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Competition Law and Patents NEW HORIZONS IN COMPETITION LAW AND ECONOMICS Series Editors: Steven D. Anderman, Department of Law, University of Essex, UK and Rudolph J.R. Peritz, New York Law School, USA This series has been created to provide research based analysis and discussion of the appropriate role for economic thinking in the formulation of competition law and policy. The books in the series will move beyond studies of the traditional role of economics – that of helping to define markets and assess market power – to explore the extent to which economic thinking can play a role in the formulation of legal norms, such as abuse of a dominant position, restriction of competition and substantial impediments to or lessening of competition. This in many ways is the new horizon of competition law policy. US antitrust policy, influenced in its formative years by the Chicago School, has already experienced an expansion of the role of economic thinking in its competition rules. Now the EU is committed to a greater role for economic thinking in its Block Exemption Regulations and Modernisation package as well as possibly in its reform of Article 82. Yet these developments still raise the issue of the extent to which economics should be adopted in defining the public interest in competition policy and what role economists should play in legal arguments. The series will provide a forum for research perspectives that are critical of an unduly-expanded role for economics as well as those that support its greater use. Titles in the series include: Antitrust, Patents and Copyright EU and US Perspectives Edited by François Lévêque and Howard Shelanski Innovation Markets and Competition Analysis EU Competition Law and US Antitrust Law Marcus Glader Competition Law and Patents A Follow-on Innovation Perspective in the Biopharmaceutical Industry Irina Haracoglou Competition Law and Patents A Follow-on Innovation Perspective in the Biopharmaceutical Industry Irina Haracoglou Attorney at Law, Independent Researcher/Consultant NEW HORIZONS IN COMPETITION LAW AND ECONOMICS Edward Elgar Cheltenham, UK • Northampton, MA, USA © Irina Haracoglou 2008 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited Glensanda House Montpellier parade Cheltenham Glos GL50 1UA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Haracoglou, Irina, 1981– Competition law and patents : a follow-on innovation perspective in the biopharmaceutical industry / by Irina Haracoglou. p. cm. — (New horizons in competition law and economics series) Includes bibliographical references and index. 1. Patent laws and legislation. 2. Pharmaceutical biotechnology—Patents. 3. Pharmaceutical biotechnology—Law and legislation. 4. Competition, Unfair. I. Title. K1575.H37 2008 346.04'86—dc22 2007038609 ISBN 978 1 84720 599 5 Typeset by Manton Typesetters, Louth, Lincolnshire, UK Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall To Mum for her love & patience To Dad for his persistence & perfectionism To Dimitris (my stepfather) for his kindness & generosity . . 2 The patent experience in biotechnology: biomedical research tools 1.1.1 The patent system and the biopharmaceutical industry 2.1 Defining research tools 1.1 Introduction to the patent safety nets 36 36 vii 25 25 28 31 34 . The patent system and some potential safety nets 3.2.1 The Patent Balance 2.2.2 The case of research tools 1.2. Biopharmaceutical R&D: the increased importance of cumulative innovation and related concerns 1.2 The particular importance of the patent balance in the biopharmaceutical industry 2.3 Conclusion 21 21 3.1 Biopharmaceutical innovation and patenting 2.2.3 Conclusion 3 3 7 7 9 12 16 Part II: The Patent Balance and Working Solutions in the Patent System 2.3 The effect of patent trends on the patent balance for research tools 1.1. The patent system as a system of balancing 2.2.1 Introduction 1.2.Contents List of abbreviations Preface Acknowledgements Table of cases xii xiv xv xvi Part I: The problem – Access as a necessary element of follow-on innovation? 1.2 Has the importance of patents been overstated? 2. 3.1.1 Elements of the right to health 4.4.2.viii Contents 3.3 Implications of the right to health 4.2.3 The right to health and patent law: The fundamental nature of health concerns and the move towards a right to health as an interpretive principle in patent law 70 70 39 44 46 48 51 54 54 54 54 57 58 58 58 59 59 61 63 63 71 71 74 76 77 79 80 82 .4 Compulsory licensing in the patent provisions 3.2.1 Introduction 4.2.2.2.1 Introduction to the right to health 4.1 The experimental use exemption: a viable and effective working solution? 3.2.2 The US experience: a helpful paradigm? 3.1.1 Introduction to compulsory licensing (a) Definition and history (b) Support and opposition for CL (c) Grounds for granting a compulsory licence 3.4 International Efforts to Strengthen the Right to Health 4.2.1.3. The right to health as an interpretive principle of patent law 4.2 Sources of the right to health 4.2 Obligation to respect.3 Conclusion on the EUE 3.1 Experimental use exemption 3. protect and fulfil 4.2.4.2.2.2 The patent safety nets 3.2 Analysis of the role of CL (a) The role of CL in balancing commensurability (i) CL as a mechanism to induce broad licensing (ii) CL for non-use (iii) CL for significant technological advances (iv) CL to address health emergencies (v) CL as a remedy for anti competitive conduct (b) Conclusions on CL 37 39 4.2.3 Patent pools 3.2 The reverse doctrine of equivalents and blocking patents 3.2.2.2 The right to health as a human right and its status in European law 4.2. 4 The right to health as an interpretive principle in patent law 4.1.2 Patronage.1.3. Unilateral conduct.2.3.3.3.1 The existence/exercise distinction 5.3 European cases on IP and fundamental rights analysis 4.1.1 The effect of patent law on the right to health 4.1 IPRs – public goods.3.2.3.3 IPRs and competition: A systems’ interaction 5.3.2.4.3.3 The transition from separate to unified fields 5.3.3.2.1 IP like other property rights for the purposes of competition 5.3.3.2.2 Case-law on public health 4.1.1 Effect on specific patent provisions 4.3.4 Conclusions ix 82 82 83 84 86 87 87 88 90 91 93 94 96 PART III: Antitrust as a Complement to the Patent System 5. Contents 4.3.2 The right to property and IP: IP as a human right 4.3 Recent recognition of antitrust control 5.2 The indirect effect of the right to health 4.2.3.1 The link between the right to health and patent law 4.4.3.3.3.3 Patenting and the right to health 4. procurement and property 5.2 The effect of the right to health on patent law 4.2 The practice of the courts 5.3.1 Striking the balance: limitations in the public interest 4.4 How antitrust control affects incentives to innovate 5.4 Conclusions 101 101 103 103 107 107 107 109 112 112 114 114 116 119 121 .3.1 Introduction 5. intellectual property rights and Competition Law: a systems’ interaction 5.4.1 Public goods and market failure 5.3.3.2 Implications for competition 5.2 Competition embedded in the IP system 5.3. exclusivity and information goods 5.1 Direct effect 4. The Duty to Deal under Art.3 The more the better? Optimal market structure for innovation 7.4 New product innovation 6.1 Cutting off existing customers: The dependence cases 6.2. 82 122 122 122 123 126 128 130 133 135 138 139 141 143 145 PART IV: A MORE INNOVATION SENSITIVE APPROACH TO THE INTERFACE OF COMPETITION LAW AND PATENTS? 7.2.1 What is a refusal to deal and what is the rationale behind its prohibition? 6.1.2.1.2.2.2.2.1.2 ‘Reservation of an ancillary activity’ and leverage economics 6. 82? 7.2 Concerns relating to a refusal to deal: Potential harm to competition 6.2. Contents 6.1 Indispensability 7.3.3.2 A role for Art.3 Objective justification 6.2 The state of the law 6.3 Conclusions Appendix  The refusal to deal cases under Art.3.2 A gap in the patent system? 7.3 Elimination of competition on a downstream or neighbouring market/two-market requirement 177 177 177 179 179 181 181 185 186 187 187 .3 The indispensability requirement and the essential facilities doctrine (EFD) 6.1 Conclusions on the patent system in the case of research tools 7. The duty to deal as applied to address technology access problems in the biopharmaceutical industry 7.1.1.1 Patent law 7.1 Indispensability 6.2.1 Introduction 6.2.1 The particularity of research tools: pre-commercial stage patents 7.2.2 Two-market requirement 6.2.2. 82 EC 6.2.2 Two possible avenues for increased access to essential research tools 7.2.2 Preventing the emergence of a new product for which there is potential consumer demand 7. 3.2. 82 duty to deal with case law on the patent system 7.2.3.2.2 An innovation sensitive approach: innovation markets in Art. 82? 7. Contents xi 7.3.3 Conclusions on compulsory licensing as a safety net 7.2.4 The absence of an objective justification 7.1 The impact of Art.2.2.4 Conclusion: A human rights approach to competition law? 188 Bibliography   Legislation and Guidelines   Reports and Studies   Authors Index 200 200 204 210 239 189 191 195 196 . Antitr. Social and Cultural Rights Committee European Union Experimental use exemption Food and Drug Administration xii . L. L. CL CML Rev Col. and Med. Rev. Rev. Chi. L. Rev. Tech. J. Bus. Community Community Courts CPC CPTech DOJ EC Treaty ECJ ECLR ECR EEA EFD EGE EIPR ELR EMEA EPC EPO ESCRC EU EUE FDA Advisory Council on Intellectual Property American Intellectual Property Law Association American Business Law Journal American Journal of Law and Medicine Antitrust Law Journal Berkeley Technology Law Journal Buffalo Human Rights Law Review Court of Appeals for the Federal Circuit Court of First Instance Chicago Kent Law Review Chicago Tribunal Compulsory licensing Common Market Law Review Columbia Law Review European Community CFI and ECJ Community Patent Convention Consumer Project on Technology Department of Justice Treaty Establishing the European Community European Court of Justice European Competition Law Review European Court Reports European Economic Area Essential Facilities Doctrine European Group of Ethics European Intellectual Property Review European Law Review European Medicines Evaluation Agency European Patent Convention European Patent Office Economics. L. Hum. J. J. Am. Kent L. L. Trib. Berk.Abbreviations ACIP AIPLA Am. Buff. J. Rts. L. CAFC CFI Chi. . Ill. Rev. University Of Chicago Law Review U. Rev. Corp. Journal of Law and Economics JPE Journal of Political Economy JPTOS Journal of the Patent and Trademark Office Society LQR Law Quarterly Review Mich. Vanderbuilt Law Review VI Vertical Integration WIPO World Intellectual Property Organization WTO World Trade Organization Note: Other abbreviations that have been used are either defined in the text or can be found in the bibliography. Rev University Of Illinois Law Review USA United States of America USPTO Patent and Trademark Office.L. L. L. Michigan Law Review NYU Law Review New York University Law Review OECD Organisation for Economic Co-operation and Development OFT Office of Fair Trading OJ Official Journal OJ Objective justification OUP Oxford University Press R&D Research and Development RJE Rand Journal of Economics SME Small and medium-sized enterprise SPC Supplementary Protection Certificate SSM Specific Subject Matter Stan. Inst. Stanford Law Review TTBER Technology Transfer Block Exemption Regulation TRIPS Agreement on Trade-Related Aspects of Intellectual Property Rights U. FTC GATS IACHR IIC Fordham Corporate Law Institute Fordham International Law Journal Federal Trade Commission General Agreement on Trade in Services Inter-American Court on Human Rights International Review of Industrial Property and Copyright Law IMA Innovation Markets Approach IP Intellectual property IPR Intellectual property right J. L. Abbreviations xiii Ford. L. L. Trans. Rev. J. Chi. L. Ford. L. and Econ. L. Int. J. USA Va. Vanderbuilt Journal of Transnational Law Va. Rev. It addresses the following question: how do we strike the balance between initial and follow-on innovation so as to ensure that access to ‘essential’ research tools (or other fundamental elements for follow-on innovation) is not impeded?    Commission press release IP/05/737.com. available at www.infoworld. In October 2005 a complaint by six phone manufacturers was reported against Qualcomm. Spiriva. 82 to Exclusionary Abuses. inter alia: first. the duty of dominant undertakings to deal/license/supply other undertakings. in relation to possible misuses of the patent system to exclude competition from the market. These initiatives have as their backdrop two central questions.Preface In June 2005 the European Commission announced that it had fined AstraZeneca €60 million for misusing the patent system to delay entry of competitors thereby abusing its dominant position in contravention of Art. alleging that Qualcomm refused to license essential patents on fair terms.    N.europa. with the interface between patent law and competition abuses – by virtue of refusal to deal – in the biopharmaceutical industry. xiv . as well as by misusing rules and procedures of medicines agencies to block entry of generic products or parallel traders.    December 2005. and secondly. Qualcomm accused of anticompetitive conduct in EU. available at http://ec. Gohring. 82 EC. the relationship between competition law and intellectual property rights. this book deals broadly with the relationship between competition law and intellectual property rights. In December 2005 the Commission published a Discussion Paper on the Application of Art. 28 October 2005. and charged excessive royalties for its essential patents thereby acting anti-competitively. a chip manufacturer that owns patents over technology used in 3G handsets.eu/competition/antitrust/others/article_82_review. Against this background and in view of the increased significance these questions are likely to assume in the future. and more specifically.html.    Case COMP/B2/39246. In February 2007 the Commission opened an investigation into Boehringer’s best selling drug last year. It focuses on a paramount element for competition: ‘access’. AstraZeneca abused its dominance by making misrepresentations to national patent offices with a view to obtaining supplementary protection certificates. the Department of Education and Skills. were instrumental in helping my research. Edward Elgar and the people therein who gave me their support. Prof. together with many moments of challenge. excitement and great fulfilment. understanding and words of wisdom. Sandro Paollichi. Emanuela Lecchi. Yianni and Eleni thanks for providing me with immeasurable entertainment. Manoli thanks for supporting me in the finish! xv . Prof. Most of all. evolved into a test of persistence and patience. Ullrich. Prof. Blackburn. I would also like to thank the University of California.Acknowledgements This book started from a series of coincidences. and culminated in a series of good fortunes the most significant of which was to see one’s long-awaited aspiration realised. Charles Russell LLP as well as to the TRA (Bahrain). DG COMP who. Joerges. who has provided me with great support. I would like to thank my friends and family without whose support this experience would not have been so remarkable: Mum and Alexia thanks for listening during my many hours of frustration. questioning and disbelief. The various stages of the manuscript travelled with me across countries. Lévêque. Dimitrios Giotakos. My warmest thanks are due to the European University Institute for the support and funding they granted me over the years as well as my funding body. Lemley. Prof. I am also deeply grateful to the following people who have helped me with their support and useful comments: Prof. Berkeley and European Commission. Jo Betteridge and Kate Pearce. I am. Barton. Katherine Llorca and many more. Prof. Shelanski. Dr Barry Rodger. during my stay there. I am also grateful to the members of CLASF for listening to drafts of my papers and providing me with comments. Dr Alan Riley. Andreas Avgousti. most grateful to my publisher. particularly Luke Adams. and have certainly filled me with many experiences that I have grown with and for which I am most grateful. I owe my most profound and sincere gratitude to my supervisor. 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GRUR [1996] 190.. 43 ‘Hollow plastic profiles II’ BGJ GRUR 1982. Filed 23 March 1998) 191 US v Griffith 334 US 100 (1948) 133 US v Lockheed Martin and Northrop Grumman (DDC filed 23 March 1998) 191 US v Terminal Railroad Association of St.2d 677 (Fed. 21 January 1994. (the Netherlands) 40 Monsanto v Stauffer [1985] RPC 515 CA (UK) 43 Sandisk Corporation v Koninklijke Phillips Electronics NV and Others [2007] EWHC 332 Ch. note Grosheide. Part I The problem – access as a necessary element of follow-on innovation? . . Valentine. produce. because without patents. Research Tool Patenting and Licensing and Biomedical Innovation. If you get monopoly rights down at the bottom you may stifle competition that uses those patents later on. the industry has become fragmented into a two-tier system. Patents in the Knowledge-Based Society. 12 October 1995. in Cohen and SMerill (eds). Biopharmaceutical R&D: the increased importance of cumulative innovation and related concerns We often talk about how important patents are to promote innovation. and so … the breadth and utilization of patent rights can be used not only to stifle competition. Washington DC. in particular. some people jump from that to the conclusion that the broader the patent rights are. and I certainly very strongly subscribe to that … On the other hand. See OECD. Abuse of Dominance in Relation to Intellectual Property: US Perspectives and the Intel Cases. and that isn’t always correct. in which small biotech firms carry out all of the innovative research.gov/speeches/other/ dvisraelin. In the US. p.A. Stiglitz before the FTC Hearings on Global and Innovation-Based Competition. Hence. because we have an innovation system in which one innovation builds on another. which the large pharmaceutical companies then further develop. We have to strike a balance.1. Global Competitiveness in Pharmaceutical Industry (2002).ftc. Gambardella et al.htm. The Pharmaceutical Industry. but also [can] have adverse effects in the long run in innovation. 1999 at http://www.     Ibid. Paris (2001).     J. also quoted in D. Walsh and J.1 Introduction Recent changes in the nature of research in the biopharmaceutical industry have given rise to new concerns regarding innovation. 1. prepare and market. Much of the research carried out by small biotech firms involves upstream innovative research that is fundamental to the development of downstream research on products and processes. at the Israel International Antitrust Law Conference. A. research has increasingly become dependent on access to other fundamental upstream research. the better it is for innovation.E. 285. 15 November.     J. Cohen.  . National Academies Press (2003). people don’t appropriate the returns to their innovation activity.  39–40. Once a marketable product has been developed. 39–40. Nuffield (2001) op. Working Group on Research Tools. Its discovery was reported by Myriad Genetics and Utah University in 1994. Watching the race to find the breast cancer genes. impairing equitable access to testing and the public health approach. 813. For example. It is important.html shows.     Ibid. The recent increase in patenting in the biotechnological field has raised several concerns regarding the potential implications for healthcare.bio.     Biotechnology Industry Organization: Editors’ & Reporters’ Guide to Biotechnology (Feb. Resolutions B5-0633. was the concern that patents are sometimes granted in cases too broadly to even cover unanticipated utilities. for this reason. 2000). Competition is perceived to be a driving force and to allow multiple independent research paths that are important for creative development.g. Bédard. to ensure that cumulative innovation in the pre-commercial stage is not impeded. but rather. 0641. that in the USA biotechnology patenting escalated from 2. Hence. Houle. See also Report of the National Institutes of Health NIH. Access as a necessary element of follow-on innovation? Unlike most industries where innovation involves improving upon a first product. 2001– Case Studies. Technology. for example. and not subject to significant improvements in the end-product market. a biologic (e. in the biopharmaceutical industry. The author notes that an exception to this is where the patented drug is not a traditional small molecule chemical. L. and Human Values 187–216 (2002). 0651 and 0663/2001– on the patenting of BRCA1 and BRCA2 (‘breast cancer’) genes OJ 2002 C 87/265. cit. Bouchard.     The BRCA1 gene indicates susceptibility to breast cancer. The Ethics of Patenting DNA. 16 Berkeley Tech Law Journal 813 (2001). referring to an ‘increasing use of the patent system to obtain proprietary rights in research tools’. 28(2) Science. L. pp. A-J. Rai.K. R.org/aboutbio/guide2000/facts. Dalpé. which may hamper further research.000 patents issued in 1998. This is significant as it may otherwise lead to a limitation in the paths to biomedical research. before the initial marketable product is produced. presented to the Advisory Committee to the Director. most cumulative innovation occurs in the pre-commercial stage. See Nuffield Council on Bioethics. pp.000 patents issued in 1985 to more than 9.     Ibid. p. the CCR5 Receptor gene used in research for HIV/AIDS drugs spurred concerns regarding the reasonableness of rewarding estimations of util-     R. . protein or macromolecule) and the improver has come up with a method to produce the biologic that is drastically different. 4 June 1998. Fostering Cumulative Innovation in the Biopharmaceutical Industry: The Role of Patents and Antitrust. available at www.     This led to a Resolution from the European Parliament in October 2001 opposing the patenting of the BRCA1 gene. it is usually only subject to competition by me-too drugs or generics. the grant of a patent over the BRCA1 gene raised concerns that the patent would hamper innovation and the identification of new tests and diagnostic methods. Related to this. and ever since the gene and its mutations have been part of numerous patent applications. 13   This refers to a situation whereby every patent holder over-estimates his position and the value of his patents. this means that one can impede others from using his technology but is also impeded from using the technology himself by the rights of exclusion of others. Expanding the Boundaries of Intellectual Property. 11 . Can Patents Deter Innovation? Anti-commons in Biomedical Research. Eisenberg.. cit.   While inventions were made. with the rise in privatisation this came into the hands of private firms who were able to exclude others from their findings. Heller and R. 280 Science 698. 1 May 1998. 12   M. In an article published in Science magazine. See also R. actors and inter-connectiveness complemented the drug development process. 14   R. 168. patenting made commercial sense where before there was nothing to patent. Dreyfuss et al. As more stages. 5 RISK 163 (1994). in R. p. coupled with the heterogeneous interests of owners and the cognitive biases of researchers. patents were not taken out. and the effect that such patents may have on research if they are not licensed extensively. which states that: ‘the stacking of intellectual property obligations as successive tools are used in the course of an extended research project has the potential to impede or even preclude the development of new and better diagnostic and therapeutic products’. Oxford University Press (2001). Technology Transfer and the Genome Project: Problems with Patenting of Research Tools. therefore. whereby too many people have the right to exclude and no one has an effective right to use. op. Eisenberg.A. Heller and Eisenberg postulated a theory that too many patents on upstream innovation could lead to two eventualities. The degree to which research is fragmented and dependent on too many other patents depends on many other factors including the breadth of the grant of the patent. The creation of too many fragmented and overlapping patent rights could lead to high transaction costs.10 While in the 1980s upstream innovative research was mainly governmentsponsored research. the granting of too many fragmented patents may lead to a situation identified as the ‘tragedy of the anti-commons’. The second eventuality postulated is that the granting of patents for fundamental upstream research could lead to a situation whereby patent owners stack licenses on top of future discoveries of downstream users. and/or impede the creation of downstream-dependent inventions.11 These two trends immediately raised fears that patents would deter innovation. the nature of the research and the extent to which it is cumulative or 10   Ibid. which. Biopharmaceutical R&D  ity. it is difficult to reach an agreement on licences. Eisenberg Bargaining Over the Transfer of Proprietary Research Tools.13 could make bargaining unlikely in most cases. leading to the creation of fewer products and to less innovation. p.12 First.14 Heller and Eisenberg did not present scientific data to support their theory. Oxford. 41. nonetheless. this might be problematic depending on the breadth and degree of restriction compared to the incentive necessary to invest in the first place. However. the lack of access might lead to less innovation. 19   D. However. determine the motives for refusing access or not. The effect of control upon such discoveries will depend.19 Does the existence of many patents hinder 15   J.G. on how essential it is for subsequent innovation. They found that while there is an increase in the patents on inputs to the discovery of the drug. and the bargaining power of the players.. E. cit. enforcing and contracting for patents may make a difference between entering or not entering such negotiations. (2002) op. Nicol and J. 18   Ibid. cit.17 Depending on the breadth of the interpretation and the capacity of a firm to market in a timely fashion. It is stated that it is quite difficult to obtain quantitative data on the number of projects abandoned. However.. Patents and Medical Biotechnology: An Empirical Analysis of Issues Facing Australian Industry. however. (2002) op. on the degree of rivalness in use of the first and subsequent products as this will. Holzapfel et al. in the case of targets. anti-commons issues).18 Although such concerns have arisen.’ 16 . no evidence was given in support of these factors. in turn. Nielsen. Centre for Law and Generics Occasional Paper No. In particular. constitute important tools for advancing research. cit. Access as a necessary element of follow-on innovation? discrete. and secondly. the approximately 33 per cent increase in the transaction costs for filing. 17   Ibid. 6 (2003). on the issue of restricted access to upstream discoveries and its effects on innovation. Walsh and J. we do acknowledge that projects will be abandoned or redirected for a whole host of reasons. See also J. Cohen (2003) op. the discovery was not substantially impeded except in the case of patented genetic diagnostics. there is not much scientific evidence to support one finding over another. they found that while there may be some delays in negotiating access and that negotiations could be costly. (2002) op. They also found that working solutions such as licensing. With regard to the ‘anti-commons’. first. They found that access to foundational discoveries can be restricted. Lawson. depending on the size of the firm. and that patents over targets may limit access in certain cases. and these may often be more to do with the intrinsic value and likelihood of success of the technology than the level of encumbrance. Thereafter.e. more specifically. there was no evidence of bargaining breakdowns or of a real threat of royalty stacking or a failure to undertake projects on this basis. inventing around the patents. ‘It may be that this will occur because of patent thickets and perceived future negotiating difficulties (i. Campbell et al.   Ibid.16 Walsh and Cohen were less conclusive. challenging patents and relying on the goodwill and information sharing between companies. cit. C. Walsh and Cohen15 attempted to test these hypotheses against more scientific data. 23 Hence. Researchers who use them in the laboratory may view them as tools. Biopharmaceutical R&D  the development of products related to health care? Do upstream patents deter further innovation and is exclusion really a problem? This concern has been heightened in the case of research tools. research tools embrace ‘the full range of resources that scientists use in the laboratory’22 including ‘cell lines. reagents.M. They are a typical example of upstream innovation required to develop downstream innovation. See also G. cit. In this sense. but not an end product sold directly to consumers. whereas firms who primarily manufacture and sell these resources may consider them ‘end products’. 21   NIH Report on Research Tools (1998) op. animal models. Research tools are licensed for particular sequences or applied to discover drugs or other research. cit. 22   NIH Report on Research Tools (1998) op. they can be sequences used in research with no immediate therapeutic or diagnostic value. 1 (2001).20 1. 23   Ibid. monoclonal antibodies. it may be that they are only an illustration of a more general concern also present in other cases. 29 IDEA 533 (1999). 10.M. 24 Patent 20   Though focus is on the case of research tools. may realise a commercial value. No Dilettante Affair: Rethinking the Experimental Use Exception to Patent Infringement for Biomedical Research Tools. . 76 Wash. the EST approach involving the rapid sequencing of the coding parts of genes was used as a means to locate entire genes. and in this way. cit. they are a means to develop a commercial product such as a medicine or a vaccine. laboratory equipment and machines.21 In their broadest sense. and J. For example. combinatorial chemistry libraries. Panning for Biotechnology Gold: Reach-Through Royalty Damage Awards for Infringing Uses of Patented Molecular Sleeves. p. A material transfer agreement (MTA) is a negotiated contract between the owner of a material and a party that seeks to use it for research. See Chapter 7 for discussion of Pharmacy Benefits Management (PBM) networks. Mueller. clones and cloning tools. drugs and drug targets. p. 11. Mueller (2001) op. growth factors.1 Defining Research Tools The term ‘research tools’ has many meanings depending on the perspective.2. methods. Rev. p. 24   J. databases and computer software’. A high percentage of the basic research tools of biotechnology are subject to proprietary restraints (such as patents) or material transfer agreements. Cullem. 3. L.2 The case of research tools 1. 000 sequences may be attached. describing DNA chips that offer a myriad of potential applications for studying genes and diagnosing genetic mutations. Times. 28   This research tool has been extensively licensed.S. ‘GeneChip’ Encodes DNA on Silicon.A. Eisenberg and R. Taking the Profits out of Biomedical Research Tools. pp. 3 February (2000).J.I.A. Technology and Economic Policy’s Conference on Intellectual Property Rights: How Far Should They Be Extended? Washington DC. SCIENCE at www. Comments on the Patentability of Certain Inventions Associated with the Identification of Partical CDNA Sequences. Response to Policy Commentary. licensing will prove to be exceedingly difficult. remarks at the National Academies Board of Science. . Opinion Letter as to the Patentability of Certain Inventions Associated with the Identification of Partical cDNA Sequences. 