FEATURE

 
Emerging legal issues in current times are beginning to blur once rigid lines of demarcations - one such being that between Competition and Intellectual Property Law. A closer look at the interface between the two is provided here.
 
Competition and Intellectual Property Law in the Innovation Age: A Fine Balancing Act
 
Introduction
 
In this age of increasing specialisation, many legal professionals may be immersed with practising law in their respective specialities. Yet, emerging legal issues do not necessarily confine themselves to clear demarcations and issues often cut across specialties and disciplines,requiring a broader perspective and approach to effectively deal with a legal issue. 
 
This article explores the interface between competition and intellectual property (“IP”) law in Singapore. IP law isadministered by the Intellectual Property Office of Singapore (“IPOS”) with an eye for the protection and commercial exploitation of IP to maintain a robust and pro-business IP regime. Competition law is administered and enforced by the Competition Commission of Singapore (“CCS”) to deter anti-competitive behaviour and facilitate competitive markets in Singapore. 
 
In discussing the interface between the two laws, we will explore whether they come into conflict, and outline areas where they intersect. We will also discuss developments in overseas jurisdictions and provide hypothetical situationsto alert practitioners of interface issues as and when they arise.
 
Some Useful Concepts
 
Intellectual property rights (“IPRs”) are exclusiveproperty rights granted to products of human intellectual activity. IPRs reward the owner for making intellectual contributions to society, and therefore, incentivise the development ofinnovative products and serviceswhich also enhances the overall welfare to society.
 
Thus, IP laws prescribe how such rights may be utilisedexclusivelyby an owner of an IPR for a certain period of time.  For example, a patent protects one’s invention for a typical duration of 20 years,1 and gives the patent owner the right to make, dispose of, or use that product. In other words, a legal monopolywith accompanying privileges is given to an IPR owner for a specified period.  
 
Competition law shares the same basic objective of promoting economic efficiency and innovation. In a competitive market, new ideas are constantly generated and new businesses are set up. These challenge the position of incumbents. As a result, businesses are spurred to be more efficient, innovative, productive and responsive, thereby becoming stronger over time. However, while IP law advances this objective by providing the incentives for innovation, competition law supports this objective through the enforcement of its statutory prohibitions against anti-competitive behaviour by businesses.
 
There is a clear distinction between a legal monopoly conferred as a result of a grant in exclusivity arising from IPRs and an economic monopolywhich confers market power, the latter being of interest to competition practitioners. For instance, exclusive rights granted in the form of patents would not necessarily confer marketpower as long as there are sufficiently close substitutes for the product in question.2
 
Legal Provisions Addressing Both IP and Competition Concerns
 
Intellectual Property Laws

 
From the IP perspective, the concern is that certain incentives for innovation may ironically stifle long term innovation. This mayoccur when, for example, an IP owner deploys business strategies that: (i) stifle the entry of competing goods or services; or (ii) discourage the development of alternative or substitute products. Examples of business strategies that are potentially anti-competitive include:

  1. Grantback provisions in a patent license that require the licensee to grant back to the licensor, patented improvements to the licensor’s technology which might promote dissemination of technology but may pose competition concerns if they substantially reduce the incentives of the licensee to innovate. 

Patent pools where patent owners agree to cross-license their pooled patents  to facilitate the development of new products which require multiple licences from various IP owners. Such patent pools may provide pro-competitive benefits through removal of patent blockages or reduce the challenge of co-ordination and conclusion of multiple licences.  At the same time, this may have anti-competitive effects if the patent owners refuse to license the relevant technology to potential entrants, thereby preventing entry of new market players.  

An example of such a patent pool involved a case in Japan where a group of 10 pachinkogame machine manufacturing companies set up an association to hold the patent and other rights relating to the manufacturing of the machines. The association put in place policies which prevented licensing of rights to non-members of the association and required the termination of patent licences in the event of a takeover or joint venture with non-members. It was found that the policies adopted by the association inhibited new entrants into the market as potential manufacturers ofpachinkomachines faced difficulties obtaining the relevant licences. This was found to severely cripple competition between manufacturers of the machine in violation of Japan’s anti-monopoly laws.3
 
Such potentially anti-competitive behaviour is addressed within IP law on three fronts:
1.    The first is by inherent principles in IP law which circumscribe the scope of grant of the exclusive rights of the IP owners to reasonable limits.  For example, one is free to use an invention for private and non-commercial purposes, or experimental purposes related to that invention.4  
 
2.    The second is by specific IP legislation which imports competition law concepts, recognising that the contours of IP rights may, in some circumstances, have a detrimental effect on consumers and the market as a whole.  Examples of this include provisions in copyright, trademark and patent legislation which permit the parallel import of genuine goods,5 subject to certain conditions.
 
