instead presumed that foreign pressure would suffice.”
A new era
Cultural issues clearly make intellectual property a complicated matter in Asia, and this will only make the jobs of regulators in the region even more difficult. Asian governments have become very keen to set up their own framework of competition laws in recent years, and they now need to grapple with the problems of interfacing those new regulations carefully with those guarding the countries’ increasingly valuable IP markets. There are many possible approaches to doing this, and Asian regulators have a number of pieces of recent academic research to which they can turn for assistance.
According to Daryl Lim, for example, the interface between competition and IP laws moved to a new phase in the 1990s (“Interface 2.0”) in which “competition policy considered the economics of the information age.” He goes on to theorise that the world is now entering a new era, which he calls Interface 2.0+.
“The transition is not yet complete and how competition regulation should respond to the IP issues emerging from this era remains uncertain at present. However, regimes which are able to institutionalise regulatory excellence will be best placed to emerge as leaders in this next age,” he writes.
While Lim emphasises “regulatory excellence”, Professor Carlos Correa of the University of Buenos Aires (in his 2007 report by the International Centre for Trade and Sustainable Development) highlights the fact that approaches to the competition/IP nexus could easily become very divergent in Asia. This is because there are essentially no international rules to constrain the capacity of countries to discipline IP-related anti-competitive behaviour (the only exception possibly being Article 40 of the Agreement on Trade-Related Aspects of Intellectual Property Rights – usually known as Trips).
In his report, Correa concludes that “IP law cannot be designed and applied in isolation from other legal disciplines, particularly competition law.” He suggests the need for a rounded competition policy approach, in which creating and preserving the conditions for competition and market contestability in the area of IPRs is not only the task of “competition law” or “antitrust” authorities.
This point is supported by businesses in the US. They made strong submissions in the DoJ/FTC report that the competition regulator should bring the potential competitive consequences of IP policy choices to the attention of the country’s intellectual property decision-makers. But how well equipped are Asian regulators to use this kind of holistic approach?
“In China, they have the Five Year Plan … they are pretty good at least on the policy side,” says a lawyer working with an international firm in Beijing. “They first set some goals then flesh them out with what it means for other sectors; China is good at this, but not so good at enforcing every single step – putting it into practice.”
At the local level in a country like China, a lack of expertise (or willingness) to put certain policies into practice could slow the development of a comprehensive approach to competition and IP.
“At conferences and seminars most [Asian competition authorities] will make statements such as ‘IPR and competition policy are complimentary in encouraging and promoting innovation and competition’,” says Jeffs. “However, when you look at some of the proposed laws, regulations and decisions, they don’t seem to really believe it.”
Jeffs agrees with the theory behind a broad competition policy approach, but doubts whether regulators in Asia understand the key concepts sufficiently well to make it work properly.
“They understand that in the US, for instance, abuse of IP can be considered a violation of the antitrust laws. Their jurisdictions, however, do not necessarily have a clear definition of what constitutes ‘abuse of IP’,” he says.
“Some of them tend to be moving in the direction of saying that taking anticompetitive actions constitutes abuse of IP, which then constitutes a violation of competition law. This approach totally eliminates the need to show actual abuse of IPR.”
Correa’s report brings up another point of particular relevance to Asia: that the respect of IP rights under competition law “is premised on the assumption that the intellectual property is properly obtained”.
Misappropriated IP is a universal problem, but it is fair to say that parts of Asia suffer more from it than other areas in the world.
“The lack of adequate IP protection is more of a current issue than over-protection such that the IP holder achieves monopoly in the market,” says Pinsent Masons’ Li.
Clearly Asia is facing a difficult task. The region not only faces a continuing uphill struggle to maintain a positive reputation, but also practical problems with IP protection which might hinder the ability of competition law to deal properly with IP issues. Intellectual property is not a perfect system, and its exploitation will, therefore, inevitably clash with other priorities – not least competition policy – on occasion. On a positive note, competition law is a much younger sector in the region, and arguably one that is less tarnished than IP. But the concepts behind it are, as one international lawyer puts it, “a more difficult sell – a harder concept to grasp.”
Lim summarises the issue clearly: “The challenge will be for states to establish and sustain a competition regime that inspires the confidence of its stakeholders.”
For further information, please contact:
Phil Taylor, Conventus Law