29   This was initially owned by the Cetus Corporation. 1 (1995). 53 (1995). 17 Nature Biotechnology 819 (1999). Flores. pp. Junnarkar. 30   The patent was assigned by Leder-Stewart to Harvard University who exclusively licensed it to E. Blackburn.29 The PCR selectively multiplies a region of DNA so that it can be experimented on and analysed. There has been some debate on whether ESTs are truly research tools.Y. Chief Patent Counsel. McLeod. 26   See S. 27   J. See R. 23 AIPLA Q. du Pont de Nemours. M. 31   Ibid.26 Some of the most important research tools include:27 l The Cohen-Boyer Patents covering the basic method and plasmids for gene cloning.31 25   S.M.P. Mueller (2001) op. Access as a necessary element of follow-on innovation? protection is deemed necessary for such tools to recover the high cost of their development. 13–14.M. See R. Mueller (2001) op. p. a basic method of amplifying DNA sequences and its key reagent. These are a fragment of complementary DNA (cDNA) and are useful in finding the full-length gene. Chambers. 15 March 1997. l The Harvard ‘oncomouse’ useful in cancer research.30 l Expressed sequence tags (ESTs) identified in decoding the human genome. 12–14. the enzyme Taq DNA polymerase. See J.M. Merges. Seide and J.25 The biotechnological research environment is complicated by the fact that researchers need access to several research tools to conduct their research. N.shl. On these chips more than 40. and if each of these is covered by a patent. cit.org/feature/data/980465/ seide.sciencemag. See also R.28 l Polymerase chain reaction technology (PCR).J. cit. Chiron Corporation. 13. 23 AIPLA Q.K. cit. Hoffman-La-Roche accused more than 40 US universities and research institutes and more than 200 scientists of infringing its patents. but is also complicated by other factors and determinants such as the definition of infringement. Rabinow. 2. diagnostic methods and other therapeutic products and the heightened difficulties in their access and dissemination have continued to trouble the research community. Understanding DNA and Gene Cloning: A Guide for the Curious.   M. 36   Hoffman-La-Roche Challenges Freedom of Researcher. List of ‘Infringers’ Includes Hundreds of Researchers and Dozens of Government-Supported Laboratories.32 In 1995.33 The alleged wrongdoing involved the purchase of Taq for use in the PCR process34 from a company which. Legal Times. 37   J.37 Coupled with the increase in patenting in recent years. La Roche and Promega in Tug of War Over Enzyme. which were described as ‘violating practices and principles basic to the advancement of knowledge for the public welfare’.35 Roche’s attempts to restrict the use of Taq and PCR provoked great alarm.2. Aguilera. Rubenstein. the narrow interpretation of some of the working solutions such as the experimental use exemption. the revolutionary DNA amplification process using Taq. p. producing quantities of DNA sufficient for experimentation and analysis. New York: Wiley edn. the dispute involves the broad rights stemming from patents on such tools. 3. 33 . M.M. Mueller (2001) op.. Mueller (2001) op. 39   In addition. DNA-Testing Tool Patent at Issue.39 According to the Nuffield Report: 32   J. Local Institutes Named in Lawsuit. (4th edn 2003). In essence. at 15. Mueller (2001) op. cit.M. Scientists Named in PCR Suit.38 the use of these biomedical tools to advance R&D for new drugs and therapies. cit. 25 May (1995).C. 35   J. San Diego Daily Transcript. See Chapter 3. 268 Science 1273 (1995). See also K. transaction costs. cit.2 The Patent Experience in Biotechnology: Biomedical Research Tools The thermostable enzyme Thermus aquaticus YTI DNA polymerase (Taq) is a basic and widely used biotechnology tool. proliferation complications and licensing practices. p. Biopharmaceutical R&D  1. 24 May (1995). Jan. Making PCR: A story of Biotechnology. cit. was not licensed to sell Taq for such use.M. Corp. pp. 38   Nuffield Report (2001) op. Barinaga. B.M. 34   PCR refers to the polymerase chain reaction. Bus. University of Chicago Press (1996).36 The possibility that this large number of actors would be found guilty of infringement triggered a whole debate on the patenting of research tools and the implications for technological and medical progress. 1996. Chicago. Wire. 128–32. The latter consists of multiplying a specific region of DNA. pp. 153–7. aggravates the situation. according to Roche. See J. 3rd edn (1997). Mueller (2001) op. P. Taq allows the PCR process to be automated. Drlica. pp. 44   See J.43 Another study is also quoted. research may.’41 In the case of diagnostic tests.10 Access as a necessary element of follow-on innovation? There are various ways in which patents on DNA sequences which have a primary use as research tools may inhibit innovation and development: the cost of research may increase. as they are broad in scope (covering all of the uses of DNA obtained and sometimes protein DNA produces) and/or are granted when the criteria for inventiveness and utility are weakly applied.   Ibid. On the other hand.14. which proved that 30 per cent of the laboratories discontinued or did not develop genetic testing for haemochromatosis because of exclusive licensing of patents that asserted rights over the most common mutation in gene involved. Metz. Cho. 415 Nature 577–9. The case studies also reveal that some patent offices have been willing to adopt low thresholds for inventiveness and utility. 2nd edn.40 Hence. (2002). or license it exclusively to one or a limited number of licensees. 1998. Hamlet-Cox.42 A study has shown that almost half of the research laboratories surveyed ceased to pursue research on genetic testing because of the patents on DNA sequences. but also over new uses that are developed. in Preparing for the Millennium: Laboratory Medicine in the 21st century. 5. there is a concern regarding the breadth of the patent on such tools. AACC Press. The Nuffield Institute of Biotechnology concluded that the law is generous in granting patents to DNA sequences. a patent owner may withhold a license to gain maximum financial benefits. 43   See M. 42   Ibid. Metz produces some evidence that individual researchers may have terminated individual research projects as a consequence of property disputes. 47. as the grant of increasing numbers of patents will mean that ever more licenses are required before research can be conducted. 47–63. 41 . companies that wish to acquire the rights to several DNA sequences may decide not to develop a therapeutic protein or diagnostic test because of the number of royalty payments that would be required (this is sometimes referred to as royalty-stacking). the problem has been highlighted as the fact that ‘excessively broad patents containing a claim to all conceivable diagnostic tests create a monopoly such that there is little incentive to develop improved tests’. inventors are entitled to property rights not only over the uses of their invention that they anticipated or predicted. Ethical and Legal Issues in the 21st Century.44 40   Nuffield Report (2001) op.F. et al. Washington DC. Diagnostic testing fails the test. p. argue that the evidence does not indicate any aggregate reduction in biological research as a consequence of gene patenting. be made more difficult if researchers are required first to negotiate the use of patented genes and sequences. L.. para. cit. as a matter of practice. 77 Academic Medicine 1373 (2002). ‘This is because the patent system provides that in the case of patents directed to novel and inventive DNA and other chemical entities. Gene Patents and Innovation.K. Bendekgey and D. Ko. 5. 1379 (N. Products developed through the use of the invention may be found infringing even though they do not involve the sale of the patented invention. while reading process limitations out of a claim that expressly recites them. and can shift the balance one way or the other.D.4. cit. ‘The decision reflects two antagonistic results. is now being questioned as there may no longer be a need for cloning in order to identify a DNA sequence and that identification may be achieved by computer databases.’ 46   J. ‘Use liability arises under the patent laws even though the researcher has not physically incorporated the patented tool into the new product that is ultimately marketed. We note that as techniques have advanced. . 47   In the USA.45 In addition. in view of the inventiveness required to isolate the DNA sequences. Cal. 102 Yale Law Journal 777 (1992). we accept that a limited number of the early patents granted on the basis need not now be called into question. 666 F. p. makes no reference to any process parameters. in Scripps Clinic and Research Foundation v Genentech. the patents should be examined in the light of the criteria for inventiveness and utility. however. Biopharmaceutical R&D 11 Other patents. This. cit. Genetic information was initially found to be patentable as it was thought that by isolating it or producing it through a technological process.’ Y. and in particular as the use of computers to identify genes has become more widespread. The lax application of the patentability requirements may lead to unjustified 45   See Nuffield Report (2001) op. the broad interpretation of infringing activity by the courts may aggravate the perceived broad nature (relative to disclosure) of such patent rights. para. refusing to construe product claims to include inherent process limitations. the required threshold of not existing in nature had been satisfied. are granted without being warranted. the eligibility of DNA sequences for patenting should have diminished. patents have been filed on many DNA sequences which were mass produced by a mixture of computational and cloning techniques. Mueller (2001) op.M. Even though we think that the judgment that isolated DNA sequences are eligible for patenting is based on a questionable extrapolation to the case of genetic information from the case of the isolation of chemical compounds.’ The ‘selling’ prohibition has not been violated because the research tool is not incorporated in the commercial product. patents confer broad rights to the owner as he can prevent others from using the patented invention without distinction as to the nature or the purpose of the use. Even if it can be convincingly argued that these sequences were eligible for patenting.47 Hence. Supp. An Economic Analysis of Biotechnology Patent Protection. it is felt.46 The interpretation of the breadth of the patent as regards infringing activity can be determinative. Since the early days of the pioneering experiments using positional cloning techniques. It found that product by process claims are not limited to products prepared by the process set forth in the claims. 1987) the Federal Circuit found a patent infringement by virtue of the production of the same protein by recombinant means. creating possible process-related exceptions to infringement of a product claim that on its face. ‘We have considered the question of whether DNA sequences should be eligible for patenting. 6. Soc’y 819 (1989) p. for the purposes of interpreting rights conferred by a patent. they might be considered essential as a whole. the infringement of patents covering the basic research methods that led to the product will become an increasingly difficult problem’.48 Accordingly. when sequences overlap only in parts which are not essential to the invention. 49   Recital 25 provides: ‘Whereas. & Trademark Off. 15–16 February 1996. Eisenberg. Pat. Gitter. p.html. However. in which strong patent protection promoted broad access. for partial DNA sequences it may become relevant to distinguish between coding and non-coding sequences.’ 50   See.3 The Effect of Patent Trends on the Patent Balance for Research Tools The effect of the issues raised above on the research community and more generally on innovation.51 48   In a joint article of the President of the US National Academy of Sciences and the President of the Royal Society of London. This may be in current shareholders’ interests.12 Access as a necessary element of follow-on innovation? grants or extensions in scope which heighten the risk of restricted research tool access when coupled with a wide interpretation of infringement.’ Biotech Directive (1998) op. in R. and the case of protein and DNA sequencing instruments.’ D. both EU and US researchers admonish that ‘those who patent DNA sequences without real knowledge of their utility are stacking claims not only to what little they know at present but also to everything that might later be discovered about genes and protein associated with the sequence. 1642. there may be an overlap in an essential part of the invention. International Conflicts over Patenting Human DNA Sequences in the US and the EU: An Argument for Compulsory Licensing and the Fair Use Exemption. Nelsen describes the . The Patenting and Enforcement of Inventions Relating to Research Tools: Chances and Problems. however. Feit. cit. for example. 76 NYUL Rev. in IPRs and Research Tools in Molecular Biology. While the existing case studies have not shown a recognisable problem with access to upstream research tools.2. Biotechnology Research and the Experimental Use Exception to Patent Infringement. the case of recombinant DNA. at www. They are in effect laying claim to a function that is not yet known or a use that does not yet exist. is unclear. 279 Science 1460 (1998). 51   See I. 71 J. ‘As regards ESTs and SNPs. 1623 (2001). Nelsen. See also Vossiues and Partner. but it does not always serve society well.49 1. Summary of Workshop Held at the National Academies of Sciences. See also L. The Rise of Intellectual Property Protection in the American University. 821. predicting that ‘as commercial products of biotechnology become available.vossiusandpartner. in which licensing arrangements were controversial. each sequence will be considered as an independent sequence in patent law terms. Art. the case of PCR and TAQ Polymerase.com/eng/publication/pub-patenting_and_enforcement. Patenting Research Tools and the Law.50 some commentators believe that this is becoming a growing concern.N. in which the patented research tool was non-exclusively licensed with low fees. 9 and Recital 25 of the Biotechnology Directive recognise that in determining the scope of protection of corresponding claims. p. p. in biotechnology. The universities. cit. Mueller (2001) op. These firms lie somewhere in between fundamental academic research and end product development. Access to research tools based on DNA sequences may indeed prove to be difficult and expensive unless the patents that protect them are licensed easily and widely. ‘Holders of genetic patents have been charging steep licensing fees for use of their information and sending “cease and desist” notices to competing companies. See also R. 54   NIH Report on Research Tools (1998) op.. 52   Nuffield Report (2001) op. Paris (2002). . Trib. cit.55 Altogether this leads to a heightened concern among scientists regarding the high prices and burdensome licensing conditions associated with research tools. pp. These differences of view most likely reflect the extent to which individual companies own patents that assert rights over DNA sequences. 53   See Should Congress Liberate Gene Data? Chi. 56   J. 55   OECD. cit. 255–7.54 This situation also results in increases in secrecy and delays in research. which might make the difference for small firms between being on and off the market. Eisenberg (2001) op. pp. 59–60. pharmaceutical firms and biotechnology firms each have different expectations. cit. A Deluge of Patents Creates Legal Hassles for Research. ‘The stacking of intellectual property obligations as successive tools are used in the course of an extended research project has the potential to impede or even preclude the development of new and better diagnostic and therapeutic products’.52 In the least grave of cases. 16 September. 288 Science 255 (2000). They are also most likely to depend on the commercialisation and the financial value of the research tools as they lack end products for sale to non-research consumers. Some companies take the view that the additional costs incurred through the need to take out large numbers of licenses on DNA sequences for use in research are not significant.M. See also E. the emergence of commercial biotechnology firms in market niches can be seen.53 The increasingly high transaction costs are becoming a real problem and might pose a barrier to researchers and hence act as an effective lack of access. lawyers and business people involved in the negotiations. IPRs and Licensing Practices: Evidence and Policies. 223 who claims that one of the difficulties in the biopharmaceutical industry in concluding transactions is the heterogeneity among the institutions. p. academic medical centres and clinical laboratories that use it without permission’. Even within a single institution the interests may be different between the scientists.56 Numerous upstream patents must be practised to make a new down- ‘restricted availability or delays in exchange of “research tools” (such as vectors or transgenic mice in biological research’ as one of the problems that universities face. evidence has shown that such patents may lead to more costly negotiations. Marshall. 8. 1460–61. Biopharmaceutical R&D 13 Opinion differs in the pharmaceutical industry as to the effect of this on the discovery of new medicines. 22. pp. 1999. Others consider that the costs incurred are already having a significant impact on profit markets. Genetic Inventions. For example. cit. Strauss. cit. 69. Eisenberg (2001) op. a survey showed that almost all patents were licensed exclusively. cit. this may cause difficulties and complicate the situation by virtue of the licence of several research tools. 59   Ibid. In this way. at OECD Workshop on Genetic Inventions. which states that ‘rather than risk a lawsuit or pay fees they consider exorbitant. However. thus impeding the provision of genetic testing services. This could mean. An empirical study of German inventions and the patent system concluded that there is a proliferation of DNA patents and unduly broad patents causing a situation in which patents are dependent on earlier inventions. IPRs and Licensing Practices: Evidence and Policies. However. however.S. if there are too many pre-commitments to future products. 168. .57 Patents on research tools can ‘create obstacles to subsequent research and development and add to a thicket of rights that firms must negotiate their way past before they can get their products on the market’. it has often been said that patents have a negative impact on access. which may cause a reluctance to enter certain fields in which genes have already been patented and that royalty stacking and higher transaction costs are present. research tools have been treated as staple goods that can be easily purchased.59 Genetic testing for a predisposition to diseases and early diagnosis is an issue of great importance and restrictions on its availability may raise ethical concerns. even without disclosure of 57   R. that they are offered at prohibitive costs.58 In the case of clinical use. Eisenberg (1994) op. that research tool patents are not viewed in all cases as an obstacle to research. In 1999. p. It should be clarified. Paris. Genetic Inventions and Patent Law. thus leading to a problem of ‘royalty stacking’. p. it was also found that exclusive licensing might be necessary to the additional investment needed to develop and test the potential economic viability of the product. 60   Nuffield Report (2001) op. the costs and quality of testing and on information sharing between researchers. cit. some researchers have stopped exploring diseases whose genetic profiles already have been licensed’. See also Should Congress Liberate Gene Data? (1999) op. 2002.14 Access as a necessary element of follow-on innovation? stream product.60 It is difficult to assess the frequency of access issues and their effect on R&D and so whether the problem is occasional or systematic is unclear. in genetic tests. 58   R. the existence of patents may lead to a redirection of research in other fields if it is perceived that dependency might be avoided. 61   J. the tool owners try to leverage their proprietary rights in early innovations in order to have a share in the profits of future innovations. Reach-through licensing terms attempt to govern rights to potential future inventions made by the user of the research tool. In some cases. in practice.61 Hence. protection appears to have impeded access to information and therefore concern has been raised over the high costs and limited access to genetic testing. Hence. leading to an explosion of legal disputes and potential delays in innovation. Biopharmaceutical R&D 15 intended use.A.A. Eisenberg (2001) op. In addition. First. it is unclear whether a process claim which covers the screening of a drug would be infringed by the importation of the data resulting from the screening process. Patenting the Tools of Drug Discovery. although damages might be available for this purpose. cit. 229. p. 40–42. and if. cit. pp.A. See also Art. In addition. therefore it has been suggested that. See Intellectual Property Rights and the Dissemination of Research Tools in Molecular Biology. some firms could use the patented research tools without a licence.’ 67   In Germany section 141 PatG provides that claims for infringement lapse after three years from the time when the claimant obtains knowledge of the infringement and 63 . Eisenberg (2001) op. 233. 65   R. Though this may be becoming increasingly difficult in view of the recent US decision that allows for the initiation of litigation based on a previous request for information from the potential defendant. Summer 2001. the applicant can claim compensation reasonable in the circumstances from any person who has used the invention in the said State in circumstances where that person would be liable under national law for infringement of a national patent’. The issue in such a case would be that the material for which approval is sought (the drug) is not the patented invention for which the immunity is sought (the target or the software). Goldstein. cit. 9.66 As the detection of the use of a research tool may not occur until a commercialised product has been developed. Goldstein (2001) op. 9. 9. p. Drug Discovery World. Summary of a Workshop held at the National Academies of Sciences. 15–16 February. ‘Yet it is not clear whether a patented receptor of software used in the pursuit of regulatory approval for a drug would be immune under the clinical research exemption. pre-issuance use of the patent between the time of publication and the time of the granting might be possible. Goldstein (2001) op.63 there has been no problem with regard to access. ‘Some proprietary research tools have been widely distributed under license agreements that permit subsequent research to go forward while preserving a return for the patent owner’.   This was owned jointly by Stanford University and the University of California and constituted a fundamental technology which was useful for research into a range of problems. cit.62 In such cases. 1996 (1997). J. p. 67 EPC which states that ‘from the date of publication of a European patent application. in the US and now in the EU there is immunity for infringement when it is done in pursuit of regulatory approval for the drug. assuming that they can settle the matter once. for example in the case of the Cohen-Boyer patent on recombinant DNA technology. they discover something meaningful. 64   J.67 62   R.65 In addition. p. The terms of its licence permitted its wide dissemination and use. in view of the difficulty in negotiating something speculative. 66   J. it may even be possible to escape any liability whatsoever due to the statute of limitations.64 Policing is also quite difficult. while it constitutes an infringement to import a product made by a patented process in the USA as long as the product made abroad has not been materially changed. p. practical considerations may be used to allay the concerns raised by research tool patenting. in view of the increasingly cumulative nature of innovation. Where their grant is unjustified or overbroad. and this may often be seen as unjustified by the research community.16 Access as a necessary element of follow-on innovation? 1. hinder innovation. damages can only amount to a reasonable royalty. pp. however. whose limitation period is 30 years. 301 ‘Hollow plastic profiles II’). Practical evidence confirms that patents have been extended both in subject matter and in scope. by definition. this is unlikely as it normally takes more than three years to get approval for a pharmaceutical compound. as a result. BGH GRUR 1982. involve a degree of exclusivity. regarding the issue of exclusion. a concern has been raised regarding the proliferation of patents.3 Conclusion In conclusion. and (4) the fact that the evaluation of research tools involves an estimation of their contribution to potential future discoveries which is a highly speculative and subjective process. Research tools have been at the centre of these discussions. (2) the heterogeneity among institutions leading to complications in reaching agreeable terms of exchange. . lack of access is bound to be seen as unwarranted. cit. 232–47. While it is felt that this may in turn lead to the hindering of innovation. Nevertheless. which may impede access to essential technology and. 69   See R. their very grant is bound to affect access to the patented technology. Bearing in mind that damages are only high enough to merit instituting legal proceedings after a new pharmaceutical compound is successfully put on the market. there has been no evidence to date produced which unambiguously establishes a clear negative effect on innovation. (3) the differences amongst agents in institutions such as between scientists and lawyers and business people. Eisenberg attributes this to the following four factors: (1) the fact that transaction costs are a greater obstacle in low-value exchanges and might be inhibited. See also the UK statute of limitations barring infringement actions after six years and the equitable doctrine of ‘laches’ which might estop the patent proprietor from bringing an action in the first place.69 More specifically. there is still some concern in the industry that access to essential of the identity of the infringer. be possible to claim damages in license analogy for unjustified enrichment. although the Federal Supreme Court held that. The main concern relates to the increased transaction costs68 and the difficulty in reaching licensing agreements. More specifically. As patents. although the problems in this area might simply represent an instance of what might be a more general problem. current practice shows broad licensing patterns in most cases. the case of research tools was examined as it captures the essence of the concern in relation to follow-on/downstream innovation in the biopharmaceutical industry and striking the patent balance. 68   This may stem from the proliferation of patents. the need to negotiate with a wide range of people or from other factors associated with the need to negotiate access to upstream patents such as exclusion or high prices. in this case. Eisenberg (2001) op. (It might. amounts to a misapplication of the patent system. or stop the development of important new products’. Biopharmaceutical R&D 17 upstream technology may be refused and it is felt that this may impact negatively on innovation. it is not clear what these solutions involve or how the situation would differ in their absence. We consider. 70   See NIH Report on Research Tools (1998) op. is not clear. cit. therefore. p. the granting of patents which assert rights over DNA sequences as research tools should be discouraged. if endorsed by the patent offices. Despite the ambiguous nature of the evidence on the purported lack of access and its impact on innovation. 71   J. . and advance commitments regarding intellectual property rights in future discoveries’. We consider that the development of a culture among those who carry out scientific research. However. cit. 4. restrictions on the dissemination of materials and information restrictions on the ability to collaborate with commercial firms. Cohen (2003) op.70 Whether this should be seen as a systematic failure in the patent system.71 In addition. we take the view that the exercise of a monopoly over what are now essentially discoveries of genetic information accessible by routine methods is. whereby claims are made to naturally-occurring material which can be isolated by routine procedures and to which a weakly demonstrated or hypothetical utility may be ascribed to secure some possible future value. cit. it could be questioned whether it is sensible to have a system that relies on encouraging infringement. In some cases. giving rise to transaction costs associated with acquiring the right to use each such tool. 290.72 The Nuffield Committee has admonished: There is insufficient evidence to judge the extent to which the granting of patents that assert rights over DNA sequences based on a primary use as research tools is producing the potentially deleterious effects set out above. postpone. the patentee may refuse to license the research tool altogether. Walsh and J. which lists refusal to license as one of the key concerns in the area of research tools. however. In view of the above discussion. industry participants still feel that this is a problem that needs to be addressed. This report also recommended that wide licences should be encouraged. ‘Burgeoning research and development will require ever-greater numbers of proprietary tools. in principle. or simply as individual instances of restricted access. The sum total of the transaction costs involved with acquisition of all necessary research tools may be so severe as to impede. Mueller (2001) op.M. The industry also attributes the lack of evidence of a discernible impact on innovation to the existence of working solutions. onerous royalty obligations. the next chapter considers the significance that ‘striking the balance correctly’ assumes in the biopharmaceutical industry. 72   J. The definition of obstacles includes: ‘refusals to license. p. pp. that in general. highly undesirable. as one of the working solutions is infringement. 6–7. .18 Access as a necessary element of follow-on innovation? and the mechanisms available within the patent system to encourage wide licences and to reduce the problem of transaction costs in the area of research tools. Part II The patent balance and working solutions in the patent system . . The Nature and Function of the Patent System. and non-rival commodity. Study No.1 The Patent Balance The patent system is an integrated means of addressing public policy concerns.. in M. M.2. The patent system as a system of balancing 2. 15 of the Subcomm. Kitch. 85th Cong. Wallerstein.gov/opp/intellect/0207salabasrvy. An Economic Review of the Patent System. Machlup.     P.1: Main rationales of patent system 1.ftc. Box 2. It is concerned with encouraging the R&D of new intellectual products that would otherwise remain undeveloped or under-developed due to the ease of appropriability of knowledge and the difficulty in excluding others. Copyrights and Trade Secrets in Economic Theory and History. This is because knowledge could be described as a durable. In the absence of the government grant of property rights. 