3.    Third, institutions which have the potential to resolve relevant IP and competition issues may be established.  A prime example which may see more case law being developed is the creation of Copyright Tribunals.6 Such Tribunals have recently been empowered to hear a wider range of licensing disputes, and are mandated to consider licensing schemes and vary them (including the rates in question), as it considers “reasonable in the circumstances”.7 One can apply to be heard by a Tribunal if one thinks that a licence for copyright works has been unreasonably withheld.8 If the application has merits, the Tribunal can order a licence prescribing the charges and other conditions. Copyright Tribunals thus essentially have the power to prevent licensors of copyright works from using their legal monopolies to harm competition and provide recourse from unreasonable market conduct. On 31 December 2009, the jurisdiction of the Copyright Tribunals was expanded to include all uses of all works and other subject matter. At the same time, having regard to the fact that the changes do not seriously limit the rights of individual copyright owners who are not exercising monopoly powers, the definition of licensor was amended to subject only entities who are in the business of collectively administering copyright licenses for multiple copyright owners to the purview of the Copyright Tribunals. Individual copyright owners who might be abusing their bargaining power have been excluded from the purview of the Tribunals. Therefore, parties who might be a victim of abusive practices by a single dominant copyright owner may more appropriately seek redress under the Competition Act.
 
4.    Until recently, the Patents Act contained competition-related provisions which sought to address concerns that an IPR holder may abuse his position through imposition of contractual restraints on third parties in the licence of IPR by way of tying, exclusive dealing arrangements and extended royalty payments.9 For instance, certain contractual clauses which tie a licensee to procure something else in addition to the patented product were presumed to be inherently anti-competitive and, therefore, rendered void. Such provisions were around a long time before the Competition Act came into force. With the Competition Act in force today, such contractual restraints may be in breach of the s 47 prohibition when it is found that a licensor has a dominant market position and that the arrangement amounts to an abuse by foreclosing competition in the market and harming the competitive process. In order to address the overlap between IP and competition laws, the Patents (Amendment) Act 2008 was passed, restricting the application of ss 51 and 52 of the Patents Act to agreements made prior to the amendment. Agreements made subsequently will come entirely under the purview of the Competition Act.
 
Competition Law
 
For competition law purposes, IPRs are essentially treated like any other form of property. CCS recognises that providing IP owners certain rights to exclude others are necessary in order to allow them to cover costs of investments and to provide the incentive for innovation. However, as with other forms of private property, certain types of agreements or conduct with respect to IP may have anti-competitive effects which come under the purview of the Competition Act. Of particular relevance to IP-related transactions and conduct is the s 34 prohibition against anti-competitive agreements which prevent, restrict or distort competition, and the s 47 prohibition against conduct which is an abuse of a dominant position.10 Besides these prohibitions in the Competition Act, the application of competition law in relation to transactions involving IP is dealt with in accordance with CCS’sGuidelines on the Treatment of Intellectual Property Rights11(the “Guidelines”), which was developed in consultation with IPOS.
 
Section 34 prohibition – treatment and examples
 
Within the context of the s 34 prohibition against anti-competitive agreements, IPR provisions contained in vertical agreements are excluded provided that: (i) they do not constitute the primary object of such agreements; and (ii) are directly related to the use, sale or resale of goods or services.12 The exclusion covers IPR provisions in franchise agreements, such as trademark and know-how which the franchisor licenses the franchisee in order to market the products.
 
For other IPR-related agreements which are not excluded, CCS will first distinguish if the agreement is made between competitors or non-competitors. Agreements between non-competitors generally pose significantly smaller risks to competition than agreements between competitors.
 
Next, CCS will consider if the agreement and the licensing restraints restrict actual or potential competition that would have existed in their absence. In assessing the potential effect on competition, CCS will consider the degree of market power held by the parties to the agreement. While market power is to be distinguished from market shares, there is generally more potential for harm to competition where the parties to the agreement hold a large share of the market. However, a licensing agreement between competitors which involves price-fixing, market-sharing, or output limitations will almost always have an appreciable adverse effect on competition regardless of the market shares of the parties.
 
Finally, CCS will consider if an agreement that falls within the scope of the s 34 prohibition may, on balance, have a net economic benefit. This reflects the recognition that licensing agreements may generate significant pro-competitive benefits and efficiencies even if they have some anti-competitive effects.
 
For example, a licensing agreement between competitors to exclusively license certain IP rights may contain certain licensing restraints such as non-compete obligations or a resale price maintenance clause which may potentially pose competition concerns pursuant to the s 34 prohibition. This is because non-compete obligations between competitors may serve to segment, allocate and share markets between the competitors.  Certain resale price maintenance clauses,13 which allow for the exchange of sensitive price information among competitors may lead to price co-ordination among competitors and, therefore, reduce competition. Assuming that CCS concludes on the facts that the agreement is likely to have the effect of appreciable restriction of competition within Singapore, parties may then submit arguments as to whether the agreement is likely to benefit from the net economic benefit exclusion set out in para 9 of the Third Schedule of the Competition Act.
 