2nd Sess. it is argued     ABA. E.pdf. on the Judiciary. Hence. David.A. ABA. July 2002 available at http:// www. Trademarks and Copyrights of the Senate Comm. The Economics of Innovation: A Survey. 20 Journal of Law and Economics 265 (1977). While the costs of production are high. Intellectual Property Institutions and Panda’s Thumb: Patents. Mogee 21 . the costs of imitation and reproduction are low and there is ease of appropriability. This is the most common rationale for the patent system and its justification is usually based on the market failure rationale. it is argued that the competitive market would not give a sufficient incentive to induce the optimal amount of innovation. The patent system provides incentives for investment in innovation by granting a limited monopoly that allows the inventor the opportunity to make a profit on the invention. F. (1958). it also has competing interests to address. Invention motivation. indivisible. on Patents. While its main objective is to encourage innovation.W. National Research Council. This rationale is based on the assumption that the inventor cannot reap the full benefits by relying solely on secrecy measures to prevent imitation. although some highprofile patents are viewed as harmful to rivals and most patents do not generate significant market effects. particularly where the inventor cannot exploit the potential of the invention himself and where secrecy would allow the inventor to reap some of the returns effectively. Disclosure. the costs are related to static ones of reduced access and the possible exercise of market power. may be beneficial to rivals. This may in turn lead to a wider use of the inventions. Invention commercialisation. and waste due to ‘patent races’. Schoen (eds). 2. The latter is associated with duplicative investment by entering races or by over-investment. . A study of the spillover value of patents in the biotechnology sector showed that core technology patents valued between $13 and $21 million may have knowledge spillovers generating economic values of $3 to $6 million per rival firm. Patents allow for the development of inventions that may have little value in the initial stages and need further development in order to be commercially valuable. also be dynamic costs associated with the deterrence of other innovation. at http://www. This is often the case for process innovations. It also raises the possibility that investment could be made at a faster rate than the social optimum. Global Dimensions of IPRs in Science and Technology. Austin.     D. Invention dissemination. There may. a head-start might assist in and R. The patent system encourages dissemination by requiring the disclosure and publication of the invention and details on how it works. The commercialisation of an invention often requires a large investment.     ABA (2002) op. Spillovers and Competition in Biotechnology. It generally views inventions as one-off events and not as a cumulative process. however. in turn.rff.org. National Academy Press (1993). cit. Patent publications may also improve the free flow of information. Discussion Paper 00-53. Patents. In some cases. while product innovations refer to changes in the product itself to improve quality. Washington. November 2000. 3.22 The patent balance that in the absence of patents people would fail to or would under-invest as they would lose on their investment.     Process innovations refer to changes in the production process to reduce the costs related to producing a product. Hence.     S. in R. p.11 In order to encourage innovation in the long term. however. p. Ullrich. University of California (Berkeley). Oxford University Press (2001). Broad patents may facilitate follow-on inventions by controlling the licensing terms and avoiding duplicative efforts. as it would be counter-productive if one could simply monopolise a particular invention and then not utilise it. P. Kitch (1977) op. Cumulative Innovation in Theory and Practice. Free as the Air to Common Use: A Political Economy of the Public Domain. Goldman School of Public Policy Working Paper 240. 5. The Swedish Intellectual Property Symposium (2001). Patents and New Product Development in the Pharmaceutical and Biotechnology Industries. exclusive property rights are granted allowing producers to restrict output and raise prices in the short term leading to static losses. The function of the patented invention as an output has to be balanced against its function as an input for further development. Y. although the role of head-start is not particularly important in the pharmaceutical industry. Grabowski. Grandstrand. Legal Protection of Innovative Technologies: Property or Policy? in O.). Expanding the Boundaries of Intellectual Property. In this way. David (1993) op. however. ensuring that an invention is adequately disseminated is the horizontal dilemma that the patent system addresses. However. Dreyfuss et al. 5. pp. 32. patents involve a trade-off between incentives and static efficiency loss associated with market power. Orderly cumulative development of innovation. Oxford. 11   E.W. in Science and Cents. February (1999). Scotchmer. but also to ensure incen-     H. This is the vertical dilemma which the patent provisions seek to address. cit. One of the central goals of the patent system is ensuring that follow-on research building on previous inventions is not impeded by the granting of an overly restrictive legal monopoly. Federal Reserve Bank of Dallas. for example. 1. A. p. they may also hinder it if the transaction costs are high or if there is an overarching threat of infringement. patents are concerned not only with providing the best incentives for the primary invention. cit. also seeks to address issues associated with the dissemination of the patented invention. 4. Ullrich (2001) op. April (2002). The patent system. cit. . (ed. In the cumulative framework.10 In the non-cumulative model.     The issue of whether and when such a motive might be present is not addressed here. The patent system as a system of balancing 23 regard to this objective. 19. 10   H. Benkler.     H. Nelson.18 Weak and narrow patents encourage firms to cross-license and disseminate. Capitalism. 62(3) American Economic Review 422 (1972). Machlup (1958) op. J. of Econ’cs 20–33 (1995). of Econ’cs 106 (1990).14 and the latter arguing that innovation incentives are often smaller in monopolistic conditions and that competition may yield different results in the race. 93 Quarterly J.C. of Econ. Merges and R. Scotchmer and Green have shown that a broad scope puts followers at a disadvantage in negotiating the terms of licences for complementary elements that they seek to patent. Lemley.13 The dilemma in the area of sequential innovation reflects the clash between monopoly and competition theorists. E. Optimal Patent Protection and Breadth.16 In cases where the demand is more elastic. How Broad Should the Scope of Patent Protection Be? 21 Rand J. P. 5 J. for example. 90 Colum L Rev 839 (1990). Market Structure and Innovation. of Econ.24 The patent balance tives for follow-on inventions.M. Loury. cit. and the responsiveness of the costs of the production process to the amount of R&D resources devoted to its invention. 16   P. A Patent System for Both Diffusion and Exclusion. Pers’s 212–29 (1991). Shapiro. 13 . New York. Scotchmer. Scotchmer (1999) op. Gilbert and C. 26 Rand J.A. that it is not clear how much incentives are necessary. On the other hand. Schumpeter. This is because if prices are higher. R. this may discourage fundamental inventions. David (1993) op.17 Innovation is often cumulative so that the patent could interfere with further discovery. David (1993) op. of Econ’cs 345 (1979). 15   R. Nordhaus’ Theory of Optimal Patent Life: A Geometric Reinterpretation. however. Standing on the Shoulders of Giants: Cumulative Research and the Patent Law.W. On the Complex Economics of Patent Scope. inhibition of progress as opposed to discouraging inventions. 1 J. Socialism and Democracy. F. cit. S.   F. however.. cit. Rev.. 17   J. M. Scherer. a wider breadth would provide strong incentives for the breakthrough inventions and weaken incentives for the follow-on inventors. 993 (1997). Green and S. P. 75 Texas L.12 Adjusting patent length and breadth might give effect to some of these considerations. 18   Ibid. G. the quantity will be lower and there will be more deadweight losses.15 The optimal length of patents is sensitive to price elasticity of demand in the product market.19 12   S. the former arguing that monopolies eliminate duplicative efforts and ensure that invention takes place. On the Division of Profit between Sequential Innovators. Pers’s 29 (1991). 14   See. cit. 19   Ibid. J. Ordover. The Economics of Improvements in Intellectual Property Law.A. of Econ’cs 113 (1990). Klemperer. The problem is. the patent length should be shorter. cit. Kitch (1977) op. Scotchmer. and results in additional costs in attempting to ‘invent around’ the blocking first generation patent. 21 Rand J. NY Harper (1942) . 2.1 The Patent System and the Biopharmaceutical Industry The patent balance assumes a particular significance in the biopharmaceutical industry. These goods are not ordinary ones.1 The existing EU patent systems and sources determining their applicability and implementation Patent systems in the EU: Patentability Infringement and validity National patent To be determined by Member States. where initial innovation ought to be encouraged the patent breadth will tend to be wider. The balancing process necessarily involves certain trade-offs. but de facto harmonisation in view of TRIPS and CPC European patent EPC To be determined by Member States. First. but de facto harmonisation in view of TRIPS and CPC Community patent EPC Community Patent Regulation 2. EPC and CPC To be determined by Member States. the patent system is perceived as being vital to the industry.2 The particular importance of the patent balance in the biopharmaceutical industry 2. this industry relies heavily on the patent system to appropriate returns and much of the innovation is based on the patent system . Secondly. and therefore optimising innovation and striking the balance between short-term and longterm innovation and ensuring access becomes fundamental. In contrast with many others. The patent system as a system of balancing 25 There is no clear dividing line and it is difficult to determine how much incentives are necessary in view of the various and often competing policy objectives. Table 2. whereas to account for follow-on innovation. the exclusivity will have to be restricted. For example. but de facto harmonisation in view of TRIPS. it is an industry that affects public policy as it improves health and the standard of living. Box 2. Uncertainty and the Size of Distribution of Rewards from Innovation. Much economic research has concentrated on whether competition and potential competition can increase innovative activity. An Introduction to the Changing Economics of Technology Innovation in Medicine. Orsengo. EUROPE. There are two means by which companies may receive authorisation to market a drug in the EU: the first is through an application to the European Medicines Evaluation Agency (EMEA) which cooperates with the competent national authority to scientifically assess the product and then sends its advisory opinion to the . A European Perspective. There are increasingly stringent requirements for approval. 22   A. Single Market Review (1996). Pammoli. cit. Firm Size. the dynamics of innovation are far from clear. price controls. 55 American Economic Review 1097–125 (1965). 10 J. However. Gelijns. In the EU the pharmaceutical industry is a highly regulated industry with provisions controlling reward and safety. which is usually done through specialised wholesalers who in turn sell to retail pharmacists. The biopharmaceutical is a highly research-based industry. Scherer. On the other hand.2: The nature of biopharmaceutical innovation Innovation is the main source of competitiveness in the biopharmaceutical industry. while there is a Community system for granting marketing authorisation.22 A 20   The nature of competition in the industry is such that a premium is based on research and innovation in a dynamic sense. the quantity and quality of expenditures and. Pharmaceutical Products. 2002. Halm and A. in some cases.A. which requires specialised methods. 21   ABA (2002) op. and research has become orientated towards complex drug discovery. which aims at persuading the choice of one product over another and is aimed at physicians who usually make the decisions relating to which drug to prescribe.20 However. National Academies Press (1991). Scherer. Global Competitiveness in Pharmaceutical Industry. consumers expect to gain access to new and effective drugs at an affordable cost.26 The patent balance as an incentive mechanism. Gambardella. and distribution. Gelijns and E. F. leading to a sharp increase in the resources needed to develop new drugs. Harhoff. F.M.C. F. It hence becomes important to preserve this incentive. The primary operations of the industry are linked to: innovation. L. the market for medicines is still quite fragmented by national controls especially over price. for DG Enterprise of European Commission. Washington. II. E. not only in the short term but also in the long term. which is a risky and costly business.M. The Changing Economics of Medical Technology. Medical Innovation at the Crossroads Vol.21 Research is a costly and risky business. production. Halm (eds). Market Structure. marketing. Kukies. of Evol’y Econ’cs 175-200 (2000). Institute of Medicine. J. in A. Whether concentration or competition is more conducive to innovation is not clear. D. Opportunity and the Output of Patented Inventions. 23   OECD.26 The rise in costs and length of drug development is partly due to the more extensive clinical research required prior to marketing and the nature of the disease areas of research. including highly specialised medical. the information to be provided to patients and pharmaceutical wholesaling. and finally. Gambardella et al. which prepares a draft decision that becomes law if it is not opposed. The Pharmaceutical Industry. biological and biochemical skills.25 This process is lengthy.24 but once a new substance is discovered. (2002) op. 24   The industry is made up of different types of firms. OJ 1998 L213/13 that provides a common set of principles regarding the grant of patents. OJ 1992 L113/13. There are small companies that specialise in sales of non-R&D intensive drugs which are mainly involved in the manufacturing and commercial activities. cit. Patents and New Product Development in the Pharmaceutical and Biotechnology Industries. Quality and quantity control is achieved by direct or indirect means on the prescribing/consumption practices. Attention is focused on treating chronic clinical conditions requiring greater overall resources prior to commercial European Commission. See also Directives 92/26. Grabowski. The second route is based on mutual recognition. costly and uncertain. 25   Ibid. product development. 92/28. extensive biological testing on animals and then on humans to establish its pharmacological activity and to detect adverse effects. although it was even higher for some firms. in Science and Cents (April. 92/27. See also Directive 98/44/EC on the Legal Protection of Biotechnology Inventions. . The patent system as a system of balancing 27 study undertaken in 1985 concluded that the average annual expenditure on R&D represented 8–10 per cent of sales. and price regulation is a national affair in the EU. This procedure is mandatory for biotechnological products and optional for high-tech medicines. and the clinical costs which have grown at a rapid rate. 2002) (Federal Reserve Bank of Dallas). There are also the New Biotechnology Firms (NBFs) that specialise in biotechnology and who are mostly concerned with the discovery and development of new drug compounds and the development of research tools which pharmaceutical companies may subsequently develop and commercialise. 26   H. where a licence to enter the market is given after an investigation into the efficacy and quality of the process. its development follows three stages: the synthesis of active materials and determinations of their biological effects. 92/23 on the rational use of medicines.23 Basic research is an on-going process. The growth rate of discovery and pre-clinical development costs have increased substantially due to the need for a detailed understanding of the mechanisms involved. which have harmonised the classification of medicines for prescription and non-prescription products. the advertising of medicines. A. Paris (1985). but only four Member States have adopted the necessary legislation so far. 19 March 2002.28 The patent balance sale. Jensen. Glover (2002) op.27 However. Institute of Medicine. it has been found that only 20 out of every 5000 compounds screened. R&D Costs and Returns: the US Pharmaceutical Industry. B. the development of a new drug costs $802 million. Proceedings on Competition and IPRS: A.32 2.2. A Congressional Report 1998 showed that there was a 12% decline since 1984.29 In addition. 80 Journal of Political Economy 70 (1972). National Academies Press (1991).31 although the causal relationship is not clear.28 It has been estimated that. Several researchers have commented that 27   H. only three cover their average development costs and this was prior to the facilitation of generic drug competition. and so the development of blockbuster drugs every two to three years is necessary for a company to be able to survive the R&D process. most of the marketed drugs fail to cover their R&D costs. Competition in the Pharmaceutical Marketplace before the FTC. Clinical trial requirements have increased. cit. Grabowski (1991) op. It takes approximately 10 to 15 years to develop a new drug. Washington. Grabowski. and hence the costs have risen. 31   E.30 It has.1 Biopharmaceutical innovation and patenting In view of the complexity and the cost of the innovation process. Diverse perspectives on patents. The Changing Economics of Medical Technology. . for the best estimate of the average cost of drug development as being $231 million in 1991. In the USA. Research Expenditures and the Discovery of New Drugs. Gelijns and E. Baily. on average.. See also H. He estimated the R&D costs per approved drug amounted to $400 million. The Changing Economics of Pharmaceutical R&D. II. in A. 36 Journal of Industrial Economics 83 (1987). 30   G. and most of these do not survive the development process. Halm. 32   M. Biotechnology and pharmaceuticals.1. Business perspectives on patents. Glover. while the average returns from marketing a new drug have decreased. 29   Ibid. patents are perceived to be of primary significance. Medical Innovation at the Crossroads Vol. however.A. the physiological effects of compounds can now be predicted with greater ease. (Eds). Out of every 10 drugs on the market.C. been found that there is a positive correlation between R&D intensity and the probability of discovering a new drug. enter the pre-clinical testing stage. in other words whether R&D expenditure leads to patents that provide lucrative earnings or vice versa. and only one out of every five drugs entering the clinical trials has been approved by the FDA as fulfilling the safety and efficacy requirements. 28   G. cit. 38 Only one out of every eight patents has a significant economic value. patents had a marking of 6.36 By comparing the four factors for appropriating the benefits from product inventions. 35   Snyder in FTC/DOJ Proceedings on Competition and IPRs: A. the fact that claims may be defined precisely for new chemical molecules. Competition and Regulation Issues in the Pharmaceutical Industry. Glover (2002) op. 34   G. and in this way there would not be any products to be copied for the generic brands. In other industries.24. one study has concluded that patents are the most effective mechanism. for example in the computer industry patents were effective in a scale of 3.53 compared to learning by doing 4. therefore. apart from a few cases. Singham. A Joint Study by WHO and the WTO Secretariat (2002). the low costs of imitation. B.A. 92–3. it is thought that without patent protection. Competition Policy and the Stimulation of Innovation: TRIPS and the Interface Between Competition and Patent Protection in the Pharmaceutical Industry. See also OECD Report. 29 Research Policy 559 (2000).47 and sales and services 5. and the long life-span of pharmaceutical inventions rendering lead time less important. evidence shows that newer drugs reduce 33   See DOJ/FTC Proceedings on the pharmaceutical industry: Business perspectives on the use and the role of patents in the biotech industry. who reports that 65 per cent of innovations generated from 1981 to 1983 would not have been marketed and 60 per cent would not have been developed if there had not been patent protection. WTO. 26 Brooklyn J Int’l L 363 (2000).43 compared to lead time that was 6. Biotechnology and pharmaceuticals. Scherer. 39   Ibid. Uncertainty and Size Distribution of Returns from Technological Innovation 10 J. making it easier to prove infringement. Policy Implications of a World Skew-Distributed Returns on Innovation.35 This is also consistent with Mansfield.M. the market does not seem to treat patents as winner-take-all prizes. 19 March 2002.37 The importance of the patent system is attributed to four main factors: the high costs of R&D. D. cit. cit. Scherer et al.39 In addition.34 The market would only afford two types of benefits to innovators: de facto exclusivity from being the first mover. 37   H.33 Innovators would be reluctant to invest as they would be unable to make a reasonable return.33. R&D would fall by almost 60 per cent. Evol’n Econ’cs 17 (2000). Diverse perspectives on patents.59. 36   S. Grabowski (2002) op. and a sizeable segment of consumers which prefers branded products over generic ones. these variations were very different. F. Harhoff. where it is estimated that 65% of drugs would not have been introduced without patent protection. Business perspectives on patents. . Paris (2001). 26 February 2002. J. seven connoting very effective. On a scale of one to seven. The patent system as a system of balancing 29 the industry would not exist but for the patent system. lead time 5. 38   F. In the less serious cases. Kukies. pp. WTO Agreements and Public Health.M. Snyder (2002) op. In order to address this problem. patents do not render entry impossible or even unlikely. Wallerstein. National Research Council. 41   E. 2002 at http:// www. OJ 1992 L182. Richardson. 42   E.org/papers/w8996. clinical research grants programme. a study has shown that 60 per cent of patented successful innovations had been imitated. The Orphan Drug Act – Is it a Barrier to Innovation? Does it Create Unintended Windfalls? 43 Food Drug Cosmetic Law Journal 667–79 (1988). Regulation 141/2000/EC. P.’41 Moreover. Benefits and Costs of Newer Drugs: An Update. See also in the USA the Orphan Drug Act that provides incentives to undertake orphan drug indications including tax credits. the Supplementary Protection Certificate44 was created. See D. Technology Transfer and Innovation. National Academy Press (1993). Mansfield.43 In addition. a substantial amount of patent time is lost during clinical development and regulatory approval periods. Effective patent life in the pharmaceutical industry was usually around seven years.42 However. . Lichtenberg. The Orphan Drug Tax Credit: An Inadequate Response to An IllDefined Problem. pharmaceutical companies mainly focus on the diseases likely to yield high returns for the shareholders. R. The ratio of harm to benefit is three to one.2 times as much as they increase drug expenditure. Kenney. does not address all of the public policy concerns in the industry. M. edited by M.30 The patent balance non-drug expenditures 7. ‘While providing greater access to the current stock of prescription drugs would yield large benefits to consumers in absolute terms. While patents may be important for investing in R&D. the patent system generally increases the costs of imitations by about 30 per cent in the industry. therefore diseases suffered by the poor or afflicting a small number of people are neglected. in Global Dimensions of IPRs in Science and Technology. Within four years of their introduction.nber. with a cap of 15 years protection in total. which allows for an additional protection of five years on top of the 20 years from the filing period. See also. The patent system. 6 The American Journal of Tax Policy 135 (1987). cit.45 Only 10 per cent of global R&D is directed 40   F. Unauthorized Use of IP: Effects on Investment. 45   It is for this reason that different mechanisms to stimulate innovation in diseases afflicting a small proportion of the population have been created.40 Dynamic efficiency evidence further supports the effectiveness and preservation of the patent system.J. Schoen. 43   Ibid. however. on Orphan Medicinal Product OJ 2000 L 18/1. realizing those benefits has yet greater costs in terms of lost consumer surplus from reduction in flow of new prescription drugs.A. Mogee. in view of the tight regulatory requirements. such as the Orphans Drugs Act. 44   Regulation 1768/92 EEC. rendering the average effective patent life 10 to 12 years in which companies must recover their expenses. accelerated review by the FDA. concerning the creation of a Supplementary Protection Certificate for medicinal products. Washington.M. A 20th Century History. PhRMA’s members spent US$236m lobbying Congress and the executive branch of the government.1. In such cases supplementary mechanisms need to be embedded in the system. creating large areas of exclusion around their inventions. Between 1997 and 1999. Access to essential drugs depends on four critical elements: rational selection and use. Aldershot. and is conditioned on many factors including price controls. Patent Injustice: How the World Trade Rules Threaten the Health of Poor People. while the industry claims that it is a risky industry relying on the few blockbuster drugs developed. distribution and dispensing. For this reason.’ Oxfam. 27 Oct. not in industrial incentive structures’. medical insurance. pharmaceutical companies spend a huge amount on lobbying. its share fell by almost one third. Access to drugs requires availability and affordability. 7. thus preventing other companies from exploiting their own patents and enhancing their bargaining power in cross-licensing deals. For example ‘when the US court granted pharmaceutical conglomerate Eli Lilly an extension on its patent for Prozac that was two years shorter than it had requested. at www. 46   Oxfam. on patents op. 49   G. cit. local taxes. 47   WTO (2002) op. XXXVI/43 Economic and Political Weekly. cit. p. the Public Citizen study has concluded and guaranteed market exclusivity for seven years from the date of FDA approval.49 For example. Approximately two-thirds of corporate investment in political lobbying in the USA is directed towards the Republican Party. ‘PhRMA’s political influence comes at a price. in the form of push mechanisms involving financial contributions towards R&D. The patent system as a system of balancing 31 towards illnesses that account for 90 per cent of the worldwide diseases. 16. its importance should not be overstated.uk p. which attempt to use patents strategically to extend their monopoly by restricting competition.47 2. 2001. p.2. IPRs and the Life Science Industries.2 Has the importance of patents been overstated? While patenting is vital for the biopharmaceutical industry. ‘The problem is rooted in poverty. Patents Bill. TRIPS and the Right to Health. import duties and tariffs. 48   The industry will want to lobby for the highest level of protection as it directly affects its stock prices. Ashgate (2003). Another US$14m was provided to political parties in 1999 alone. limited competition mark-ups for wholesaling. . 7.46 In addition.org. Cullet. raising doubts about corporate influence over the new Administration. wiping out $38bn of its market capitalization’. and pull mechanisms aimed at ensuring the existence of an attractive level of demand in the event that successful drugs or vaccines are generated. Dutfield. reliable supply systems and affordable prices. The effects have been impressive as more than 200 drugs and biologicals for rare diseases were developed between 1983 and 1999. sustainable financing. WHO estimates that one-third of the world’s population currently lacks access to essential drugs and over 50 per cent of people in poor countries in Africa and Asia do not even have access to the most basic drugs.oxfam.48 Many pharmaceutical patents are awarded to secondary and often trivial inventions rather than authentic ones. although a recent study has shown that as profits increase.57 The evidence is ambiguous. but also those of predictable outcome. subsidies and prizes. National Academy Press (1993). 54   In such cases. as other studies have suggested that patent protection may be the key to commercial 50   WTO (2002) op.50 It has been shown that pharmaceutical companies have recently been found guilty of paying generic producers to delay selling their versions of the drugs. Washington. however. it is claimed that the patent system often rewards not only inventions which constitute ‘a moral triumph’. DC. National Research Council.56 The patent system has also been accused of creating a situation in which patents are used to stifle small firms that may be a prime source of innovation in areas of new technology. Scherer. the link between an increase in profits and an increase in R&D in the industry is also not clear-cut. 25–27 March (2002). Schoen. New Perspectives on Economic Growth and Technological Innovation. M. 57   J.52 The lack of a direct correlation between research expenditure and patent-based income renders it difficult to determine if the patent system is fair.51 In addition. See also the Commission announcement that it had fined AstraZeneca €60 million for abusing its dominance by misusing the patent system. pp. 52   F. as most new drugs are ‘metoo’ drugs. ‘There is no apparent justification for allowing patent-based pricing to generate income for advertisements. 92–3. The price of drugs does not always correlate with the costs of R&D and production as marketing costs. Abbott (2001) op. Correa.M. 51 .   FTC.32 The patent balance that pharmaceutical R&D is not particularly risky. Barton. Commission Press Release IP/05/737. 55   C.54 It is also argued that companies exploit incremental innovations and patent improvements or minor changes in order to extend the effective term of protection for the original invention. (in other words close substitutes for successful drugs). Geneva. Wallerstein. Mogee. edited by M.’53 This is particularly evident in the case of essential drugs that are not dependent on advertising. R. subsidies. 56   Ibid. tariffs and tax are added to those. Pharmaceutical firms spend more on advertising and promotion than on R&D and this cannot be justified by the need for patent exclusivity. Internalization of the Patent System and New Technology in WIPO Conference on the International Patent System. FTC Antitrust Actions in Pharmaceutical Services and Products. firms will compete to exploit them by increasing R&D investments. Washington.M. 53   See F. cit. in Global Dimensions of IPRs in Science and Technology. other means may be warranted to allow for the recovery of research costs such as tax credits. profit margins. Adapting IP System to New Technology.55 Therefore. Brookings Institution Press (1999). and that the initial R&D costs of many important drugs comes from public funds. October 2003. cit. amongst other things. how extensively compulsory licensing is used and how moral considerations affect the patent grant or its invalidation. Garg et al. and companies are more likely to encourage research with obvious commercial applications in the interest of increasing profits.58 Finally. Exclusivity involves a full scale of degree ranging from absolute exclusivity to the complete lack of it. stronger patent protection does not necessarily result in more innovation and less patent protection does not necessarily mean less innovation. on how one determines an infringement. caution should be exercised in introducing overly-restrictive patent protection when there are other discernible negative effects. The patent system as a system of balancing 33 success for medium-sized firms with the research capacity to produce innovative new products but lacking the capital to fully exploit and commercialise their inventions. . 58   See the case of Pliva which patented azythromycin worldwide. 59   F.60 None the less. See WIPO. therefore. Rather. Singham (2000) op. the industry has evolved rapidly. Azythromocin: A world best-selling antibiotic – Pliva. in which both companies and the public could benefit from the commercialisation of the antibiotic. at www.61 The level of patent protection is. Four Opportunities in India’s Pharmaceutical Market. 241. Therefore. p. nor to undermine the importance of the patent system in the biopharmaceutical industry. 1023. they seek to clarify the underlying objectives of the industry in their quest for an absolute and unqualified patent protection. 61   This depends. 132 (1996). the product patent regime was largely ineffective.. Weisburst. 60   R. such as baldness. a matter of degree and involves the careful balancing of competing objectives. Pharmaceutical companies have often been reproached for investing in lifestyle drugs treating trivial conditions that need to be treated on a continuous basis (as opposed to cured). p.int. 4 MCKINSEY Q. rather than in lifesaving drugs. A. despite the absence of chemical industry patents.M Scherer and S.59 though another study has shown that multinational corporations limited their involvement in the Indian drug market after the adoption of the weak patent system in 1970.wipo. G. Dutfield (2003) op. For Britain and France. A comparative analysis of the experience of several countries raises further doubts as to the role of patents in ensuring a commitment to expensive R&D. Italy is also representative of the fact that the introduction of product patent protection does not necessarily lead to increased innovative R&D among domestic firms. 26 IIC 1009 (1995). cit. S. The above considerations should not lead us to conclude that the patent system should be abolished. and then reached a licensing agreement with Pfizer Inc. while in Switzerland. it should be remembered that major breakthroughs are usually made in universities. Economic Effects of Strengthening Pharmaceutical Patent Protection in Italy. cit. The continuous progress of innovation and production of improvements is a central part of the patent balance. Patent protection has various objectives to address and exclusivity therefore is a matter of degree. Carlson. one should view with caution requests for unlimited patent protection. Texas Inst. particularly in the biopharmaceutical industry. for example. Lemley (1997) op.64 The patents system attempts to distinguish and cater for such competing and often conflicting interests through limitations.C. 65   M.A. Greenberg and M. complementary patents may also compete. Pharmaceutical Patents in Europe. 1988). as a balance is envisaged within the system itself. but also technological improvements resulting from independent discoveries or intentional efforts to design around and therefore avoid infringing the patent. exemptions from scope or other provisions. cit.34 The patent balance 2. patents are complementary and thus ineffective without a licence to each of the patented products. the greater the likelihood that inventive step will be found.62 involving a distinct step in the progress of the art. The greater the structural distance and the better the technical effect of the invention as compared with the state of the art. . As a result.A. it aims to encourage not only pioneer inventions. on Reg. A.65 62   A pioneer invention is defined as a ‘distinct step in the progress of art. 6 USPQ 2d 1886 (Fed. patent rights may interact and overlap in different ways. Kluwer Law International (2000). 16 Berkeley Tech L. with different consequences in each case. For example. Conigliaro. Patent Pools and the Antitrust Dilemma. At the bottom of the scale are minor improvers for which the law offers no protection and who may appropriate their findings only by trade secrets or first mover advantages. To this end. 64   S. Foreseeability in Patent Law. Lemley. J. distinguished from a mere improvement or perfection of what had gone before’. See B.J.63 The patent system aims to achieve a balance between competing interests and the incremental nature of innovation. 6 Yale J. In cases of technological improvements.3 Conclusion Despite the significance of patent protection for the biopharmaceutical industry and the centrality of the right to exclude in this respect. patents may be substitutes or inventions around other patents and so may compete. In other cases. 369 (1999). in the case of improvements. v ITC. the patent system treats them differently according to their significance and value in relation to the pioneer invention. Deventer. Cir. In cases where different inventors patent different components of a larger invention independently. 63   M. patents may block each other. This is also consistent with the inventive step determination in case of pharmaceuticals. 1045 (2001).C. Yet the categorisation amongst such different types of patents and relations is not perfect and so. Domeij. In the EU. avoiding the hold up problem. as will be shown. Higher up the scale are significant improvers that exceed the minimum social value threshold for patentability and are thus able to get an improvement patent. This often leads to the case of blocking patents which. does not make allowance for an infringement of the pioneer invention. While they may not use the pioneer invention without the permission of the patent holder. they may prevent the patent holder (and any other unlicensed party). which came into force in 1977. As will be seen. This is done. The law. also known as the Munich Convention). is conducive to levelling the playing field and to minimising the chances of a bargaining breakdown. In such cases. . the law allows the improver to use the pioneer idea without that being infringement. The patent system as a system of balancing 35 It is therefore in no way inconsistent with the patent system to state that there are limitations and ‘safety nets’ within the system itself that may address competing interests. including follow-on innovation considerations. 53 EPC 1973 (Convention for the grant of European Patents. At the top of the scale there are radical improvements that depart from prior patents and are afforded independent protection. according to the transactional view of IPRs. there is also a provision for compulsory licensing in cases where the improvement patent involves an ‘important technological advance of considerable economic interest’ Art. where efficient licensing will not occur. they may be found to depart from prior patents even though they fall within the literal language of the claim. however. This is done in the USA through the reverse doctrine of equivalence. from using their improvement. by interpreting the improvement as being sufficiently radical to escape the scope of the pioneer patent. Mueller (2001) op. cit. None the less. The patent system and some potential safety nets 3. Mueller (2001) op.      See Chapter 2.      J. access to research tools remains problematic in some cases. or to placement of significant limitations on the licences. This may be due to the hesitation on the part of researchers to disclose the nature of their research in the course of obtaining a licence.1 Introduction to the patent safety nets Recent developments in biopharmaceutical R&D have raised concerns regarding the basic assumption of most patent systems that society benefits more from innovation than it is harmed by the grant of a legal monopoly. Therefore. it should be clarified that the analysis is limited to the patented tools used to develop biopharmaceutical products that do not physically incorporate the tool.M. As it was shown. p.3. considerations leading up to the grant of the patent such as whether certain types of inventions should be patentable or not are outside the scope of the present examination. cit. This chapter examines the safeguards in the system to ensure that follow-on innovation is not unduly impeded in the case of research tools. access has not proven to be problematic in most cases. The Guidelines for Examination in the EPO provide that a fair test to determine what should be excluded from patentability on this ground is if it is something which the public at large would consider so abhorrent 36 .M. In addition. under which research tools could arguably fall. the analysis is limited to the situations in which access to the patented tool is problematic.      Article 53 EPC provides for certain exceptions from patentability for ordre public.      The distinction has been highlighted by J. The mechanisms examined only involve potential remedies once a patent has been granted. to a refusal on the part of the tool holder to license it. Before examining the means available within the patent system to ensure access to such research tools. or to demanding a price amounting to an effective refusal to license. 14 as it does not trigger infringement liability for selling or offering to sell the patented products. for example. but rather only for use. The analysis will centre largely on the mechanisms available in patent law to deal with a refusal to license. The Group submits reports amongst others on the compatibility of policies including patent policies with fundamental rights such as the dignity of the human person. that the particularity of the case of research tools lies in the fact that it is concerned with access to some technology for research purposes at a precommercial stage (as distinct from product supply). The patent system and some potential safety nets 37 The patent working solutions will be examined with reference to the research tool experience. however. OJ 1998 L331/1 referring to the protection of the integrity of human persons. It also bears noting. for example. or lead to criminal or generally offensive behavior’. In addition to the European Group. there are also National Ethics Committees such as the Hellenic National Bioethics Commission and the Nuffield Council on Bioethics considering issues of ethics and patenting and that could potentially consider the issue of patenting when a life-saving drug is in issue. on 3 February 2000. elements of human origin. reverse doctrine of equivalents and blocking patents. l patent pools. that in the EU there is a group of advisers on the ethical implications of biotechnology serving the interests of European society and respecting the fundamental rights of every European citizen. l as to render a patent inconceivable. excluding the patenting of inventions which would be contrary to public order of morality. health care in the information society and gene therapy. So. however. See the Report of the European Group on Ethics in Science and New Technologies on the Charter on Fundamental Rights Related to Technological Innovation. in the EU we have a Biotech Directive (1998) op.2 The patent safety nets The following safety nets/limitations to patents are examined: l experimental use exemption. on InVitro Diagnostic Medical Devices. . for example. and a Directive 98/79/EC. The Group also decided that the recourse to compulsory licensing should be encouraged when the access to diagnostic and treatments is blocked by a misuse of patent rights and stressed that it is the responsibility of the states to establish a legal procedure for compulsory licensing where that is justified by fair access to health care. It is contemplated that this provision will be used only in rare and extreme cases where an invention is likely to ‘induce riot or public disorder. It should be stressed. though their application may be equally applicable (or nonapplicable) in other cases involving similar issues. 3. cit. None the less the possibility of such an exclusion from patenting is not considered as it is assumed that patents in this context are more desirable than not. or as otherwise required by the right to health. as requested by President Prodi. l compulsory licensing. cloning techniques. The Group gives its advisory opinion on ethical aspects of patenting inventions involving. 11. 12 Industrial application Novelty Inventive step Community Patent Regulation (CPR) Infringement – direct use – indirect use Art. 52 Limits of exclusive rights: – acts done privately and for non-commercial purposes – acts done for experimental purposes – preparation of medicine in pharmacy according to medical prescription – exhaustion – prior use Compulsory licensing: – non-use for 3 yrs from grant and 4 yrs from application – to use second otherwise infringing patent where important technical advance of considerable economic significance – cases of extreme urgency Art. 8.1 Community patent provisions for the grant and extent of patent protection Source Rule Requirements Exceptions/ Exclusions/ Limitations Article European Patent Convention (EPC) Patentability Inventions: – concrete – technical character Exclusions: – artistic works – scientific theories and mathematical methods – presentation of information – business methods Exceptions to patentability: – against ‘ordre public’ – plant or animal varieties Exception: – methods of medical treatment or methods of diagnosis Art. 10. 53 Art. 7. 54 Art. 57 Art. 21 . 56 Art.38 The patent balance Table 3. 9.  Patent legislation in EPC countries contains limitations of the rights of patentees. Article 27(b) provides that the ‘Community Patent shall not extend to acts done for experimental purposes relating to the subject matter of the patented invention’.2.10 An important rationale behind the experimental use exemption      The experimental use exemption at its current state is viewed as only useful in exceptional cases. Revised Proposal for Council Regulation on the Community Patent. Kern. Article 69 EPC specifies that the scope of the patent right is determined by the claim. but the infringement exceptions can be found in the Community Patent Convention (CPC) Arts 25–28. does not amount to patent infringement. 9 of the Draft Council Regulation on the Community Patent COMM (2000) 412 final (that has now been modified by Doc 7119/04 PI 18. at http://www. Article 64(3) of the EPC provides that any infringement of a European patent shall be dealt with under national law. Experimental Use and Patents. it is governed by national law. German Patent Act of 16 December 1980.R.2 ‘effects of the patent shall not extend to … acts done for experimental purposes relating to the subject matter of the patented invention’. 29(7) IIC 736 (1998). UK Patent Act 1977 § 60(5) exempting acts ‘done privately and for purposes which are not commercial’ as well as those acts ‘done for experimental purposes relating to the subject matter of the invention’. See M. § 11. 3(2) CASRIP Newsletter 2.1 Experimental Use Exemption 3. The patent system and some potential safety nets 39 3. See French Patent Law Including Modifications of 1978. The national patent systems have generally accepted this exemption from patent infringement. Recent Federal Supreme Court Decision on Experimental Use and Compulsory Licensing.1. or to carry out experiments with no commercial impact or profit motive.   10   D.      See IPR Helpdesk.ipr-helpdesk. 16 IIC 1 (1995).org/ on Patenting and the Research Exemption. Article 54(1) of the European Patent Convention (EPC) provides that the rights conferred by a European patent shall be the same as those conferred by a national patent for each of the designated states. Summer (1996). Gilat.      All EU states except for Austria have introduced such a general exception.      See W.2. To the extent that the experimental use exemption is present in Europe. Cornish. 29 providing that ‘acts accomplished for personal or domestic purposes or for the purpose of testing the object of the patented invention shall not be considered as affecting the patentee’s rights’. COM(2004) 7119). Experimental Use of Patented Inventions in European Community States. 8 March 2004. . Art. The general opinion is that the experimental use of a patented invention in order to check the accuracy of the patent specification.      A similar provisions was also found in Art.1 The experimental use exemption: a viable and effective working solution? The experimental use doctrine is a very narrow exception that excuses the infringement of a patent. Public Law 98-417. 9.   13   Drug Price Competition and Patent Term Restoration Act 1984.D. Typical litigants do not involve a research and a generic drugs company. In such cases. the issue before the courts involves the question of ‘which policy would better serve the promotion of progress: an ex ante incentive to invest. . A similar distinction can be found in the British Case Frearson v Loe (1878) 9 Ch. where Jessel MR said that if a man merely makes a bona fide experiment with the aim of ‘improving upon the invention the subject matter of the patent. and the recent adoption of the Bolar exception in the EU. 546. p. 48.14 In the context of research tools.’16   11   See ibid.15 This distinction has been recognised in several European cases. the issue is different.   14   See 11 March 2004 when the Council of Ministers adopted a new European Pharmaceutical regulatory package including a provision allowing pre-patent expiry development work and registration and generic approval. et al.   16   Ethofumesate Case 22 IIC 541 (1991).   12   Ibid.D. that is not an invasion of the exclusive rights granted by the patent. on the Community code relating to medicinal products for human use O.11 The EUE relates to two types of experiments: market-oriented and researchoriented.   15   D. p. 66. Gilat (1995) op. cit. 14 Rechtspraak van de week 79–89 (1993).40 The patent balance (EUE) is to prevent technical and scientific progress from becoming paralysed.V. disclose and innovate or the ex post legitimation of research and development efforts which have contributed to advancing technology one step forward’. however. the German Supreme Court in the Ethofumesate case stated that ‘experimental activities are considered permissible to the extent that they serve the purpose of technically perfecting and further developing the patented subject matter.J 2004 L 36/34. Directive 2004/27/EC of the European Parliament and of the Council amending Directive 2001/83/EC. The Supreme Court distinguished experiments aimed at developing the subject matter of the patent and experiments aimed at gaining an advantage in the market once the patent expires. Patents were never granted to prevent persons of ingenuity exercising their talents in a fair way’. or with the view of seeing whether an improvement can be made or not. 48. but rather it involves two research companies which have invested a large amount of financial resources and time in R&D. and British case Frearson v Loe (1878) Ch. The position regarding these types of experiments has been more or less settled following the introduction of the Drug Price Competition and Patent Term Restoration Act 198413 in the USA.12 Market-oriented experiments include generic drug manufacturers who seek to make the drugs during the patent life in order to obtain marketing authorisation and sell the generic products as soon as the patent lapses. For example. v ICI plc. and in the Dutch case Medicopharma N. Patents and the Progress of Science: Exclusive Rights and Experimental Use.   18   D. 19 and 29 ‘According to the thesis suggested in this study. as there is a danger that the inventor’s profits will decrease when the experimenter commercially exploits his results. cit. where there is no barrier to a consensual license or an assignment transaction between the patentee and the user of the invention an exemption from patent infringement is not required. 457 (1988–89). it is unlikely that a licensing arrangement will be made. . especially in fields such as the biopharmaceutical industry where therapeutic advances are of great significance. 16 AIPLA Q. the experimental use exception should probably be applicable. R.E. to a large extent. Therefore.Sec. it is impossible for someone to search for new indications as the patent holder would view him as a possible future producer and would be reluctant to negotiate a licence. Oct.’   19   B.D. Eisenberg. to the problem of high transaction costs which hinder the carrying out of experiments. experiments using the invention as an object and not as a tool are exempt. Gilat (1995) op.A. Making. Patent World. Domeij (2000) op. ‘If research can result in a product with added value. 22. cit. 19 Patent & Licensing 17 (1989). If the experimenter seeks to invent around the patent. Law Rev. denying the exemption might result in the ‘paralysation’ of progress. 67 JPTOS 617 (1985) basing the distinction on monetary profit or lack of it and distinguishing experimenting on and for experimental purposes. as it is not likely that this research would happen without it. Israelsen. if a product patent is framed in a way that includes all therapeutic indications and the exemption cannot be invoked. From a policy perspective. The Experimental Use Exception to Patent Infringement in the USA. and therefore the transaction costs for such negotiations are likely to be significant.C. (1992).271(e) and the Experimental Use Exception to Patent Infringement. Chi. L. validity and scope of protection of the patent and the experiment. 56 Univ. it is desirable that competitors should be able to experiment and improve on an invention. if a competitor seeks to use the invention. The transaction costs would prevent the negotiation of a license. This situation would impede competition and innovation within the scope of the patents already granted.S. In addition. See also N.S.T. whereas invoking it would undermine incen-   17   See R. Experimental Use as an Exception to Patent Infringement. p. It is unlikely that a licence would be negotiated as the parties usually have different views on the value. Welch. Experimental Use as a Defense to Infringement in New Zealand. The patent system and some potential safety nets 41 The application of the EUE remains a highly contentious matter with different authors arguing for different applications. Hantman.J. Tuffery.17 It seems that one of the guiding principles in its application involves checking whether consensual licensing would take place so that the exemption covers the other cases. 1017 (1989). D. pp.’19 In such cases. Using and Selling Without Infringement: An Examination of 35 U.18 The EUE is linked. Hence.   21   One may question whether this is a sensible approach as it is exactly in the case of improvements and competing products that the patent exclusivity may be advantageous. a distinction was drawn between experimenting on and experimenting with the patented invention. p. 11 July 1995). interferon.22 During the mid-1990s.law. The Constitutional Court of Germany affirmed these decisions in the interest of the development of the state of the art and the public interest. Gilat (1995) op. the German Supreme Court in two cases known as Clinical Trials I and II. German courts generally find that the use of the patented invention to obtain further information about the product falls within the exception. this only represents a small loss of revenue to the patentee as his main market resides in their non-experimental uses. whereas people that study the research tools themselves will be considered exempted.washington.edu/casrip/Harmonization/PDF/ExperimentalUse. Ducor. Klinische Versuche (BGH. See P. 1997 IIC 103   24   See Cases Federal Supreme Court (BGH) 11 July 1995. both in order to test the claimed properties and for new indications. it is thought that this amounts to research in the technology field and that the inventions are used for a different purpose than that for which they were originally created. Comparative Patent law Seminar. it appears that Germany is the most liberal in its interpretation. a research tool that is used for conducting work will require permission from the patent holder. Laherty and Y. it is felt that experimentation with a patented invention does not advance the field of technology or contribute to innovation as they leave the invention unchanged.42 The patent balance tives to invent. Hence. GRUG 1996.24   20   See D.   22   C. The fact that such research may lead to improvements or new competing products that are patentable does not change the analysis.   23   Klinische Versuche I (BGH.pdf. as long as they were directed on the substance itself. The Düsseldorf Court of Appeals held that experiments undertaken that neither establish the characteristics of the substance nor the feasibility of its produc- . On the other hand. None the less. Spring 2001 at http://www. Harmonization of Patent Term Extension and Experimental Use Laws Related to Drug Development and Testing.23 ruled that experiments or trials on a patented substance such as pharmaceutical products were permitted. 190 ‘Zwanglizenz’ concerning the protein. Research Tool Patents and the Experimental Use Exemption – A no-win situation? 17 Nature Biotechnology 1027 (1999).21 As regards the interpretation of the provision in the different European countries. for example. 53 referring to a distinction as to mere improvement and delineation of substitute and alternative. The conclusion was that the patent policy of encouraging ‘inventing around’ should prevail over the incentives policy. while the latter refers to use in order to study something else that is not covered by the exemption. hence this is not exempted. Shibata. 109 ‘Klinische Verusche’ and 5 December 1995 GRUG 1996. 17 April 1997). The former refers to use in order to study its underlying technology and to invent around the patent which is considered exempted. cit.20 Hence. assessment of validity. See also Smith Kline & French Laboratories Ltd v Evans Medical Ltd [1989] FSR 513. See also Monsanto v Stauffer [1985] RPC 515 CA. Of course the recent European Directive referred to above has to some extent changed and harmonised the position as regards regulatory bodies. The Court stressed that what was important was not the activity itself but the purpose of the activity. To the extent this viewpoint is endorsed it seems that the UK is moving away from the liberal stance of Germany towards the more narrow view of the exemption of the USA. Supplementary Certificate Legal Issues in Exploiting Drug Patents in Europe. In Inhale Therapeutic Systems Inc v Quadrant Healthcare Plc [2002] RPC 21. 48. But the exception would not in my view exclude the use of a patented process in experiments specifically to test some other product or process with the view to the direct use of the results thereof for a commercial purpose.   25   See Frearson v Loe [1878] 9 Ch. but that ‘experiment’ was limited to those directed to the ‘subject matter of the patented invention’. None of the exploitation of the products or technology complained of was conducted by Quadrant for its own experimental purposes. whether a customer or body that the product works as its maker claims are not to be regarded as acts done for “experimental purposes”’. or in order to amass information to satisfy a third party. and in-house experiment for the purpose of improvement and modification etc. the exception has been construed more narrowly in the UK. ‘I believe that the exception may therefore have a very narrow effect under UK/Irish law.’ . the Patents County Court observed ‘it is said that there is a defence of experimental use.D. where the Court held that experimentation with a patented product with no intention to sell or use but just to improve upon the invention or to see whether an improvement can be made does not amount to infringement. LES-Italy Conference. These can fairly be regarded as experiments. but trials carried out in order to demonstrate to a third party [such as a regulatory body] that a product works. The patent system and some potential safety nets 43 On the other hand.26 tion fall outside the scope of s. in the case Smith Kline & French Laboratories Ltd v Evans Medical Ltd [1989] FSR 513. Fysh. where the Court stated ‘trials carried out in order to discover something unknown or to test an hypothesis or even in order to find out something which is known to work in specific conditions would work in different conditions or even perhaps to see if the experimenter could manufacture commercially in accordance with the patent.   26   See M. observing ‘what is or not an experiment must depend on the facts of each case but can include experiments designed with a commercial end view’.25 For example. In all cases Quadrant was trying to exploit and sell its technology to third parties. Milan. experimental purposes relating to the subject matter of the invention was interpreted to mean ‘in the sense of having a real and direct connection with that subject matter’. This is not experimental use’. 2002. The qualification may cover such acts as verifications of various kinds (such as seeing whether a compound can be made as proposed or will work in a particular climate). This fails on the facts.11(2) as otherwise it would be inconsistent with the principle of product patents extending to all possible uses of its subject matter. or for the purpose of ascertaining the sufficiency of the machine to produce its described effects’. which he would not be justified in claiming. Story dicta. ‘The making must be with an intent to infringe the patent rights. the latter is prone to different interpretations that would have different implications on the applicability of the exemption. Could ‘philosophical’ include the acts of designing around an invention as this arguably leads to the creation of new knowledge? The exemption shifts the importance to the intention behind the use of the patent. not for the mere purpose of philosophical experiment. in which he stated that ‘it could never have been the intention of the legislature to punish a man who constructed a patented machine merely for philosophical experiments. LEXIS 15036.44 The patent balance 3. In order to constitute an infringement. In addition. Story in a dictum in Whittemore v Cutter27 in 1813. and this is dependent to a large extent on whether the alleged infringer derives profit from the patented article.D.3d 1343. 