Section 47 prohibition – treatment and examples
 
In assessing conduct involving IPRs within the context of the
s 47 prohibition against abuse of a dominant position, CCS will usually consider the extent to which there are close substitutes for the technology, product, process or work to which the IPR creates. Ownership of IP does not necessarily create a dominant position. However, having a dominant position is not itself an infringement of the Competition Act. CCS would also have to determine if the IP owner’s conduct is an abuse. In assessing if an IP owner’s conduct is an abuse, CCS will consider the extent to which it harms competition, for example, by removing an efficient competitor, limiting competition from existing competitors, or excluding new competitors from entering the market.
 
One such conduct is when an owner of IPR enforces his copyright to limit access to a market where the IP is an essential resource. The IP owner might do so to keep out competition in that market in order to reserve it for itself.
 
For example, in the case of Magill,14the European Commission held that TV broadcasters which had relied on copyright conferred by national legislation over TV programme listings abused their dominant position by refusing to grant a licence to Magill to copy TV listings. Each TV broadcaster separately published its own weekly TV guide such that viewers who wished to obtain information on choice of television programme would have no choice but to purchase all individual guides and draw their own comparisons. The TV broadcasters’ refusals prevented Magill from using the information to publish a comprehensive weekly TV guide. On appeal, the European Court of Justice (“ECJ”) found that a refusal to grant a licence by a company holding a dominant position could in “exceptional circumstances”15 infringe Article 82 of the European Community Treaty (now Article 102 of the Treaty on the Functioning of the European Union), ie, where:
1.    access to the IPR is indispensableto compete on a downstream product market;
 
2.    the refusal is likely to exclude any effective competitionin that market;
 
3.    the refusal prevents the appearance of a new productfor which there is a potential consumer demand; and
 
4.    the refusal is not justified by objective considerations.
 
In adopting this set of conditions, which must be satisfied in order to justify a compulsory licence, the ECJ may be seen to be striking a middle ground between competition law and IPRs.16
 
An IP owner may, in participating in the setting of industry standards, hide the fact that it has patents or patent applications relating to the technology being standardised. This may result in the adoption of the IP owner’s technology, which would not have been otherwise adopted (or adopted under commitments of reasonable and non-discriminatory licence fees), if the standard setting organisation’s members had known about the IP owner’s patents relating to this technology. With competing technologies shut out of the market, the IP owner may then charge unreasonably high royalties for the use of its patents.
 
In a case in the US, the Federal Trade Commission (“FTC”) found that Rambus had unlawfully monopolised the markets for computer memory technologies under s 2 of the Sherman Act and practised unfair competition under s 5 of the FTC Act.17 Rambus was alleged to have participated in SSO meetings to determine standards for computer memory technology. However, Rambus did not disclose its pending patent applications which were ultimately incorporated into the standards. Once standards had been set, Rambus asserted its patents and requested payment of royalties.
 
However, the US Court of Appeals for the District of Columbia Circuit reversed the FTC’s order.18 It held that Rambus could not be found liable for monopolisation because the FTC did not show that Rambus’ conduct was exclusionary and harmed competition. According to the Court, an otherwise lawful monopolist’s use of deception simply to obtain higher prices normally has no particular tendency to exclude rivals and thus to diminish competition. However, if Rambus’ more complete disclosure would have caused the SSO to adopt a different (open, non-proprietary) standard, then Rambus’ failure to disclose would have harmed competition and would support a monopolisation claim.19
 
The enforcement of competition law by CCS also differs from enforcement in IP law. CCS has the statutory power to initiate investigations into potential infringements of the Competition Act, where there are reasonable grounds for suspecting such infringements. Parties which suffer loss or damage directly as a result of an infringement of the main anti-competitive provisions in the Competition Act have a right of recourse in the Courts against the parties to such an infringement, provided that CCS has made an infringement decision and the appeal period has expired.20 On the other hand, civil enforcement for IP infringement is undertaken through private actions by the rights holders, while the Intellectual Property Rights Branch of the Singapore Police Force and Attorney-General’s Chambers deal with criminal enforcement of IP offences.
 
Infringement actions via CCS
 
Generally, there are two channels through which potential infringements can be brought to CCS’ attention. First, for parties affected by potentially anti-competitive licensing agreements or conduct in Singapore, a complaint can be made to CCS.21 Second, IP owners may notify CCS for guidance or decision on any existing licensing agreements or conduct to determine whether they infringe the Competition Act. While notifications are not mandatory, it offers certainty to IP owners on whether they are infringing the Competition Act, and provides immunity from possible financial penalties.22
 
Concluding Remarks
 
In conclusion, in cases where IP law and competition law interface, the assessment of whether a competition infringement has taken place must take into account the implications for IP protection. In a similar vein, the formulation of IP law and policy must take into account the implications for competition. This is crucial in order to balance effective competition with the need to provide sufficient incentives for innovation, which IP serves to promote.
 