1813) (No.D. and whilst the recent US decision of Madey v Duke29 affirms the existence of the doctrine. In Sawin v Guild. Story further elaborated on the exceptions to infringement. uses or sells a patented invention purely to satisfy scientific curiosity.P. yet damages cannot be used alone as the benchmark of its application as there might also be non-infringing uses that result in a loss of revenue to the patent holder.31 Damages will only be available where there is some commercial use involved. Circ. while infringement consists of use. 30 The scope of the exemption remains unclear both in terms of applicability and policy. June 28. it defined its applicability in a very narrow sense.2D (BNA) 1161.   Sawin v Guild 21 F.C. See also Embrex Inc.   27   Whittemore v Cutter 29 F.Q. The breadth of the exemption relies on how one defines ‘curiosity. 12. it must involve ‘the making with intent to use for profit. The defence reflects an understanding that the interests of the patent holder are not harmed.2 The US experience: a helpful paradigm? The experimental use doctrine originated in the USA as a narrow judge-made exemption to patent infringement for anyone who makes. 1813). 216 F.S. or to ascertain the verity and exactness of the specification’. v Service Engineering Corp 99-1064. USCA for Fed.C.   30   Ibid.391) and J..   31   Sawin v Guild.Cas 554 (C.Cas 1120 (C. 307 F. in most cases. 1813) (No.1. and directs an evaluation into whether the use is commercial or not. 2000 U. where the Federal Commission commented that the experimental use exemption is construed very narrowly. and deprive the owner of the lawful rewards of his discovery’. 12.2. Arguably.S. However. the defence has failed. 55 U. or philosophical reasons.Cas 554 (C.   28 .28 J. inter alia.D. Decided. App. 2000.C. 21 F. It was initially expounded by J.   29   Madey v Duke 01-1567 US CA for Fed.3d 1351. amusement and philosophical experiment’.391). Cir. especially in the USA. It was held that the defence is truly narrow and cannot permit experiments conducted with a view to commercial exploitation. the exemption imports a subjective evaluation into the motives underlying the use.   33 . The US Congress has. in fact. The extent to which this is sound is contentious. No.Cas. District Court. in Akro Agate Co. the use of a machine merely to assess its usefulness that was then abandoned voluntarily was also found exempted.D. extended the term of effective patent protection to include   32   R. Hence. cert. 1120 (C. Supp. with a view to commercialisation immediately after the expiration of the patent. has been called into question in recent times with the increasing commercialisation of activities on the part of universities. however. and while the exemption may exist in theory. where it was thought that there was no commercial intent. 305.). It is thought that an infringement action is unlikely to occur in the first place in cases where an invention is used for commercially insignificant purposes. Hence.2d 858 (CA Fed. under patent law. the practical utility of such an exemption can be questioned. 119. 18 F.C. This assumption. In Whittemore v Cutter 29 F. Can intent and purpose make something exempt from infringement when it is irrelevant to establishing an infringement in the first place? In the case of corporations. reconsidered the effects of this ruling as it was felt it.33 With regard to the specific case of pharmaceuticals. v Master Marble Co. 1937 US Dist. denied. N.D. cit. however. LEXIS 2087. when does a use become commercial? Even while researching or upon the development of a commercial product? Under the current status of the exemption it seems that even use for the purpose of testing will be infringing if it also has a proximate commercial purpose. Similarly. a distinction was initially made in the case of universities. 16 January 1937. But these represent very specific and limited instances of philosophic inquiry.32 However. 469 US 856 (1984). in the USA. it is hard to sustain it in practice. Eisenberg (2001) op. West Virginia. 1813) the use of a product to assess its applicability to a commercial process was exempted.   34   Roche Products v Bolar Pharmaceutical Company 733 F. The patent system and some potential safety nets 45 irrespective of the purpose of the use. there is an unspoken assumption that these activities are motivated by a commercial intent. It seems to be applicable only in cases of use to assess the commercial viability and applicability of the results where that does not lead to commercial gain for the user and a loss of interest for the patentee.   In US common law the defence has seldom succeeded. in the case of Roche Products v Bolar Pharmaceutical Company.34 the CAFC in 1984 rejected the argument that a generic drug manufacturer should be able to use a patented drug to conduct clinical trials during the term of the patent. it was traditionally believed that no barrier to licensing exists as they are the ordinary consumers.org/1998/pharm-policy/msg00004. Analysis of the Experimental Use Exception.36 Furthermore. The Drug Price Competition and Patent Terms Restoration Act 1984 § 202.46 The patent balance the period required for generic companies to obtain marketing authorisation once the patent had expired. 177 (1987) p.   39   Ibid. for another one to two years. 44. p. Pate. Bolar Exemption. as the patent cannot be permitted under the ‘guise of scientific inquiry when the inquiry has definite. 3(2) North Carolina Journal of Law and Technology 253 (2002). Eisenberg. in other words.   38   D.3 Conclusion on the EUE ‘The purpose of the experimental use doctrine is not to subsidize new research at the expense of the patentee. Proprietary Rights and the Norms of Science in Biotechnology Research. In view of the significant impact it might have on public health.N. Love. It also noted that there was no economic effect on the patent holders by virtue of such conduct. the judgment still presents a valuable insight into the notion of infringement. ‘reasonably related’ is an objective test of acts deemed to constitute an infringement except for § 271. J. cognizable and not insubstantial commercial purposes’.S. cit. use or sale of drugs. and therefore the exception should not be invoked. 1998 at http://lists.39 The distinction between experimenting on   35   Public Law 98-417. 97 Yale L. 225. later codified as 35 USC § 271(e)(1)(2001).35 permits clinical trials for the purpose of providing data to official regulatory authorities for market clearance of a medicine developed by a non-licensed third party covered by a patent that is due to expire.   G.2. but rather to allow such research when market forces prevent it. although Bolar was overruled.essential. It protects drug manufacturers whose use of products is necessary to satisfy the pre-market testing requirements of the FDA: ‘the patented drugs should be used solely for purposes reasonably related to testing requirements under federal law’. Therefore.1.   36 .html. 41.   37   For an analysis of the Bolar exemption see J. Gilat (1995) op. the dilemmas facing research tools and the problem with the applicability of the experimental use exemption is the same and might even be more heightened in view of their more limited interpretation of the doctrine. See also R.’38 In the case of research tools used by other researchers for the purpose for which they were created. 3.37 While the US experience has proved useful in encouraging Europe to also endorse a Bolar-type exemption. p. it amended the statute to permit the use of inventions for the purpose of developing and submitting information under laws regulating the manufacture. if the research tools to these people can be freely acquired in the ‘marketplace at a reasonable cost via anonymous purchasing without the need for licensing transactions. December 2004. could in principle be thought of as research on the invention. Patents and Experimental Use. The growing incidence of high transaction costs associated with accessing multiple patented research tools contravenes the ordinary consumer assumption. When research tool transaction costs are severe enough to impede or stop the development of new biomedical products.   43   ACIP. and that if these consumers were exempt from infringement liability.   J. the processes generally remain identical. Research intended to identify variation within the gene may be regarded as research on the invention. This problem seems inherent in the patenting of ‘inventions’ which are also a form of discovery. however. which can be regarded as technology subject to commercial application. The distinction between research genetic testing and clinical diagnosis is also clouded by the fact that. although the objectives may differ.42 In addition. 40. directed towards identifying treatment for disease associated with abnormal forms of the gene may be regarded as research with the gene. ‘The problem is that researchers are ordinary consumers of patented research tools. p. there may be further complications with maintaining this distinction.43   40   R. cit.M.41 This is only reasonable. as it would be inapplicable. This is in the sense that it is research directed towards identifying the exact structure or property of the ‘invention’ in the specific individual being tested. however. Mueller (2001) op. the patent holder would have nowhere else to turn to collect patent royalties. 40. However.   42   Ibid. clinical diagnostic testing. this assumption may be called into question. however. cit.’40 In light of the increasing difficulties in reaching an agreement or securing a licence. line-drawing between “experimenting on” and “experimenting with” may no longer be justified’. Advisory Council on Intellectual Property. The patent system and some potential safety nets 47 and experimenting with would not provide access in cases of downstream research. with its tendency towards broad patents … research using knowledge of the structure of a gene. p. as the Australian Department of Health and Ageing has stated: It should also be noted that there are also practical problems in some fields of technology in making this distinction … including biotechnology.   41 . Eisenberg (1996) op. The Working Group on research tools has concluded that an EUE should not be available to those ‘working with’ a patented invention as such workers are truly ‘ordinary consumers’ of the tool. Options Paper. as well as its profitability. the reverse doctrine of equivalents is used to bring it outside the scope of patent protection. where the Federal Circuit limited the scope of the inventor’s claims of purified natural products and applied the reverse doctrine of equivalents. 904 F. secondly. 1991).2. 2000). therefore.   44   L.46 None the less. . the doctrine has rarely been invoked and even more rarely applied.2 The Reverse Doctrine of Equivalents and Blocking Patents The reverse doctrine of equivalents is an equitable doctrine devised by the courts in the USA to excuse infringement even though it may be within the scope of the patent claim. despite the existence of a cooperative surplus. Domeij has proposed that the reverse doctrine of equivalents should be used in Europe so as to facilitate the entry of new products into the market that are of high value to consumers in cases that would otherwise encroach on the scope of the patent granted. L. It has been argued that the doctrine is a judicial response to the likelihood of breakdown in bargaining between the pioneer and the improvers. 5 Harvard J. Domeij (2000) op. the uncertainty over the future development of the technology. Cir.2d 677 (Fed. In the EU no provision is made as to the reverse doctrine of equivalents.   47   B. although a proposal for a similar measure has been made. by taking the importance of the improvement in question into consideration. its practical effectiveness remains a contested issue. Law & Tech 31 (1991). 75. Cir. 927 F.48 The patent balance 3. cit. Merges. first. Refining the Graver Tank Analysis with Hypothetical Claims: A Biotechnology Exemplar.47 However.   45   See Westinghouse v Boyden Power Brake Co. and Scripps Clinic and Research Foundation v Genetech Inc.48 This breakdown is likely to occur. and in this way. Although falling within the literal words of the claim.44 While the US Supreme Court has made reference to this doctrine on several occasions. IPRs and Bargaining Breakdown: The Case of Blocking Patents. v Chugai Pharmaceutical Co. Rev. 170 US 537 (1898).   48   R.2d 1565 (Fed.45 the Federal Circuit has viewed it with some scepticism although it has been validated in theory. (1994). it refers to a situation in which the improvement performs the same or similar function in a substantially different way. Handley. Cir. due to the difficulty in setting the value on the relative contributions and. 62 Tenn. 927 F.A.   49   Ibid.49 Strategic bargaining may aggravate the situations and lead to a failure in reaching an agreement. it appears that the indirect use of the principle may be made upon interpreting the scope of the patent.2d 1200 (Fed. 1991). See also Amgen Inc. and Graver Tank case 339 US 605 (1950).   46   Wilson Sporting Goods v David Geoffrey & Associations. 55   50   M. In the USA.2(a).   54   See further down at 3. Merges (1994) op.   Ibid. Under European patent law.A.   52   Ibid. Delineating the scope of the patent according to the value of the improvement relative to the pioneer patent also overcomes the incentive ac  51 . Lemley (1997) op.4. it is not necessary to have recourse to compulsory licensing as the improvement falls outside the scope of protection.52 The latter refers to the situation in which the improver is unable to protect the information once it has been disclosed.54 Hence. a property right is given to the improver in the form of a patent. cit. while there is no provision for compulsory licensing (CL) of dependent patents in US law. although his unauthorised use of the original patent would still be infringing. This creates a mutually blocking situation which levels the bargaining power of parties and creates an incentive for both parties to reach an agreement and to push technology forward. the reverse doctrine of equivalents promotes the voluntary licensing between parties by creating a threat to the pioneer patentee. whether literally or by virtue of the doctrine of equivalents. Merges (1994) op. The minor improver is also likely to infringe. however.53 The rationale of the blocking patents doctrine in US patent law reflects the statutory provision in EU law and in TRIPS regarding dependent patents. encouraging them to reach a socially productive agreement without recourse to statutory compulsory licensing. it is possible to get a compulsory licence in cases of a secondary dependent patent that involves an important technological advance of considerable economic interest. cit. The improver cannot stop the pioneer from using the improvement and it is unlikely that an agreement will be reached. cit.2. The radical improver is exempt from liability regardless of whether it lies within the literal scope of the claim. the blocking patents doctrine attempts to have the same effect by maximising the situations in which licensing can occur. the improvement is treated as a function of its value and significance in relation to the original invention. The author elaborates on a transactional view of IPRs. so as to encourage its creation and ensure it reaches the market. yet needs to disclose it in some way in order to reach an agreement with the patentee. The patent system and some potential safety nets 49 In such cases.   53   R. it allows the radical improver to use the pioneer inventor’s idea in certain cases in which the latter would otherwise have held the radical improver hostage. In the case of a significant improvement. as it exists in the EU.   55   R.50 In such cases. A minor improvement is not eligible for a patent and in order to reach an agreement with the patent holder. it must overcome Arrow’s paradox of information.51 According to this. 50 The patent balance The transactional view of patents permeates doctrines such as the doctrine of equivalents and the reverse doctrine of equivalents. Practical evidence. so as to ensure that commercially value-added innovation reaches the market.56 The doctrine would be of little use in cases in which access is needed to the research tool for downstream research. It therefore becomes necessary to examine what other provisions may be used to give effect to such concerns.   56   In fact. To that end see the experimental use exemption analysed next. in many respects. This is because. Consideration is paid to when parties are likely to reach an agreement and how to maximise the cases of important agreements for follow-on innovation. first. In such cases. . is equivocal on the role of commercially added value as the most significant factor in determining the scope of patent protection. and that the doctrine of equivalents be seen as an economic test not a technical one. cess paradox of compelling access in cases where the incentive for the pioneer work is most significant. It is feared that this will lead to uncertainty from a technical point of view as the scope of protection will effectively depend on the value of the improvement. As explained. however. research tools do not usually fall within the category of improvements. Despite the lack of certainty. the reverse doctrine of equivalents only applies to radically different inventions. and even here it would be limited as it would only cover radical improvements (involving inventing around) and would also fail to justify ‘of itself’ experimentations on the invention until such time as the improvement has been developed. See the author’s proposal that the portion of the scope of protection devised by the courts be mainly thought of as an ex post facto adjustment taking into account the value of the attacked embodiment. access to research tools is mostly needed to research downstream pharmaceutical products. as regards access to the patented technology it provides no means of ensuring that and only seems to operate ex post to excuse infringement by taking the improvement out of the pioneer’s scope. This is because the improvement’s value is measured relative to the original patent. and most significantly. and secondly. He argues that patent claims define the invention but do not conclusively define the scope of protection since it is impossible at the time of the grant to foresee all possibly infringing products that add something of importance and therefore should be encouraged by the courts. on the law relating to improvements and the delineation of the relationship between the initial and subsequent patents. the reverse doctrine of equivalents would not remedy the problem relating to access. The doctrine could only have a small role to play in cases dealing with improvements on the research tools as such. the extent to which the current provisions or doctrines would cater for the problem of research tools is not clear. whether they are transferred directly by the patentee to the licensee or through some medium such as a joint venture set up specifically to administer the patent pool’.P. Patent Pools: A Solution to the Problem of Access in Biotechnology Patents? US PTO.60 Where a patent is essential to the practice of the relevant technology field then the blocking situation is present. in cases where essentiality is not readily defined or in cases where there are blocking patents from different companies that are not part of a standard.3 Patent Pools The creation of patent pools provides another working solution to the problem of blocking patents and stacking licences. B. Piccolo.59 Typically. Patent pools are predominantly used in situations where patent thickets57 arise. it refers predominantly to a situation of complementary and multiple patent rights that are interdependent and potentially inter-blocking in the absence of coordination. patent pools may be particularly effective. The patent system and some potential safety nets 51 3.61 While the object is to ensure that access to essential inputs is not impeded. they are more a solution to the balkanisation of rights that may lead to higher prices than a single package price. Clark. Oxford University Press (2001). UCLA Department of Economics in its series Levine’s Working Paper Archive no.   58   J. They refer to the ‘aggregation of IPRs which are subject to cross licensing. Dreyfuss et al. January 2002. Shapiro. see C.. for the FTC Hearings on IP and Antitrust.uspto. 2004. Hence patent pools mostly arise in cases of standards.pdf. so that the commercialisation of new technologies is not impeded by an overlapping set of patent rights. a single entity licenses the patents of two or more companies to third parties as a package. and this offers the convenience of a ‘one-stop shop’. Navigating the Patent Thicket: Cross Licenses. K. Merges. 5 December (2000) at http://www. Stanton. Tyson. where there are repeat-play transactions and they hold mutually blocking patents. 122247000000000539. Institutions for Intellectual Property Transactions: The Case of Patent Pools. . in R.   60   J. in such cases. Oxford.58 Patent pools have been described as ‘private liability rule’ organisations that function in a similar way to compulsory licences except that they have been devised by an organisation. cit. Comments on Patent Pools and Standards. In cases of standardisation any patents necessary to comply with the standard become really essential and. high licence fees and may also   57   For an explanation of the term ‘patent thicket’. gov/web/offices/pac/dapp/opla/patentpool. Hence. Patent pools are typically created in industries in which parties have a longstanding relationship and form a homogenous group.2.   59   See R. Patent Pools and Standard-Setting. Expanding the Boundaries of Intellectual Property. Kubalski. J.   61   ACIP (2004) op. However. cit. Patent pools have also been criticised as potentially ineffective in view of the likely disagreement over the value of the patents. the true value of which may be unascertainable without the cooperative efforts of other companies’.   Ibid.62 Patent pools are particularly effective in cases of complementary as opposed to substitute patents. the definition of standards and need to ensure interoperability is not essential in the pharmaceutical industry. Merges (2001) op. cit. money and resources that can be directed instead to further innovation. Greater predictability may result in patent pools. In addition. avoid costly litigation and promote the dissemination of technology.67 Criticism is   62   C. 8 February 2002 in CPTech on Collective Management of IPRS: Patent Pools at www. (2000) op. describing the need for ‘strict complimentarity’ of patent pools. i. leading to a more effective and efficient allocation of limited resources.52 The patent balance dynamically be a drag on innovation. The biotech landscape.   65   J.   64   L. that none of the parties be able to have any return in the absence of an agreement to pool.   63 . it is often felt. cit.   67   ACIP (2004) op. reduce the often high transaction costs. cit.66 It is also often found that the number of patents to which access is effectively required is usually manageable.cptech. minimising transaction costs in negotiating individual licences and reducing the possibilities of a hold-up problem.64 Hence one-stop shopping may be particularly effective in this industry to save time.65 It also leads to the distribution of risk benefit as the members share the risks associated with R&D and each member may receive a set of income based on the percentage of the royalty earned from the pool.e.P.org.   66   OECD (2002) op. these perceived benefits have not gone unchallenged. Sung. cit. some have argued that unlike the electronic industry. Shapiro (2004) op. the usefulness of pools may be limited.63 Patent pools are perceived as particularly beneficial in the biotechnology industry as they may assist in integrating technology. it is questionable whether the genetic inventions market is amenable to patent pools. heterogeneous players and parties who are often involved in one-off transactions. p. prevent blocking positions. than access to a single essential input technology. See also R. is such that the ‘vast amount of genetic information and its significance as a fundamental research tool even absent functional knowledge can give rise to an almost overwhelming number of patents. First. While there is a significant degree of interdependence and high transaction costs. It can also be advantageous as it provides a mechanism for the free sharing of technical information relating to the patented technology and provides an incentive for avoiding overlapping efforts. 59. as the industry is made up of diverse. especially in the development of therapeutics. Clark et al.   70   J.70 Furthermore. than to the problem of access to a single essential upstream technology as in the case of research tools. Merges (2001) op.73 In order for patent pools to function. (2000) op. or anti-commons issues. and if a field of application could be defined and the essential patents identified. Empirical evidence has shown that some patent pools have been created in the biotech industry such as the SNP Consortium and the Genebank pool. was condemned as it was perceived to act as a tool for fixing prices and eliminating horizontal competition between the companies.’   69 . the patent pool between VISX and Summit Technology. so they do not assist where blocking patents are used in an exclusionary manner. This is not usually the case for upstream biotechnological research and downstream pharmaceutical developments. cit. which is not likely to arise in the absence of interdependence in cases of access to essential inputs. a symmetrical structure is required in which everyone owns patents. Patent pools are also usually dependent on the voluntary decision to pool the patents.   73   See the submissions on p. cit. who argues that the most important factors are open membership to the pool and non-exclusive licensing. in some cases. cit.P. pools have been found to be inefficient.   This is analysed in CPTech on Collective Management of IPRS: Patent Pools at www. of the only two FDA-approved manufacturers of lasers used in photo refractive keratoctomy.cptech.org.org. however. In this case.68 The latter. empirical evidence from Germany has shown that patent pools were not deemed to be effective in increasing access to genetic inventions due to the difficulty in assessing contributions. the patent pools may be deemed worthy of consideration. shield invalid patents and encourage collusion and price fixing. 59 ACIP (2004) op. while patent pools may prove particularly advantageous in certain cases.cptech.   72   See though R. Strauss (2002) op. would seem to be amenable to control if an independent expert were charged with evaluating the patents. Clark et al.72 In conclusion.   71   CPTech on Collective Management of IPRS: Patent Pools at www. For example. ‘It should be remembered that patent pools are promoted as a solution to patent thickets.   68   J. in view of the ability of both companies to enter the market independently. cit. it would seem that they have been directed more towards the problem of the proliferation of patent rights and the creation of patent thickets.69 These have been viewed as particularly effective pools. On the other hand.71 The careful examination of the true complementarity and dependency therefore seems to be paramount. The patent system and some potential safety nets 53 also made regarding the fact that they may inflate the costs of competitively priced goods (although this could be remedied if truly blocking patents are identified). directly or indirectly in the relevant country. had social costs. Non-Voluntary Licensing of Patenting Inventions: Historical Perspective. Hasenzahl. compulsory licences do not arise automatically but instead only after a decision has been made by the competent body. and an Overview of the Practice in Canada and the USA.54 The patent balance 3.4.2. There are several factors that point to the desirability of CL when certain conditions are met. as a sanction for failing to work it. The competent authority will grant the licence to a designated body or person that usually compensates the patent holder by providing him with reasonable remuneration. which was used to encourage the development of national industry by requiring a domestic patentee to work his invention.1 Introduction to compulsory licensing (a)  Definition and History A compulsory licence enables a government to license a third party to use the patented invention without the patent holder’s consent. and as amended on 2 October.   75   See survey of patent laws in Table 3. Legal Framework under TRIPS. CL developed against this background. p. Historically. marking a shift of the sanction from forfeiture to CL. however.4 Compulsory Licensing in the Patent Provisions 3. .75 Forfeiture of the patent. UNCTAD (2002).   76   See Art. compulsory licensing (CL) arose to ameliorate the risk of forfeiting the patent.2. at Lisbon on 31 October 1958. where the demand for the product has not been met.76 (b)  Support and Opposition for CL CL has been met with support but also with opposition. Reichman. first. In such circumstances. at the Hague on 6 November 1925. at London on 2 June 1934. C. Contrary to other balancing mechanisms in the patent system. p. 5.74 Patentees are generally required to work their invention in nearly every country in which a patent has been obtained. 58 confirming the perception of the compulsory licensing as desirable as a tool in certain cases. cit. 1979.77 CL might be considered desirable.   77   See also ACIP (2004) op. 5 of the Paris Convention for the Protection of Industrial Property of 20 March 1883 as revised at Brussels on 14 December 1900. and at Stockholm on 14 July 1967. at Washington on 2 June 1911. According to economic theory.2. CL may facilitate entry into the market leading to enhanced consumer   74   J. a monopolist will intentionally under-supply goods (to sell at higher prices) in order to maximise profit. especially in instances where investment and/or know-how was not sufficient to encourage competitors to produce the invention themselves. 80 Therefore. J. Hence. Fauver. Ill. Indeed. The socially optimal level of a particular good is the level at which the marginal benefit of providing another unit is equal to the marginal cost of providing an additional unit. 2001.C. Innovation and Access: The Role of Compulsory Licensing in the Development and Distribution of the HIV Drug.81   78   C. in line with this argument. 666 (1988). the level may be socially optimal avoiding wasteful activity. of eliminating the monopoly position of the intellectual property (IP) holder. Tandon. Tandon. assuming there are no barriers to entry. and although that may reduce research activity at an absolute level. or at least may reduce it to an optimal level.79 CL is also supported under patent law by virtue of deadweight loss concerns. Optimal Patents with Compulsory Licensing 90(3) J. Compulsory Patent Licensing in the US: An Idea Whose Time Has Come. Bailey. P. although this may be justified to ‘assure a more complete utilization and commercialization of innovative products’. as it may contribute to the firm’s individual utility by increasing the likelihood that it will invent first and reap the profits. . in such industries. U.M. The author refers to the work of P. Pointing to the fact that CL will lead to a less-than marginal level of R&D is not dispositive as the social cost of providing those additional units of research may outweigh their social utility. The author explains that competing firms will engage in absolute levels of research that exceed the point at which such activity contributes positively to social utility. especially the case of improvements or patents building upon previous ones.   79   Ibid. & Pol’y 193. welfare and national defence. there may be some benefits in weakening IP protection through CL as it results in a reduction in wasteful activity. relaxation of patent protection may lead a firm to refrain from competition. Tech. such as those relating to public health. wasteful levels of research activity can be invested in the race to be the first to innovate and reap the first-mover profits. There is a risk. of Polit’l Econ’y 470–86 (1982). In a dynamic model. 8 J Intl. CL may also be desirable for products which are vital to the public. weakening patent protection may not actually decrease innovation. in certain cases. A firm will have an incentive to invest in a particular industry as long as the profits earned in that industry are more than the average profit rate of industry as a whole. considerations of explicit costs and opportunity costs could militate against the provision of a particular product or service at a higher rather than a lower level. According to the deadweight loss argument. The patent system and some potential safety nets 55 choice and lower prices.78 Compulsory licences may also be desirable in certain cases as they may facilitate further innovations. The reason is that social utility is a function of the overall likelihood of innovation which is a function of the absolute level of research activity.   80   T. Proponents of this view also argue that IP rights can reinforce market power in the areas of network industries. L. L Bus.   81   Ibid. however. A study of Canada’s compulsory licensing programmes found similar results. however. D. on average.A.M.D.85 It would seem. New York. For example.   83  V. New York University Monograph Series in Finance and Economics (1977). and the wasteful levels of research activity in the race to reap the first-mover profits. The Economic Effects of Compulsory Patent Licensing. in Competition Policy and Intellectual Property Rights in the Knowledge Based Economy. Scherer (1977) op. Cheap Drugs at What Price to Innovation: Does the Compulsory Licensing of Pharmaceuticals Hurt Innovation? 18 Berkeley Technology Law Journal 853 (2003). Lemley. that this is part of a general problem and used as an argument on behalf of those advocating a liability system. that the effect of CL is also dependent on other factors.86   82   Ibid.A. M. Korah. a 1975 study did not find any evidence that CL adversely affected corporate R&D expenditure. Empirical evidence is ambiguous on this matter. pp. Compulsory Licenses and Incentives to Invest in Innovation and Compulsory Licenses. See. an analysis of patenting activity from 1954 to 1956 has shown that patent owners subject to CL significantly reduced their patenting activity. Scherer.T. 198–9.T. therefore. Taylor and Z. Hovenkamp. on R&D than similar firms in their industry that had not been subjected to compulsory licensing. 65. C. McFetridge. the concept of deadweight loss considers the consumers who are not able to afford the monopoly product. i. pp. that there was no negative impact on pharmaceutical innovation. Cambridge. Anderson and N. 43–50. Chien. Cambridge University Press (1973). Hence. Intellectual Property. however.G. 2002.84 By contrast. Silberston (1973) op. for example. It is also argued that a compulsory licence would discourage the IP owner to engage in further research as he would have normally used the profits from the IPRs for this purpose. He concludes that the licensing had no long-term negative impact on licensors’ innovation.T. c.   85   H. Gallini (eds) (1998).56 The patent balance The social costs include the potential consumers who would be able to afford a product or service in a competitive market but who cannot afford it at monopoly prices. C. cit. pp. and Growth in the Canadian Economy. pp. 21–2 who analyses the effects of compulsory licensing and states that it is likely to depend not only on the price that will be set but also two other . 198–9 which shows that British pharmaceutical executives believed that some forms of licensing could harm innovation. cit. 43–50. ‘This is the deadweight loss associated with monopoly pricing’. Intellectual Property and Antitrust: An Analysis of Antitrust Principles Applied to Intellectual Property law. Indeed. p.   84   F.   86   See. R.82 CL has also been severely criticised. as it is feared that it reduces incentives for the original innovation. Silberston. for example. See also C. See also F.V. companies subjected to compulsory licensing actually spent more. The Economic Impact of the Patent System. even for industries like pharmaceuticals. such as first-mover advantages and royalty rates. pp. J. Taylor and Z.M.e. 2003 Supplement. Mark. It should be noted. Technology Diffusion.83 This rests on the assumption that a reduction in incentives would dramatically reduce the level of investment. OECD (1998). New York: Aspen Law & Business. Market significance refers to the extent to which a licensee actually threatens the patentee’s market. and that the government provides adequate remuneration taking into account the economic value of significant factors. See survey of patent laws in Table 3. Although unanticipated loss of exclusivity that accompanies an unpredictable compulsory license may influence a company’s decisions about investing in follow-on innovation. They stipulate that governments should consider the cases on their individual merits. The licensor may choose to redirect R&D investment. that prior to the authorisation of third party use there should be an effort to negotiate a voluntary licence on reasonable commercial terms. or choose trade secret over patent protection. where a patent is not being worked. International Compulsory Licensing: The Rationales and the Reality.2. . The patent system and some potential safety nets 57 (c)  Grounds for Granting a Compulsory Licence A survey of European and international IP law reveals that there are three primary grounds for CL: where a dependent patent is blocked. the TRIPS Agreement provides for three main cases in which CL may arise. crisis. See also G. or where the public interest so dictates whether because it relates to food or medicine. 1993 IDEA 349.2. to national defence or to the sovereign.   88   TRIPS Agreement (1994) op. and l in cases of extreme urgency. ‘market significance’ and ‘predictability’.87 Accordingly. or to remedy anti-competitive behaviour. the licensing event may come at a point that is too late for the company to change course.’ See also Chapter 5 at 5. l when necessary to use a second otherwise infringing patent that constitutes an important technical advance of considerable economic significance.88 While the provisions relating to CL are sufficiently broad to cater for different interpretations. the Agreement on Trade-Related Aspects of Property Rights (TRIPS Agreement) lays down some procedural safeguards that should be followed in exercising the discretion to grant a CL. while predictability refers to the extent to which a licensor anticipates a compulsory licence. put off inventive activity until the license has expired. This is not the case with an order that requires licensing of future patents. These include: l the non-use of a patent for three years from its grant or four years from its application. namely. whereas others refer more particularly to these three grounds.3. Julian-Arnold. cit. to an antitrust remedy.4 on harm to incentives. ‘Unpredictable licenses that cover only existing technologies are more limited in scope than those that are predictable and cover future inventions. development and commercialization.   87   The survey shows that some states merely refer to a broad notion of public interest that could potentially include these more specific considerations.   92   See survey of patent laws in Table 3. M.2. who state that: ‘compulsory licensing should be used as ‘a last resort’.58 The patent balance the authorisation. see H. and on the other hand. it would seem that neither the EUE nor the patent pools solutions are adequate in addressing the potential blocking of access to upstream innovation.90 3. Evidence has shown that   89   It should also be noted that some of these requirements may be waived in cases of national emergency. and of exporting states in their capacity to establish economies of scale. Hovenkamp. Other countries refer more specifically to the specific cases of non-use. In such a technological environment. Compulsory Licensing for Pubic Health Needs: The TRIPS Agenda and the WTO after the Doha Declaration on Public Health. Quaker UN Office. However. CL works to reduce the adverse effects that patents may have on prices and availability. This issue is particularly relevant to developing countries.   90   Related to this provision is the issue of the extent to which a country that has no manufacturing capacity of its own could use CL to compel manufacturers in another country to export to it. it would seem that the CL provisions could serve many functions. Mark. On the one hand. the issue which needs to be resolved centres on how to overcome limitations on prospective importing states as to the sources of the products. para. under s.4. 6-53. See also the recent developments with the Proposal for a Regulation of the European Parliament and of the Council on Compulsory Licensing of patents relating to the manufacture of pharmaceutical products for export to countries with public health problems. it might work as a factor to induce voluntary licensing. J.2.cptech. This diverts the question to the interpretation of ‘public interest’. 16. cit. this issue is not addressed in the present paper.org/ip/health/cl/netherlands-export-rules. it could be used as a safety net to address substantive concerns.89 Article 32(f) of TRIPS also requires that use should be authorised predominantly for the supply of the domestic market.91 The usefulness of the CL provisions in the context of research tools depends on both the substantive and the practical aspect. See also the Netherlands Policy rules on issuing compulsory licenses pursuant to the WTO decision WT/L/540 on the implementation of paragraph 6 of the Doha Declaration on the TRIPS Agreement and public health. For developing countries. dependent patents and emergency or anti-competitive situations.57(1) of the Kingdom Act on Patents of 1995 available at www. See F.92 (i)  CL as a mechanism to induce broad licensing  CL may be used as a means to encourage and induce broad licensing techniques.2 Analysis of the role of CL (a)  The Role of CL in Balancing Commensurability As was shown above. Lemley (2003) op. p. February 2002.   91   With regard to the latter. In such cases. however. COM/2004/0737 COD 2004/0258.html. Abbott. Substantively most countries contemplate licences where the public interest so dictates. . as the South Africa and Brazilian experiences have shown. however.   95   Bhatnager. 423–36. See www. 40 Patent World 33 (1992). See also S.   96   G.94 (ii)  CL for non-use  It is in the interest of every state to promote the working of the patents as this assures the supply of new and better goods. therefore. (iii)  CL for significant technological advances  It is also possible to have recourse to a provision allowing for the granting of a licence in cases in which a product or process would otherwise be infringing a first patent.97   93   J. 97.cptech.P Ladas. Cambridge: Harvard University Press (1975).   Ibid. Roche. The practical value of CL.   97   This provision existed in Art. The research tool problem is grounded on lack of access rather than a lack of any kind of working of the patented invention. cit. p. Patents. which is a medicine used to cure Hepatitis C. 349. is not only its use. it was not included in the 2004 version.org/ip/health/cl/cl-eu. Hasenzahl (2002) op. but also ‘that the threat of it usually induces the grant of contractual licences on reasonable terms. The patent system and some potential safety nets 59 even the threat of CL is effective in exerting power on firms to reach a consensual agreement on licensing. who offered to sell the drug in Brazil at an additional 40 per cent discount in order for Brazil to refrain from issuing a compulsory licence. GATT Intellectual Property Protection Proposals in Context with Developing Countries and the Paris Convention. EC Commission Proposal for a Council Regulation on Community Patent. This led to an agreement between the government and the patent-holder.html. 1 August 2000. and thus the objective of actually working the invention is accomplished’. and which represents an important technological improvement of considerable economic significance. Julian-Arnold (1993) op. 21 of the 2000 version of the Proposal for a Council Regulation. unless the branded producers reduced their price. Reichman and C. The Brazilian experience is illuminating in this respect.93 The government of Brazil threatened to produce pegylated interferon locally. which led to a licensing agreement between the parties. Hence in cases where the upstream patentee would have otherwise refused to deal with a downstream competitor. COM (2000) 412 final   94 . See also Roche’s bid for a compulsory licence in May 2001 of Chiron’s blood screening patents in Germany. the possibility of a compulsory licence might be effective in obtaining a voluntary licence. p. pp. Trademarks and Related Rights: National and International Protection. §§ 245–9.95 Non-use provisions are therefore implemented in order to promote local working of the inventions and to forward the public interest in having access to novel and desired subject matter. cit.96 It is argued that this type of CL would not serve as a possible safety net in the context of research tools as they address different issues. 99 To this end. L 613. Netherlands. Hence. The ramifications of this depend on the value of the second patent in relation to the first patent. France Art. . the owner of the more recent patent shall have the right to the grant of a licence to the extent required for such use of his invention.15 Industrial Property Code 1992.102 For example. Kern (1996) op. For example.2. the hold-up problem could be significant where the improvement is of much larger value than the original patent. cit. See also UK SI 2002/247 on Patents and Plant Variety Rights (Compulsory Licensing) Regulations 2002 that envisage compulsory licensing in cases constituting ‘significant technical progress of considerable economic interest in relation to the invention protected by the patent’.48(3)(d)(ii) provides that three years after the date of patent grant a compulsory licence may be granted where the working of another patented invention is being prevented or hindered by the refusal to grant licences on reasonable terms.   99   Ibid. CL provisions seek to remedy this situation. cit.98 If a licence agreement has not been reached. The rationale is to provide incentives for the promotion of technical and economic development. it is questionable whether they are sufficient as they have been narrowly interpreted and so only applied in exceptional cases. in the UK s. None the less. as it cannot be worked without infringing the earlier issued patent. For example.100 It also allows for CL where the patent holder cannot use a protected variety without infringing third party rights. See also UK section 48 Patents Act 1977. cit. 102   M. In some countries. the dependent patent cannot be used. the provision on substantial improvements was Doc. 100   Biotech Directive (1998) op. or that it involves a considerable technical advance’.   98   See G.60 The patent balance This is broadly referred to as the dependent patent. section 57 Patent Act 1995. See M. Revised Proposal for Council Regulation on the Community Patent. (section 48(7) PA 1977). Art. this case of compulsory licensing has not been the subject of litigation in the UK. cit p. 36 of the Swiss Patent Law provides that: ‘If a patented invention cannot be used without violating the prior patent. Kern (1996) op. 7119/04 PI 18. Julian-Arnold (1993) op. This is subject to the condition that the compulsory licensee is prepared to cross-license its own dependent patent on reasonable terms. 8 March 2004. 101   Ibid. provided that that invention serves a purpose entirely different from that of the prior patent.101 While these provisions may be desirable. the delay in introducing the improvement is perceived as being contrary to the public interest in having the unencumbered working of all patented inventions. Industry-specific similar provisions have also been created such as the European Directive on Biotechnological Inventions that allows breeders to request a CL if it has not been possible to acquire or exploit a plant variety without infringing a prior patent. See survey in Table 3. 349. org.103 In this case. however. it seems that this provision would be inadequate to deal with cases raising similar issues such as research tools. therefore it.104 It is noteworthy that a study published in 1990 has shown that the last dependent compulsory licence in Japan had been granted more than 20 years before. in favour of the granting of a CL.107 (iv)  CL to address health emergencies  Most countries have provisions in their patent laws relating to the grant of CL in situations involving a national 103   ‘Zwangslizenz’ Federal Supreme Court (BGH). p. 21 IIC 532 (1990). southecentre. 104   See Grounds for Granting Compulsory Licensing. 4.org. See also Grounds for Granting Compulsory Licensing. 5 December 1995. However.106 It should also be noted that it is unclear whether this provision can only be used for improvements or if it can also be used for dependent downstream technology. . Hence. 107   As it was shown earlier. 190. it would seem that this provision could not be used in cases of blocked access to an upstream innovation for downstream research. On the facts. Walter. GRUR 1996.G. see M. polyferon. 105   W. The patent system and some potential safety nets 61 applied by the German Federal Patent Court on 7 June 1991. however.org/. For a critique of the strict interpretation of the notion of ‘public interest’ by the Court. one could potentially envisage the use of CL under this provision to remedy the blocking effect. as it would constitute commercial use and experimenting with as opposed to on the invention. at www. the usefulness of this approach has not been tested thus far.105 In cases involving a significant technological advance impeded by another patent and raising public health concerns. The Court found that there was a public interest in the medical use of polyferon which was dependent on the dominant substance patent. the Federal Supreme Court ruled that a CL would not be granted if the public interest could be satisfied with an alternative mechanism of equivalent effect. 106   See IPR Helpdesk.ipr-helpdesk. Bioferon owned a patent for a pharmaceutical product. Kern (1996) op. covers both cases. downstream research to potentially obtain a second patent would not be exempted under the experimental use exemption. Some Basic Issues Surrounding Improvements Made to Patented Invention and to Dependent Patents. in December 1995. at http://www. it found that the substantially improved therapeutic properties had not been established.southecentre. 24 IIC 397 (1993). and that the Federal Court in Switzerland had not dealt with such a case since the law had come into force in 1956. for the treatment of chronic polyarthritis and it also held dependent patents on specific uses of human immune interferon. prima facie. at www. The wording of the Community Patent Regulation only provides for a second infringing patent. as use is required prior to any potential patent. Compulsory Licenses and Dependent Patents. as opposed to patents that have already been granted. cit. On health emergencies. Julian-Arnold (1993) op. Globalization and Access to Drugs. p. Implications of the WTO/TRIPS Agreement.111 It also provides that. such as the USA. In this way. as the quantity was greater than Bayer was able to produce in a timely manner. the Public Health Emergencies Act110 gives the US Secretary of Health and Human Services broad discretion to issue CL to address public health emergencies.org/ip/health/cl/recent-example. The USA has also enacted the Affordable Prescription Drugs Act.’ See also Art. the efficacy and innovative nature and the importance of the invention or of products using the invention to public health. this law authorised this procedure when patented drugs ‘are only made available to the public in insufficient quantity or at abnormally high prices’. . the benefits of making inventions available to working families and retired persons. L. the degree to which the invention has benefited from publicly funded research.613-16 of the French Code on Intellectual Property which provides for compulsory licensing of patents ‘if required in the interest of public health’. cit. 112   Affordable Prescription Drugs Act HR 1708. COM (2004) 737. that person shall be given authority to exploit the invention if permission is indispensable in the public interest.cptech. see Proposal for Regulation of the European Parliament and Council on Compulsory Licensing of patents relating to the manufacture of pharmaceutical products for export to countries with public health problems. According to WHO’s publication. if the invention has been insufficiently exploited to satisfy local needs a license may be granted’.109 Some countries. 111   The anthrax scare in 2001 led the DHHS Secretary Thomson to seek a large stockpile of ciprofloxacin (Cipro) that would be sufficient to treat 10 million people. account should be taken of the following factors: the risks and costs associated with the invention. the public interest in health care services. the need for adequate incentives for the creation and commercialisation of new inventions.html. 349 who states that in Greece ‘for imperative reasons of public health. November 1997. 6 November 2001.62 The patent balance emergency108 which may include health emergencies.’ 110   Public Health Emergencies Act HR 3235.112 that seeks to use competition to bring 108   See section 24(1) of the German Patent Act which states that ‘If the applicant or patentee refuses to permit the exploitation of the invention by another person offering to pay reasonable compensation and to furnish security therefore. 27 April 2001. Thomson was asked to issue compulsory licences to generic manufacturers on 16 October. For more information see www. the public health benefits of wider access to inventions. However. or other circumstances of extreme urgency. 109   See Doha Declaration. and the need to correct anti-competitive practices or other public interest considerations. in the determination of reasonable remuneration. have even enacted more sector-specific legislation to cater for the particular interests affected by pharmaceutical patenting. WHO. WT/MIN(01)/DEC/1 November 2001 5(c) providing ‘Each member has the right to determine what constitutes a national emergency or other circumstances of extreme urgency it being understood that public health crises … can represent a national emergency. See also according to G. ritonavir+lamivudine and nevirapine. The implications of this type of CL are not dependent on the internal patent provisions but rather on the external anti-trust determination. If the patent privilege is misused at the expense of consumers. HR 2927. In this respect.org/ip/health/cl/recent-examples.2.   For an extensive discussion see www. it may be broader and more effective than the dependency provision. it is possible to contemplate a situation in which a compulsory licence could be imposed if a dominant firm refuses to grant access to its upstream innovation. This might represent a threshold that is lower than the dependency provisions within the patent system as it does not necessitate the existence of a significant technological advance of considerable economic interest. The outcome largely depends on the interpretation and the recourse made of the provisions relating to public interest/health emergency. 23 September 1999.114 Therefore. it is within the scope of lawful CL under TRIPS. On the other hand. In view of the uncertainty of pharmaceutical patent protection regarding its effect on prices. 114 . generic competition is seen as having an important role in ensuring broader access and reasonable prices. See survey of CL provisions in Table 3. (v)  CL as a remedy for anti-competitive conduct  The final ground for granting a compulsory licence is to remedy practices found to be anti-competitive.cptech. profitability and innovation. (b)  Conclusions on CL CL is envisaged to take many different forms in order to cater for the potential problems relating to research tools. and could find its way into national law if it is deemed desirable through the interpretation of ‘public interest’ which is present in most national systems. HR 2927 also provides for the CL of certain patented medical inventions. it is difficult to evaluate the desir- 113   Affordable Prescription Drugs Act. 115   While this has not been found to be a ground justifying CL in most European national patent laws. this may provide another avenue to give effect to the predominance of health concerns. thereby impeding innovation on downstream research or follow-on innovation. it should be remembered that liability for a unilateral refusal to deal is only imposed in anti-trust law on dominant undertakings and not on a general level. The patent system and some potential safety nets 63 down the cost of the prescription drugs.115 In this context. html. dependent patents and anti-competitive practices. lamivudine.113 The Competition Commission in South Africa found that GlaxoSmithKline and Boehringer Ingelheim had contravened the Competition Act of 1998 and abused their dominant positions in the anti-retroviral markets by virtue of excessive pricing in respect of ritonavir. and it is common in the US for parties to spend more than $1million to litigate a patent dispute.118 This is due to the practical problems associated with the fact that an improvement on the invention must be made prior to an application. it is rarely exercised in practice. 6. pp. statistical data for the German Federal Patents Court. Julian-Arnold (1993) op. Harvard University Press (1998).org. cit. Zimbabwe. 107–8. CL may also prove to be problematic due to the costs associated with patent litigation. p. Abbott (2001) op.120 For example. that are essential and do not require advertising.117 Julian Arnold has found that compulsory licences have rarely been applied in cases where dependent patents were blocked. and that there was even a discernible rise in comparison to similar companies that were not subject to such licences. This claim was rejected. cit. .M Scherer. A study which analysed the effects of CL on the R&D expenditure of firms and sought to establish whether the incentives to invest were hampered by such licences. 120   See M. See F. in Australia where only one application has been made to the Federal Court for a CL on the grounds that ‘the reasonable requirements of the public with respect to the patented invention have not been satisfied’. p. It is also known that pharmaceutical companies spend more on advertising and promotion than on R&D which is hard to justify in the case of life-saving drugs such as antiretrovirals. these practical obstacles might be decisive and might render CL inefficient. 41. for example. 21 August 2001. 2. much depends on the interpretation and application of the patent provisions as an overly narrow interpretation could render them useless.southcentre. Implementing TRIPS safeguards with particular attention to administrative models for compulsory licensing of patents. Cambridge. cit. The dependency provisions might prove to be even less helpful in the context of research tools as they apply to secondary patents and not research as such. 119   J. Kern (1996) op. which 116   See F. Empirical evidence from other European countries confirms that although some form of compulsory licence scheme exists. and an attempt to voluntarily reach an agreement must have been made. found that in relation to the 70 companies surveyed. cit.116 As was shown. The Patent System and Innovation in Pharmaceuticals. 117   See.’119 In cases where access is needed to simply carry out research with the research tool which is at a stage where it is unclear whether it will be successful. Grounds for Granting Compulsory Licensing. WHO meeting in Harare.000 per day. ‘The costs of the litigation in the AZT patent case were estimated at $100. a negative effect on R&D could not be established.64 The patent balance ability of compulsory licences. Love. the improvement patent must survive the possible length of the opposition proceedings. however. p. www. See ACIP (2004) op. 118   G. a patent must have been granted. html. 123   CPTech comments on H. Battcock. 3235. The interpretation and practical use of this provision has thus far been quite limited. public health officials will act conservatively and expose the public to higher risks. The licensing provisions also act as a form of deterrent against abuse – or to look at it another way. The application and interpretation of both of these cases as an effective means to address follow-on innovation concerns are discussed in the following section. Between 1991 and 1993. shows that until the end of 1991 there had been only 12 cases in which parties had instituted proceedings for compulsory licences. they need to be analysed externally. the ‘Public Health Emergency Medicines Act’. 121   Ibid. although between 1988 and 1990 it received eight.cptech. The patent system and some potential safety nets 65 was founded in 1961.   R.121 In practice. org/ip/health/cl/cl-eu.essential. the Patent Office did not receive any applications for compulsory licenses. p. However. Actual applications under s. while CL might be associated with different contexts. available at www. some governments might even be unwilling to impose a compulsory licence in cases of national emergency due to the uncertainty over the potential compensation. As Jeremy Phillips has pointed out however. which include cases of ‘extreme urgency’ including public health and CL as a remedy to anti-competitive conduct. 48 may therefore be regarded as instances where the compulsory license provisions have failed. while on many other occasions they may have been successful in encouraging voluntary agreements. http://lists. the most relevant patent law situation relates to dependent patents. IPRs. 122 . of encouragement to grant licenses voluntarily. 7 November 2001. in line with their own system. ‘As a consequence of concerns about uncontrolled or unpredictable costs. 