In light of recent developments, both IPOS and CCS recognise the need to keep a close watch on the interface issues.23 With increasing convergence and overlap in both disciplines of law, both IP and competition practitioners would do well to keep a watchful eye on developments across the stream to formulate advice holistically for their clients.

 
Danielle Yeow 
1 Deputy Director-General
Intellectual Property Office of Singapore

 
Alvin Sim
Acting Director/Legal Counsel
Intellectual Property Office of Singapore
 
Alvin Koh
Director Legal
Competition Commission of Singapore
 
Candice Lee
Assistant Director Legal
Competition Commission of Singapore

 
Members of the Joint IPOS-CCS committee on the Interface between Competition and IP law.

Bibliography : “The Interface Between Intellectual Property Law and Competition Law in Singapore”, Burton Ong, “The Interface Between Intellectual Property Rights And Competition Policy”, Steve D.Anderman (Ed)( IP Academy Singapore & Cambridge University Press) .

 
 
Notes
1      Section 36(1) Patents Act.
2      For example, in Case CCS 400/002/09: Proposed Acquisition of GSK Trading Services Limited of the right to distribute and market selected pharmaceutical products from UCB SA, CCS found that the anti-histamine market was very competitive as there were substitutes to the merging parties’ patented drugs  from competitors’ patented drugs as well as from generics.
3      Pachinko (Japanese vertical pinball game) Machine Case (JFTC Recommendation Decision: August 6, 1997.
4      See Patents Act s 66(2)(a) and (b).
5      See Copyright Act s 25(3), Patents Act s 66(2)(g) and s 29 Trade Marks Act.
6      See Copyright Act Part VII.
7      See for example, s161(5) Copyright Act.
8      Sections 163(3) and (4) Copyright Act.
9      Sections 51 and 52 of the Patents Act
10    An undertaking may be dominant if it has substantial market power. Conduct that constitutes an abuse of a dominant position in a market includes conduct that protects, enhances or perpetuates the dominant position of an undertaking in ways unrelated to competitive merit.
11    Available at http://app.ccs.gov.sg/CCS_Guidelines_.aspx
12    This is part of the exclusion provided for under para 8 of the Third Schedule of the Competition Act that the s 34 prohibition does not apply to vertical agreements, other than such vertical agreements as the Minister for Trade and Industry may by order specify.
13    In Singapore, resale price maintenance agreements are generally not prohibited under s 34 of the Competition Act in view of the vertical agreement exclusion as stated in para 8 of the Third Schedule to the Act.
14    Joined cases C-241/91P and C-242/91P RTE, and ITP v Commission[1995] ECR I-743.
15    Paragraphs 53-55, ibid.
16    Steven D. Anderman and Hedvig Schmidt, “EC competition policy and IPRs”  Ch 2 p 61, Steve D.Anderman (Ed) The Interface between Intellectual Property Rights and Competition Policy, (IP Academy Singapore & Cambridge University Press). 
17    Rambus, Inc., Dkt. No 9302 (June 18, 2002) (complaint)
18    Rambus Inc. v Federal Trade CommissionD.C. Cir., No 07-1086 4/22/2008
19    “In a recent case in Singapore between Global Yellow Pages Ltd (“GYP”) v Promedia Directories Pte Ltd (“Promedia”)[2010] SGHC 97, matters pertaining to the Competition Act were raised in the course of a copyright infringement suit. GYP alleged that Promeda infringed copyright in its directories through the reproduction of directories for the purpose of publishing its own competing directories. In Promedia’s defence and counterclaim, it pleaded that the agreements entered into between GYP and telecommunication companies for the provision of subscriber information (which forms the information by which directories are compiled) is in breach of the s 34 prohibition of the Competition Act. In the decision, the assistant registrar held that an argument of alleged anti-competitive conduct in breach of the Competition Act, if within CCS purview should be raised to CCS at first instance and that the Court will not be the appropriate forum to raise such allegations.
20    There is a two-year limit for the taking of such private actions from the time that CCS made the decision or from the determination of the appeal, whichever is the later. Section 86(6) Competition Act
21    Complainants may submit a complaint form which is available on the CCS website.
22    IP owners may submit Form 1 which is available on the CCS website. In respect of an agreement that has been notified to CCS, no penalty shall be imposed in respect of any infringement of the s 34 prohibition of the Competition Act by that agreement from the date on which the notification is given until such date as may be specified by the CCS following its determination.
23        CCS and IPOS have set up a “Joint IPOS-CCS committee on the Interface between Competition and IP law”.