1. software copyright and competition law: restricting the rights of intellectual property owners in the wider public interest.org. Apart from internal licensing. It has been suggested that the reluctance of the Bush administration to act in a way that would ‘override’ the patent. therefore in its current form it is doubtful whether it would be helpful in the context of research tools. these figures do not necessarily tell the whole story.’123 In conclusion. there are only two other instances that might be helpful in the research tool context. In this regard. could be attributed to the concern over what the Treasury might thereafter charge for lost revenues. it will be endeavoured to ascertain the implications of the right to health on the duty to deal and how this may potentially cater for situations of blocked access to essential research inputs.122 Despite this. as these involve licences outside the patent system. compulsory licensing is not greatly used.R. 3(3) excuses noncommercial use and use for experimental purposes relating to the subject matter of the invention Finland Finnish Patents Act Patent Law (Patenttilaki) No. 96-1106 1996) CL for non-working and for dependent patents Art. 1997 CL for – non working (s. 92-597 (as last amended by Law No. patents granted for medicines … See also Use of Inventions for Service of State Section 78 (for the maintenance of supplies essential to life. 27 Nov.23) – where ‘considerable public interest’ (s. for promoting productivity…) L. 550 1967 as last amended by Act No. 243.47) Section 3: exclusive right does not apply to ‘use of experiments relating to the inventions as such’ France Intellectual Property Code French Patent Act Law No.45) – dependent patents if reasonable in view of its importance (s. 21 Mar. 234 of 23 May 1984 § 36. 1989 CL for – non working (s. 613-6 ‘acts performed on an experimental basis and which relate to the object of the patented invention’ . CL for – non working – dependent patents where of ‘considerable commercial or industrial significance’ – public interest Denmark The Consolidate Patents Act Patents Act No.2 European national provisions for compulsory licensing and on the experimental use exemption Country Applicable statute Compulsory licensing provisions Patent infringement limitationsexperimental use exemption Austria Austrian Patent Law (Patentgesetz 1970) as last amended by the Law No. 479 1967 as last amended by Act No.66 The patent balance Table 3.45) – dependent patents if ‘reasonable’ (s. L 613-16 in the interests of public health. 733.47) Art.46) – if required by important public interests (s. 198 1996 §54 CL for non working. 54/1992 §§ 13. 1(3) exclusive rights do not extend to non-commercial use/ experimental use/ private use Netherlands Dutch Patent Act 1910 as last amended by the Act of the Kingdom of 29 May. including the product obtained directly as a result of applying the patented process’ . 14 CL for – non-working – dependent patents if ‘significant progress in comparison with invention of prior patent’. The patent system and some potential safety nets 67 Table 3. 1994 Section 24(1) where the public interest so commands Section 11 No. 1980 as last amended by Law of 25 Oct. dependent patents ‘important technological improvement’ Art.2 ‘acts done for experimental purposes which are related to the subject matter of the patented invention’ No. Royal Decree No. Inventions and Technological Innovation Law 1733/1987 as last amended by Law No. – imperative reasons of public health or national defence (Art. 14) Art. 1987 – Section 34(1) compulsory license based on ‘public interest’ – Section 34(2) and (3) for non-use – Section 34(4) to enable use of younger patent Section 30(3) ‘acts exclusively done for experimental purposes relating to the subject matter of the invention.2 continued Country Applicable statute Compulsory licensing provisions Patent infringement limitationsexperimental use exemption Germany German Patent Act Patent Law of 16 Dec. 10 (2) a. nonprofessional or research purposes Italy Law on Patents for Inventions. 17/39 1987 and Presidential Decrees No. 1127 1939 as last amended by Legislative Decree No.1 excuses private uses for noncommercial purposes Greece Technology Transfer. 16/95 1995 CL for – non-working (art.68 The patent balance Table 3. 102) Art. – ‘important public interests’ Art. 104. 3 excuses experiments outside professional activities or experiments relating to the subject-matter of the invention Portugal Industrial Property Code Decree Law No. 1996 §§43 50 CL for – non-working – dependent patent ‘important – technological advance of considerable economic significance’. 9 1967 as amended by Act No. public health or national defence (Art. 20 Dec. 98 on experimental purposes Spain Spanish Law on Patents No. 1998 §86 CL for – non-working – dependent patents so long as the invention has ‘distinctive industrial objectives or represents considerable technical progress’ – ‘reasons of public interest’ where paramount for public health or national defence Also special provisions for cases of medicines and public health.’ Also exemption as to private and noncommercial use. 103) – dependency when considerable technological advance (art. . 52 patent rights not extend to ‘acts carried out for experimental purposes which relate to the subject matter of the patented invention. 11 (20 March 1986) as last amended by Law 50.2 continued Country Applicable statute Compulsory licensing provisions Patent infringement limitationsexperimental use exemption Norway Patents Act No. 107) – public interest incl. Art. 12 ‘significant technical progress of considerable economic interest’ See recent endorsement of Bolar exemption See EPC Art. 1406 of 1998 (Patentlag) CL when – non working (s. 40(1) ‘public interest’ – Non-working Art. 37 – dependent patents Art. Designs and patents Act 1988 Section 48(3) – Non working – dependent patent ‘if the working of an invention which makes a substantial contribution to the art is hindered’ – demand not met … Section 51 CL in consequence of report of Monopolies and Mergers Commission where would be in public interest Sections 55–57 on Crown Use for public interest Section 60(5) ‘acts done privately and for purposes that are not commercial’ ‘for experimental purposes relating to the subject matter of the invention’ European Communities Directive 98/44/EC on legal protection of biotechnological inventions Art. 36 acknowledging dependent inventions or patents.47) Section 3: excludes use from exclusive right that is not commercial. 26(1) No.46) – required by public interests of extreme importance (s. use for experiments which relate to the invention … Switzerland Federal Law on Patents for Inventions 1954 (as last amended on 24 March 1995) Swiss Patent Act CL for – Art.45) – dependent patents where reasonable (s.2 concluded Country Applicable statute Compulsory licensing provisions Patent infringement limitationsexperimental use exemption Sweden Swedish Patents Act No. 3 – disclosure not sufficiently clear and complete is a nullity and Art. UK UK Patents Act 1977 as last amended by the Copyright. 36 when important technological advance of significant importance Implicit support for EUE via Art. 837 1967 as last amended by Act No. The patent system and some potential safety nets 69 Table 3. 27(b) for EUE . As shown in the previous chapter. 5778-V-97. although one might assume that the latter is included in it. the advantages and benefits of our system of liberties.1 Introduction One of the particularities of the biopharmaceutical industry is that human rights and specifically the right to health may have implications on policy making. Any economic criterion that pretends to annul the exercise of such rights must cede in importance … because without the right to life all of the other rights are useless … Of what use are all other rights and guarantees. No. 70 . Exp.     See Chapter 3 and Art. it does envisage the possibility of granting a compulsory licence in the interest of public health. the right to life. patent law does not contain specific provisions for cases where the right to health might be in issue. receives particular attention. whether directly or indirectly. The objective of this chapter is to enquire into the extent to which patent law could be affected by the existence of the right to health. however. Sala Constitucional de la Corte Suprema de Justicia de Costa Rica) 4. It also allows for exceptions and exclusions to be created in the interest of ordre public. This is due to the nature of the goods produced as any unintended impact on the balance may lead to an increased social cost. the European Group on Ethics in Science and Technology is an independent pluralist multidisciplinary body.4.     In the EU. which was set up in 1992 by the Commission to advise on the ethical aspects of new technologies envisaged in Community policies or proposed legislation. which may include health concerns in certain cases. and in consequence the right to health. 8 of the TRIPS Agreement. Principles. if even one person cannot count on having the rights to health and life guaranteed? (Alvarez v Caja Costarricense de Seguro Social. The right to health as an interpretive principle of patent law In a state of law. The implications that the right to health might have on the patent balance cannot therefore be overlooked. 5934-97. The reference to ‘public health’ does not directly incorporate the right to health. the institutions and programs.  15–17. religion. as it was believed that diseases would hinder international trade. Gribble and S. Due to the development of commerce and transportation.int/rarebooks/official_records/constitution. . more specifically. which crystallise     C. the following elements will be assessed: 1. The right to health 71 In order to examine the potential implications of the right to health on the patent system and. The starting point for the protection of health can be found in the WHO Constitution. How does the right to health impact on patent law? How does the right to health affect patent statutes. government and the poor: The case for the private sector. Intersentia. The Epidemiological Transition Policy and Planning Implications for Developing Countries. the foundations for the recognition of health as a human right were laid both at national and international level.pdf. Health. therefore. Washington DC. Does a right to health exist and what obligations does it create? 2. The Right to Health as A Human Right In International Law. Oxford. The promotion and protection of health is fundamental to the individual’s wellbeing and dignity and. States have responsibilities in relation to public health. on the duty to deal in the pharmaceutical industry. 229–51. Health. It was quickly understood that in order to improve health.who. human rights and the new war on the poor. University of California Press (2003). N. which states that the enjoyment of the highest attainable standard of health is one of the fundamental rights of every human being without discrimination as to race. James.     Article 1 of the WHO Constitution. political belief.2. Pathologies of Power. pp.1 Introduction to the Right to Health The right to health as a human right has its roots in the public health movement of the nineteenth century when the first health legislation was adopted. National Academy Press (1993). economic or social condition.A. Birdsall and E.2 The right to health as a human right and its status in European law 4. in J. issues such as poverty and sanitary conditions would have to be tackled. Berkeley. either through interpretation or as a means of invalidation? 4. Farmer. Gradually. 1945 available at http://www.N. health services became an important social good. P. Does a right to intellectual property law exist and can it be described as a human right? 3. pp. the creation of a mechanism was sought to prevent transmittable diseases at the international level.Hart 1999. Toebes. Preston (eds).H. conventions. Connor. Leary. health has been recognised as a human right in several international. A/6316 (1966). 34/180 UN GAOR 34th Sess. 18 October 1961 (available at www. 5.. CAB/LEG/67/3 rev. Art. 24 of the Children’s Convention (Convention on the Rights of the Child. this does not extend to an obligation to guarantee the well-being of every individual.A.. 21 I. 16. regional or national human rights treaties. 1989. 20 1989 GA Res. 44 at 193. Kelley. Pan-American Health Organization. Others have described the right to health as misleading by arguing that it should be converted to the right to health protection including the right to health care and a right to healthy conditions. Supp.’ At the domestic level. Supp/No. ¶ 20. No. even in the use of the term.X..org/articles/delley_right-to-health-care. UN GAOR Res.72 The patent balance in the obligation to create some basic conditions to protect and enhance public health. at 167. 999 UNTS 171 (entered into force 23 March 1976) (see further down). and in case of sickness.coe. and the European Social Charter. D. Some even allege that there is no such right at all as it makes no sense to confer a right unless someone else has the ability to meet that need. Report of the Special Rapporteur. UN Doc A/34/36 91980 (entered into force 3 September 1981) at Art. OAU Doc. No. there are also several instruments setting out the right to health care and the obligation to undertake public health measures.htm) Art. 2106 A(XX). UN GAOR 44th Sess. GA Res. . UN ESCOR.S. 58 (1982) entered into force 1986) securing the right to the ‘best attainable state of physical and mental health’. UN Doc. A/44/49 1989) stating ‘State parties recognize the right of the child to the enjoyment of the highest attainable standard of health …’. right to health. UN GAOR. Paul Hunt. submitted in accordance with Commission Resolution 2002/31. 12. 49. 11(3) referring to the obligation to take appropriate measures to ‘prevent as far as possible epidemic. the care necessitated by his condition. the right to health has been enshrined in more than 60 national constitutions. 509.’ See D. or to health protection.C. adopted 27 June 1981. the International Convention on the Elimination of All Forms of Racial Discrimination of 1965. E/CN. such as Art 16 of the Banjul Charter (African [Banjul] Charter on Human and People’s Rights. ‘So any ‘right’ to medical care imposes on someone the obligation to provide care to those who cannot provide it for themselves.. reference is made in some cases to the right to health care.M. Scientific Publication No. No. however. it is set out in myriad international treaties including the ICESCR GA Res. Is there a right to health care.     At the international level. endemic and other diseases’ and Art. 18. UN Doc. Washington.asp.     While the term. 59th Sess. ETS 35 – Social Charter. UN Doc. H. There is much controversy surrounding the existence of this right. V. and the Convention on the Elimination of All Forms of Discrimination against Women of 1979. Agenda Item 23.4/2003/58 (2003). is most often used in international law. 13(1) to ‘ensure that any person who is without adequate resources and who is unable to secure such resources … be granted adequate assistance.L. 1(1) Health and Human Rights: An International Journal 1. At the regional level. See The Right of Everyone to the Highest Attainable Standard of Physical and Mental Health.1961.objectivistcenter. http://www. Supp. (1994). Fuenzalida-Puelma/S. The Objectivist Centre (1993).int/Treaty/en/treaties/hetml/035. 2200. The Right to Health in the Americas. In view of its paramount importance in society.L. The Right to Health in International Human Rights Law. 44/25.    V. A/810 (1948) Preamble. GA Res. G. p. however. 54–72. technical or economic problems. and secondly. cit.’ Conceptualising health issues as a right emphasises their exceptional importance as social or public goals and not merely as medical.11 which provides for The right to health. The Right to Health. the prescription of standards aimed at meeting the health needs of specific groups of persons. The right to health 73 The right to health is used in the international human rights context. Chetley. Van Boven. Dupuy (ed. cit. Press Release HR/3604. p. 16) 49. pp.A.). The Netherlands (1979). p.J. This Committee held a ‘Day of General Discussion on the Right to Health’ on 6 Dec. Fuenzalida-Puelma and Connor (1989) op. 8. A Healthy Business? World Health and the Pharmaceutical Industry.C. Leary (1994) op. Workshop. Health. justice and peace in the world. first. 6 December 1993. Sijthoff & Noordhoff.A. 2. Alphen aan den Rijn. UN GAOR. and the prescription of ways and means for implementing the right to health. Toebes (1999) op. 206. Lie. in R-J. 4 BMC International Health and Human Rights 4 (2004).A. p. Zed Books (1990).K. UN Doc. Social and Cultural Rights. Alphen aan den Rijn. experiments etc. The Promotion and Protection of Women’s Health through International Human Rights Law. 10  V. In the health context. See also R. (No. Human Rights in Relation to Women’s Health. The focus is on the good of the individual not the collective good. The Right to Health as a Human Right. UN Doc. 54–55. cit. 1993 (the right to the enjoyment of the highest attainable standard of physical and mental health) UN Information Service. cit. A(6316) 1966. but also to underlying preconditions for health such as occupational health and environmental health. The Hague Academy of International Law and the United Nations University. R-J Dupuy (1979) The Right to Health and Human Rights. C.10 It focuses on the dignity of persons as recognised in the Preamble to the Universal Declaration of Human Rights (UDHR).’ UDHR. The concept of a right to health implies that fundamental human rights principles such as dignity. The Netherlands: Sijthoff & Noordhoff. human rights and mobilization of resources for health.l. 1979. WHO/DGH/93. this stresses that the dignity of each person must be central in all aspects of health. to emphasise the social and ethical aspects of health care and status. Leary (1994) op. is probably the most desirable term as it recognises a right not only to health care. London. A. non-discrimination. pp. R. Res.     T. Cook. . 11   ‘Recognition of the inherent dignity and of the equal and inalienable rights of all members of the human family is the foundation of freedom.     See The Committee on Economic Social and Cultural Rights which monitors compliance with the International Covenant on Economic. 2200 (XXI).A. including health care. 17. Supp. ‘Three aspects of the right to health have been enshrined in the international instruments on human rights: the declaration on the right to health as a basic human right. to refer to the more lengthy detailed provisions relating to health in the WHO Constitution and in legally binding human rights treaties. 217 A(III). participation and justice are relevant to issues of health care and health status. .2 Sources of the Right to Health Within EC law. without distinction of any kind such as race. social progress and scientific and technological developments by making those rights more visible in a Charter’. the most relevant provisions on the right to health can be found in the Charter on Fundamental Rights. 17   Other national. not just to society in general. and that limitations should be subject to strict scrutiny. economic. World Health Organization. freedom of expression and the right to freedom of association. social and cultural rights are often regarded non-justiciable at the national level. Preamble. UN Doc. Toebes (1999) op.16 4.g. 12th September 1978. in the interest of protecting public health (e. 18(3)). cit.’ Declaration of Alma-Ata. colour.74 The patent balance equality or non-discrimination. It is not considered as a right to individual 12   See Art.17 The European Charter on Fundamental Rights18 was drawn up in order to ‘strengthen the protection of fundamental rights in the light of changes in society. 16   B. Art. limitations are permitted on the rights to liberty of movement. 15   According to the International Covenant on Civil and Political Right. religion. 2 of the Universal Declaration on Human Rights GA Res. 18   Charter of Fundamental Rights of the European Union OJ 2000 C 364/01. A/810 (1948) recognising the fundamental nature of non-discrimination in the human rights context: ‘Everyone is entitled to all the rights and freedoms set forth in this Declaration.C. and viewed as ineffective due to the lack of effective complaint systems at the international level. 19   Ibid.2. 217 A(III). This is often due to the reluctance of states to accept the high costs associated with ensuring entitlements to health or housing or food and education. adopted at the International Conference on Primary Health Care.19 Article 35 of the Charter provides for the right of access to preventive health care and the right to benefit from medical treatment under the conditions established by national law and practice. language.15 However.A. Contrary to civil and political rights which are frequently invoked in national judicial proceedings and which are enshrined in many international complaint mechanisms. op. UNGA Resolution 2200A [XX1]. political or other opinion. 14   This means that governments have a duty to provide for individuals. cit. the precise content of the right to health is unclear. 16 December 1966. Geneva.12 the participation of individuals and groups in issues affecting them. regional or international relevant provisions were mentioned above. national or social origin. sex.13 implies an entitlement14 and interdependence with other rights. freedom of religion.’ 13   The Declaration of Alma-Ata on Primary Health Care states: ‘The people have the right and duty to participate individually and collectively in the planning and implementation of their health care. as a socio-economic right. . housing and medical care and necessary social services.pdf. UN Doc. but rather. 2002. observance of quality standards. 999 UNTS 171 (entered into force 23 March. they are not building on individual pharmaceutical companies (Art. The latter includes: the right to preventive measures. 35 is both an individual and a social good. the most important of which include: first. The Charter effectively stresses the need to ensure that ‘the criteria of economic sustainability do not prevail over the right to health care’. 1976).net/health/european_charter. The supremacy of the rights of patients over financial constraints is underlined. clothing.activecitizenship. A/6316 (1966). managers. and the right to complain and to receive compensation. Important safeguards and provisions regarding the right to health can also be found in the European Charter of Patients’ Rights. the Universal Declaration of Human Rights. governments. The Charter proposes 14 patients’ rights which would be concrete. consent. UN Doc. Social and Cultural Rights contains the following provisions:22 Art. The dissemination and application of the contents of the Charter is carried out on many levels. 2200. privacy and confidentiality. disability. safety. including food. information. innovation. 25(1) that: ‘Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family. 52). No. respect of patients’ time. and an attempt is made to harmonise respect for the patients’ rights throughout the Union. national and local levels. It complements the Charter of Fundamental Rights in affirming the inalienable and universal nature of these individual rights. The extent and level of protection is left to the discretion of individual states. particularly at European.’ In addition. The right to health 75 health. access. European Charter of Patients’ Rights.21 which affirms in Art. 22   GA Res. 51). a right to conditions that may lead to it. Hence. it would seem that the Charter seeks to balance potentially competing interests in particular through the proportionality and necessity principle. It explains that the protection of the right to health as provided for in Art. free choice. old age or other lack of livelihood in circumstances beyond his control. A/810 (1948). and the right to security in the event of unemployment. Supp. widowhood. necessary and meet the objectives of the general interest recognised by the Union or are necessary to protect the rights and freedoms of others (Art. although it stipulates that a ‘high level of human health protection’ should be ensured. 11(1) states that ‘The States Parties to the present Covenant recognise the right of everyone to an adequate 20   The rights recognised in the Charter are addressed to the institutions and bodies of the EU and to the Member States in the implementation of Union law.20 The right to health has been recognised on several occasions at the international level. sickness. avoidance of unnecessary suffering and pain and personalised treatment. legislatures and administrative bodies. UN GAOR. 21   GA Res. and therefore. 16. the International Covenant on Economic. 217 A(III). Article 12 Active Citizenship Network. yet it also addresses health care professionals. applicable and appropriate to the transitory nature of the health services. The latter is directed to active citizenship organisations working on patients’ rights at the national level. Limitations on such rights may be provided for by law if they respect the essence of these rights and freedoms and are proportional. available at http://www. cit. 24 of the Convention of the Rights of the Child.1(f) and 12 of the Convention on the Elimination of All forms of Discrimination against Women. treatment and control of epidemic. as the General Comment highlights. housing and a healthy environment. mental and social wellbeing and not merely the absence of disease or infirmity’. cit. non-discrimination. 26   See General Comment No. 25   WHO Constitution (1945) op.24 4.’ Article 12(2) states: The steps to be taken by the States Parties to the present Covenant to achieve the full realisation of this right shall include those necessary for: (a) The provision for the reduction of stillbirth-rate and of infant mortality and for the healthy development of the child. and Art. 1965.’ According to Art.23 General Comment 14 of 2000 analyses the implications of Art. equality and privacy. the right to health does not refer exclusively to the right to health care but also embraces a range of socio-economic factors that promote conditions for a healthy life. including adequate food. nutrition. 11 August 2000. life. Arts 11. 24   E/C.76 The patent balance standard of living for himself and his family.2. cit. See also R-J Dupuy (1979) op. The Right to the Highest Attainable Standard of Health. CESCR General Comment 14.. occupational and other diseases. and extend to other aspects such as food. Le médecin face aux droits de l’ homme.3 Implications of the Right to Health The right to health is dependent on and related to respect for human dignity and the realisation of other human rights including the rights to food. 1989 op.12/2000/4. (c) The prevention. 12 and its recognition of the right to the highest attainable standard of health. (b) The improvement of all aspects of environmental and industrial hygiene. cit. 14 (2000) op. International Institute for Human Rights Studies. . The latter is the most comprehensive provision on the right to health in international human rights law. 5(e)(iv) of the International Convention on the Elimination of All Forms of Racial Discrimination. 12(1): ‘The State Parties to the present Covenant recognise the right of everyone to the enjoyment of the highest attainable standard of physical and mental health.25 However. (d) The creation of conditions which would assure to all medical service and medical attention in the event of sickness.26 23   Other international provisions affirming the right to health can be found in: Art. Within the preamble to the Constitution of WHO. 1979. health is defined as ‘a state of complete physical. clothing and housing and to the continuous improvement of living conditions. guarantee the right to be healthy. the scope and core content of the right to health respectively. Montgomery. it is to impose a duty impossible to fulfil. J. Kass. Whitehead. The latter refers not only to the individual’s biological and socio-economic conditions. the right to health includes not only appropriate health care but also the determinants of health. therefore ‘the right to health must be understood as a right to the enjoyment of a variety of facilities.’ Hence. 1990.2. as health is a very subjective matter: Health is a state of being. London. not something that can be given. 28   L. M. p.1 Elements of the right to health The right to health consists primarily of the right to health care and the preconditions for health. Yamin.E. which encompasses broader factors as shown above. The Concepts and Principles of Equity and Health. It no more makes sense to claim a right to health than a right to wisdom or courage. effort. The state may not ensure good health services.R. It also involves two levels of obligations: those which can be realised progressively and those which can be realised irrespective of the financial resources of a state. in A. both for epidemic and endemic diseases. but instead it contains freedoms such as the right to control one’s health and body.3. To make my health someone else’s duty is not only unfair. Regarding the End of Medicine and the Pursuit of Health. Institute for Public Policy Research/Rivers Oram Press (1992). Background Paper for Seminar on Appropriate Indicators to Measure Achievements in the Progressive . These excellences of soul and of body require natural gift. 21 Boston University International Law Journal 178 (2003). as in the case of torture and protection against compulsory medical treatment or experimentation. Developing New Social Rights. 27   See Art. and the right of individual participation in health-related decision-making at all levels including national. Not Just A Tragedy: Access to Medications as a Right under International Law. and discipline on the part of each person who desires them.27 The right to health does not.28 4. and entitlements such as the right to a system of health protection that provides an equal opportunity for people to enjoy the highest attainable standard of life. WHO Regional Office for Europe: Copenhagen. attention. Access to medication is a critical component of the right to health. 40 The Public Interest 11 (1975). they should not be included in the scope of the right if they are not referred to in the treaties or protected through other human rights. goods. and only in indirect ways something that can be taken away or undermined by other human beings. The right to health 77 Health care is therefore simply a part of the right to health. however. 12(2)(c) and (d) ICESCR. 29   While there are several elements which impact on health. but also to the state’s available resources and so is bound to vary. 1990. The right to health does not signify a right to be healthy. The Welfare of Citizens. World Health Organization. community and international levels. Indicators to Measure the Realization of the Right to Health. 1485. Rights to Health and Health Care.).29 Padova: CEDAM. services and conditions necessary for the realisation of the highest attainable standard of health. See A. Coote (ed. Gostin and J. culturally and functionally within easy reach of the whole community’. Cultural and Social Rights. See also A. HR/Geneva/1993/Sem/BP. cit. and an adequate supply of safe water and basic sanitation and freedom from serious environmental health threats. 4. These include: 1.. Carl. Toebes (1999) op. Realization of Economic.78 The patent balance The core content of the right to health is comprised of the following aspects: maternal and child health care. give extra protection to vulnerable groups and that the quality of those services should be taken into account. While the right to the highest attainable standard of health is a progressively realisable right due to resource limitations. It has also been suggested that additional health services should be available. 1(6) Health and Human Rights: An International Journal 58 (1994). such as those relating to non-discrimination and the provision of deliberate. pp 287–8. cit. goods and services must be of the appropriate standards and quality. concrete and targeted steps. subject to equal access.30 The General Comment clarifies that the right to health depends on four elements that may be applied at the discretion of the State in line with the availability of resources. immunisation against major infectious diseases. Geneva..E. Accessibility: health facilities. health-care facilities. et al. and information accessibility (the right to seek. Availability: public health. Towards the Development of a Human Rights Impact Assessment for the Formulation and Evaluation of Health Policies. 3. Acceptability: this refers to the fact that facilities. Quality: facilities. Yamin (2003) op. goods and services should be accessible to all without discrimination. it is believed that the services should be ‘geographically. Accessibility requires that the vulnerable and marginalised groups are not prejudiced in any way. the provision of essential drugs. some obligations are immediate. physical accessibility (within safe physical reach). Netherlands Institute of Human Rights (1991). goods and services must respect medical ethics and should be sensitive to cultural needs. P. 25–29 January 1993. AIDS and Human Rights in the European Communities. appropriate treatment of common diseases and injuries. This involves non-discrimination. Mann. L.. Utrecht. . economic accessibility (affordability). receive and impart information and ideas concerning health issues though also preserving confidentiality of personal health data). 2. 30   In addition. goods and services should be made available in a sufficient quantity at the national level. protect and fulfil. 32   Failure to take action to restrict the harmful conduct of pharmaceutical companies might potentially be such a breach of obligations. cit. administrative. 33   Despite the above core and scope obligations. cit. R-J. however. the obligation to respect the right to health means that states have to respect the equal access to basic health services. The right to health 79 4. The obligation to protect requires the state to take measures to prevent third parties from interfering in the attainment of the right to health. protect and fulfil As with all human rights. When translated into the core obligations. None the less. Montgomery (1992) op.34 31   A. Economic.31 The obligation to respect requires that the State should not interfere directly or indirectly with the enjoyment of the right to health. namely. (1993) op. states have a three-fold obligation. 25 June 2002. some elements of the Article are justiciable such as the obligation of non-discrimination and the obligation to realise the core content. cit. reflects its non-binding character.. Dupuy (1979) op. Report of the High Commissioner. groups or corporations so as to prevent them from violating the right to health of others and the failure to take measures to reduce the inequitable distribution of health facilities. promotional and other measures for the full realisation of the right to health.4/Sub. and to provide the basic health services or create conditions under which individuals have adequate and sufficient access to health services. Liberalization of trade in services and human rights.33 The right to health could be violated in the following ways: the suspension of legislation or the adoption of laws or policies that interfere with the enjoyment of any of the components of the right to health. The core content of the right to health consists of both negative (freedom from serious health infringements) and positive (access to basic health services) obligations. Indicators to Measure the Realization of the Right to Health.2 Obligation to respect. international organisations and other entities such as multinational corporations. judicial. the failure to regulate the activities of individuals. 34   See also E/CN.. and to take legislative and/or other measures to protect people from serious health infringements by third parties.. WHO. food and basic services. The obligation to protect consists of the obligation to take legislative and other measures to assure that people have equal access to basic health services if provided by third parties. cit. . and to refrain from denying or limiting equal access for all persons. Finally.32 while the obligation to fulfil requires the adoption of appropriate legislative. it cannot be concluded that the right to health is justiciable as such at the international level. and refrain from acts that seriously encroach upon people’s health. the obligations to respect.3.2.2/2002/9. the obligation to fulfil requires states to adopt a national health policy and devote a sufficient amount of their budget to health. the failure of the state to take its legal obligations regarding the right to health into account when entering into bilateral or multilateral agreements with other states. Social and Cultural Rights. The term ‘recognise’ in contrast with to ‘ensure’ or ‘guarantee’. Yamin (2003) op. J. budgetary.E. Oct. achpr.’ IACHR. Ceballos v Instituto de Seguros Sociales. Cancado Trinidade and A. ¶¶ 2–4.L/V/II.R. 38   Costa Rica. adopted a resolution on the right to health to appoint a special rapporteur (an independent expert) to report annually to the Commission on the extent to which governments are fulfilling the right to health. Abreu-Burelli. Provisional Agenda Item 7.4/1993/15). See also. at 25. 36   Social and Economic Rights Action Center v Nigeria. E/CN. Status of Human Rights in Several Countries: Nicaragua. available at www.2001_eng. Annual report of the Inter-American Commission on Human Rights 1993. protect.85.37 In the specific case of access to pharmaceutical products. 63. 37   See Street Children Case (Morales v Guatemala).4 International Efforts to Strengthen the Right to Health There have been some steps taken to strengthen the obligations imposed by the right to health or its related provisions at the international level.IVe. it seems that domestic courts are increasingly willing to find that the denial of access to certain medication may constitute a violation of the constitutional right to life.org.cidh..htm (quoting The Right of Everyone to Own Property Alone as well as in Association with Others. In 2002.36 The obligation of states is not simply a negative duty to refrain from interfering arbitrarily with people’s rights. and spiritual existence. doc. 9 Rev. the Commission on Human Rights. OEA/Ser. the right to life.org/annualrep/93span/cap. the main UN policy-making body on human rights. but also as an integral part of all the rights that are essential to guarantee the access of every human being to all the goods … required for the development of his/her material. T-484 Corte . Ct H. Communication 155/96 (African Commission on Human and People’s Rights.or. India. 2001).A.za/Documents.tac.35 The Nigerian government was recently found to have violated the right to life. or fulfil human rights obligations is also being examined.corteidh. for example. ‘There has been a tendency to move towards a broader and more comprehensive concept of the right to life which characterizes the right to life not only as the legal foundation for all other rights. Argentina and South Africa are among the many countries in which national courts have recognised an obligation on states to provide medication in HIV/AIDS cases and for other diseases. either by public or private entities.cr/seriecing/VotocancadoabreuSerie_c_63_ing. Joint Concurring Opinion of Judges A. July 2002. but also the positive obligation to ‘take all measures necessary’ to ensure that basic rights are not violated. at www. available at www. Venezuela.80 The patent balance 4. (1994) at 465. amongst other things. Press release WHO/61 24 July 2002. Colombia. available at www.pdf. UN Commission on Human Rights. New WHO publication explores important links between health and human rights an area drawing increased attention. Inter-Am. CCT 8/02 Constitutional Court of South Africa. UN Doc. 49th Sess. See Minister of Health v Treatment Action Campaign. to health and to housing. A new mechanism to create a means for individuals to petition their governments at the international level for failure to respect. (Ser. Doc.org/DECISIONS_30th_Session-_Oct.2.38 The 35   Attempts have been made at the international level to make the right to health more concrete. due to pollution and environmental degradation. C) No. moral. available at http://bib. R-J Dupuy (1979) op. .gov. inter alia.819/99..minjusticia. 435 (1999). J. See Glenda Lopez v Instituto Venezolano de Seguros Sociales. SU. Sala Constitucional de la Corte Suprema de Justicia de Costa Rica. Shah.41 Constitucional de Colombia 1992. (This Court found a violation of the right to life on the part of the social security institute by virtue of failing to provide antiretroviral treatment on a regular basis that could lead to an inexorable deterioration of the immune system in addition to viral resistance. In addition. 487-060401 Supreme Court of Venezuela. The claimant must be in extreme financial and physical need of the services and there must be a possibility of providing the service.gov. leading to opportunistic infections and death.39 In this way.htm. T-328/98 Corte Constitucional de Colombia 1998. Corte Constitucional de Colombia 1999.minjusticia. 39   Alejandro Moreno Alvarez v Estado Colombiano. Constitutional Chamber 1997 available at www. TRANSNAT’L L.E.co/jurisprudencia/CorteConstitucional/1992/Tutela/T-48492. No. controlling the marketing of medical equipment and medicines by third parties. cit. Magistrado Ponente. See also S.ve/decisiones/scon/Abril/487-060401-001343. ¶ 35.. acceptability and quality of health services. 32 VAND. There must be a ‘grave and imminent threat to human life or health’ presented by the failure of the state to provide services. Yamin (2003) op.vo/jurisprudencia/Corte Constitucional/1999/Tutela/su819-99. Exp. available at http://bob. available at http://bib. and States ensuring that third parties do not limit people’s access to health-related information and services’. ‘ensuring that privatization of the health sector does not constitute a threat to the availability. Alvarez v Caja Costarricense de Seguro Social. cit.htm.minjusticia.gov. cit.tsj. the right to health has been increasingly found to be justiciable. cit. Illuminating the Possible in the Developing World: Guaranteeing the Human Right to Health in India. the ESCR Committee clarified that the obligation of states to protect includes. vo/jurisprudencia/CorteConstitucional/1998/Tutela/T-328-98. Carl (1991) op. with regard to private entities. 40   A. P. The health issues must implicate ‘fundamental’ rights such as life. 5934-97.) See also Protection Writ. 5778-V-97. accessibility. 41   General Comment 14 (2000) op. The right to health 81 Constitutional Court of Colombia set out a four-pronged test in order to determine the situations in which the right to health services might be justiciable.htm. Judgment of Fabio Moron Diaz. work or education.gov.htm.40 and this may have implications for patented products which impact upon access to essential drugs. 3. Norway. Hosbjor.1.30 a day in Thailand. According to Medecins Sans Frontiéres. Pfizer. p. The obligation to protect the right to health also requires states to ensure that threats by third parties are restricted. medical insurance. they can be 200–300% cheaper than the branded equivalent made in the West. The UNDP Human Development Report 2000 notes that generic production of the HIV treatment fluconazole. U. Ally Mwalimu. influence the way adjudicative and legislative bodies make decisions relating to health. by leading to reduced access to pharmaceutical products. therefore. limited competition mark-up for wholesale. The right to health may.3. distribution and dispensing. in access to essential medications. Workshop on Globalization and East Africa. $703 in Indonesia and $817 in the Philippines. which treats cryptococcal meningitis—an infection affecting one in five of AIDS sufferers—was supplied exclusively by US company.00 a day in Kenya where it is patent protected. Implications of WTO/TRIPS in East Africa-With Special Emphasis on Pharmaceutical Patents. None the less. 9. by restricting access to products or processes that are necessary for downstream innovation or the creation of improvements.1 The effect of patent law on the right to health The patent system may affect health considerations. In some cases. In Thailand. import duties and tariffs. Economics and Social Research Foundation. the cost of a daily dosage of 400mg has fallen from US$14 to 5% of the price. More equitable pricing for essential drugs: What do we mean and what are the issues? Background paper for the WHO-WTO Secretariat Workshop on Differential Pricing and Financing of Essential Drugs. access to drugs is conditioned by many factors including price controls. it costs only US$0. fluconazole. not solely on prices and the availability of generics.82 The patent balance 4. on the one hand. This requires the creation of institutions to prevent and monitor the violation of fundamental rights by private actors. However. 15–16 April 2002. The increasing justiciability of the right to health coupled with the implications of the obligation to ‘protect’ highlight increased attention regarding the duties of private entities (namely pharmaceutical companies) as regards the right to health and specifically. and hence. 8–11 April 2001. a treatment for AIDS-related meningitis in India has remained at $55 for 150 mg compared to $697 in Malaysia. until 1998.3 The right to health and patent law: The fundamental nature of health concerns and the move towards a right to health as an interpretive principle in patent law 4. See WHO.1 The Link Between the Right to Health and Patent Law 4. Since local alternatives have become available. local taxes. It creates legal obligations and ac- 42   Generic products may have an impact on drug prices. generic drugs are approximately 70–90% cheaper than branded drugs. as shown in the case of HIV drugs. for example. this same drug costs US$18. Thus.42 and on the other hand. . Intellectual Property Beyond Rights. or more specifically.44 4. Mully argues that fundamental rights have the greatest impact through interpretation and systematisation. . Fundamental Rights (and Competition Law): Do They Interoperate? International Conference. or issue a compulsory licence in the interest of public health should be considered to support the right to health objectives. See also T. in order to establish the potential impact of health concerns and the right to health on patent law. See A. Bloche. The right to health 83 countability. can be viewed in two simplistic ways.E. 25–26 October 2004.43 Hence. pricing. Mully. Hanasaari Cultural Centre. cit. lies somewhere in between these polarised views. IP could be seen as a human right and the property character of IPRs could be overemphasised at the expense of other fundamental rights.3. WTO Deference to National Health Policy: Toward an Interpretive Principle. but also. Yamin (2003) op. Accordingly. therefore. in competition. 45   T. How can patent laws be interpreted to fulfil the spirit of the right to health? Does this obligation exist? 43   Therefore. 5(4) Journal of International Economic Law 825 (2002). At the other extreme there can be the view that IP is merely an institution which infringes on fundamental rights. cit. any interference would not only hinder the dynamics of the system. licensing and other laws. but would also be undemocratic. inter alia.2 The effect of the right to health on patent law The impact of the right to health on patent law depends largely on the link between the right to health and intellectual property rights (IPRs). Finland. the appropriate balance should be created by the legislator and.G. The reality. The relationship between fundamental rights and IP. either externally or internally. the enforcement of competition rules in cases where patent holders refuse to grant licences and charge excessive prices for their products. in general. and also have an internal impact. 44   M. Is there an inherent conflict between IP and human rights.1.45 On the one hand. not only with regard to the organisation of the health system. Mully (2004) op. it is argued. guiding the interpretation and application of other laws in order to ensure consistency with its provisions. the right to health (since IP may also be a human right)? 3. the following elements need to be established: 1. Intellectual Property. the right to health provisions may work as an external enforcement mechanism imposing concrete obligations. Is IP a human right and would this make a difference? 2. Therefore. Social and Cultural Rights (ICESCR)50 provides: ‘The State Parties to the present Covenant recognise the right of everyone: to take part in cultural life. Supp. While the provisions require states to protect the interests of authors and inventors. literary and artistic productions. this is subject to the limitations. 49   See Art. Therefore. to enjoy the benefits of scientific progress and its applications. UN Doc. In line with the above provisions.   C-2000 OJ 2000 364/01. literary or artistic production of which he is the author.49 Similarly. the general interest and subject to fair compensation.’ 50   GA Res. 15 of the International Covenant on Economic. the UDHR48 recognises the right of authors to the moral and material interests resulting from their scientific. they are in vague and general terms in order to leave a broad margin of discretion to states regarding implementation. A/810 (1948). Article 1 of Protocol 1 of the European Convention on Human Rights46 provides that: Every natural person or legal person is entitled to the peaceful enjoyment of his possession. however. Art. 16. No. 217 A(III). No-one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.3. as an author. in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.’ This provision implies the recognition of the legitimate interest of the public in intellectual productions.2 The Right to Property and IP: IP as a Human Right The right to property and more specifically IP can be found in several European and international human right treaties. IPRs should contribute to the scientific. 47 . 2200. literary or artistic production of which he is the author. UN GAOR. however. exclusive property 46   213 UNTS 221 (1953). however. to benefit from the protection of the moral and material interests resulting from any scientific. deprivations and regulation as required in the public interest and conditions provided for in law. cultural and economic enrichment of society. 27(2): ‘Everyone has the right to the protection of the moral and material interests resulting from any scientific. 48   GA Res. the individual also has a right to benefit from these works. At the international level. Art. 999 UNTS 171 (entered into force 23 March 1976).84 The patent balance 4. A/6316 (1966). The preceding provisions shall not. UN Doc. 17 of the European Charter on Fundamental Rights47 provides for the right to property. htm. Copyright Bulleting. p. the history of the drafting of the international human rights conventions affirms the weakness inherent in the claims of IP as a human right which was only accepted after considerable discussion and controversy. namely a fundamental right in itself not to be interfered with even by the legislator. the UDHR and ICESCR are of little significance as protective provisions have already been put in place. as the latter is only one alternative way of safeguarding the individuals’ interests protected … This does not exclude the idea that intellectual property rights may protect individual interests of fundamental rights nature. Human rights are understood to exist independently of recognition or implementation while IPRs are granted by the State according to criteria by national legislation. 52 . Human rights are inalienable and universal claims belonging to individuals.52 In addition. AAAS Science and Human Rights Program.12/ 2000/12. XXXV No. nor is the instrument itself transformed into a human right. there is no minimum level of protection required. and in some situations to communities but never to corporations. Chapman. 53   A. 2001. The right to health 85 rights are not the only possible means of protection. It is problematic to consider IPRs exclusively as human rights if one considers the nature of human rights. although the interest itself may constitute a fundamental right. licensed or assigned to someone else. 15(1)(c).R.aaas.org/report/xxii/ip. they exist for a limited period and can be revoked. 10. E/C. Obligations related to Art. less to the extent required by other funda- 51   T. cit.’51 In addition. XXII.53 In both cases. Winter 2002 Vol.   Report on Science and Human Rights. UNESCO Publishing. IPRs are temporary. at http://shr. 3. Against this background of IP protection. ‘Neither the Universal Declaration nor the ICESCR creates an obligation on the part of the states to establish (and certainly not an individual right to) exclusive rights. 1. Vol. Mully (2004) op. In contrast with human rights which establish permanent and irrevocable entitlements. No. the level of protection found in international IP instruments such as the TRIPS Agreement easily satisfies and exceeds the requirements laid down in the human rights instruments. therefore. What the phraseology of intellectual property as a human right does is to convert a question of legislative policy to be addressed with fundamental rights analysis into something changing the analytical premises of this effort: in this metamorphosis intellectual property protection transforms from the object of fundamental rights analysis (legislative policy) into its very subject. it was supported mainly because it is instrumental in the realisation of other rights of a stronger moral basis. Approaching IP as a Human Right. p.55 This balance refers.58 54   T. This balance is recognised in IP instruments. freedom of expression and the right to freedom of association. and on the other hand. Mully (2004) op. No. on the impact of the Agreement on Trade-Related Aspects of Intellectual Property Rights on Human Rights.54 4. literary or artistic work to benefit from the protection of their moral and material interests.56 and limitations have been put in place to reflect certain public interest concerns.57 This means that IP is subordinated to the general public interest. Article 15 of the International Covenant on Economic. to the right of authors of scientific. cit. Patent protection excludes the patenting of inventions that might be contrary to the ordre public or morality. 56   See Art. to the right of everyone to take part in cultural life and enjoy the benefits of scientific progress. 999 (1976). animal or plant life or health.4/Sub. Report of the High Commissioner. As a corollary. institutional alternatives for the protection of the interests mentioned in the human rights instruments. e. and achieve a balance between the protection of public and private interests in intellectual property. are precluded as being in irreconcilable conflict with the intellectual property fundamental rights. for the protection of public health.S. requires states parties to respect. 18(3). freedom of religion. 27 June 2001.T. 7 TRIPS. including the protection of human.1 Striking the balance: limitations in the public interest The EU Charter and the European Convention on Human Rights (ECHR) envisage limitations on property rights which are necessary in the public interest. such as liability rules and direct protection of creativity and innovation. Under the International Covenant on Civil and Political Rights. limitations have even been accepted in the context of other human rights in the interest of public health.2/2001/27. on the one hand. and this is not incompatible with the right to property even if it is considered to be a human right. 58   U.3. limitations are permitted on the rights to liberty of movement. protect and fulfil individual’s cultural rights. p. See Chapter 3.2.86 The patent balance mental rights and sufficiently serious policy reasons necessary and proportionate in a democratic society. 57   Article 8 TRIPS allows for measures to be taken that are necessary to protect public health and to promote the public interest in sectors of vital importance to their socio-economic and technological development. Indeed. Art. A balance of rights and obligations is also an objective of TRIPS. 11. 14668.g.   See E/CN. 171. Exclusive property rights may be overridden if it is required by important concerns such as public health. Social and Cultural Rights.N. 55 . vol. See also Chapter 3. it may result in restricted access. it is not incompatible with the right to health. Similarly. p. on In-Vitro Diagnostic Medical Devices 1998 OJ No.3.1 Direct effect Patent law impacts most significantly on the right to health as it may lead to higher drug prices in the short term and. So. it is possible to envisage that a state might be found to have violated the obligation to protect the right to health.3.M.62 For this reason. 60   See. and a Directive 98/79/EC. . cit. See also P.59 In addition. such as compulsory licensing or exclusions in the interest of ordre public. EU loophole sends drug prices soaring.. 24 June 2002. for which pharmaceutical companies would otherwise not invest a significant amount of resources.61 Although patent law may affect health. sustainable financing and reliable health and supply systems. for example. See D. taxes and local market approval costs.3 Patenting and the Right to Health 4. See WHO (2001a) op. cit. patent law encourages a specific type of research that is not always in the public interest. the Orphan Drug Act created to stimulate research into diseases that affect a small number of people. the price of drugs is affected by factors other than just patents. The US Orphan Drug Regulations (57 FR 62076) 29 Dec. Guardian Weekly. 1992 and CFR Part 316 et seq. In the EU Orphan Medicinal Product Regulation (2000) op. 62   op. such as import duties. Kenney (1988) op. L 331/1 referring to the protection of the integrity of human persons. it is unlikely the right to health would have a direct impact on patent law in general. See also http://www. health care in the information society and gene therapy. Patent laws would not be created in such a way as to overly infringe the right to health.cptech. The Group gives its advisory opinion on ethical aspects of patenting inventions involving.60 Furthermore. as it would rarely be found to be unconstitutional for infringing the right to health. cit.J. The Group submits reports amongst other on the compatibility of policies including patent policies with fundamental rights such as the dignity of the human person. cloning techniques. for example by failing to grant a compulsory licence in a case in which 59   There are several other factors which affect access to drugs such as rational selection and the use of drugs. Richardson (1987) op.org/ip/health/orphan/. Nevertheless. The right to health 87 4. It promotes long-term health interests by encouraging research and also by providing for the balancing of instruments in the short term. cit. for example. hence. for example. S. Boseley. elements of human origin. there is a group of advisers in the EU on the ethical implication of biotechnology serving the interests of European society and respecting the fundamental rights of every European citizen.3. 9. in the EU we have a Directive 98/44/EC on the Legal Protection of Biotechnology Inventions OJ 1998 L213/13. cit. As already noted. 61   See Chapter 2. patent law may affect the creation of improvements or downstream innovation with potential implications on the development of medical products. excluding the patenting of inventions which would be contrary to public order or morality. Intellectual Property Rights and Genetics. Cornish./L/V/II. Hogerzeil. H. The Concepts and Principles of Equity and Health.eumap. patent. 207.pdf. Copenhagen.65 the refusal of El Salvador to purchase the triple therapy and other medication to improve the quality of life of people suffering from HIV/AIDS and to prevent deaths. 65   Odir Miranda v El Salvador Case 12. oas. Annual Report 2000.88 The patent balance private commercial pricing practices are ‘shown to be probabilistically related to impaired or reduced access to medication’. cit.doc. 33 Essential Drugs Monitor 25.’64 Hence the objectives of the right to health may need to be read in the patent provisions so as to guide their interpretation and application. M. Llewelyn. C. Pekari. Yamin (2003) op. 2003 at http://www. In this regard. 66   Ibid. Adcock.3.E. WHO Regional Office for Europe (1990).3. 21(9) EIPR 441 (1999). Drahos. including competition. CHR.int/medicines/ library/monitor/33/EDM33_25-26_Access_e. B. OEA/Ser. Intellectual Property and Human Rights: Where to after the first WSIS? at http://www.org/annualrep/2000eng/ChapterIII/Admissible/ElSalvador12.E. Markets and Morality.org/journal/features/2004/infohr1/ infohr/ipandhr/.63 4. In the case of Odir Miranda v El Salvador. Yamin (2003) op. . M. Whitehead.uk/about_ phgu/resources/word/s-ipr1. 64   A. The Recent WTO Ministerial Declaration on the TRIPS Agreement and Public Health recognised the gravity of health problems and stressed the need for TRIPS to be part of the wider national and international activities to address these problems. Inter-Am.htm. cit.cidh. A study into the impact and management of intellectual property rights within the healthcare sector. 10 of the Protocol of San Salvador. the manner in which a state enforces and interprets its legislation.249. 2001 available at www.111. 29/01. was found to be a violation of the right to life and health. M. Biotechnology Patents. 2003 at http://www. Doc.66 Following this reasoning. ¶ 36. to protect and to fulfil obviously overlap to some extent and indeed. Report No.249.phgu. cit. in cases involving access to medicines involves important “administrative … and other measures” needed to fulfil the right to health. 20 Rev.org. it was stated that the TRIPS Agreement ‘does not and should not prevent Members from taking measures to protect public 63   A.. Access to Essential Medicines as a Human Right. it should be possible for the provisions relating to the right to health to be taken into account when applying patent law. R-J Dupuy (1979) op. The Inter-American Court of Human Rights (IACHT) concluded that while it did not have the competence to determine violations of Art. p. ‘The obligations to respect. P. and intellectual property legislation.2 The indirect effect of the right to health The right to health may have indirect effects in such cases through its internal effects on the patent system itself. it would take the provisions relating to the right to health into account in analysing the merits of the case.who. the Community IP provisions which are consistent with the former. it was stated that: ‘We recognize that under WTO rules no country should be prevented from taking measures for the protection of human. Statement by the Committee on Economic. As clarified by the Doha Declaration. Elliott. the TRIPS Agreement must be interpreted in accordance with the rules of public international law found in the Vienna Convention on the Law of Treaties. As the Doha Declaration is an example of a ‘subsequent agreement’. the TRIPS Agreement must be interpreted in this way in order to be consistent with the obligation to protect. 26 November 2001. 68   E/CN. including the right to health. cit. The right to health 89 health’. Sub-Commission on Human Rights. animal or plant life or health. 3 April 2002 at http://www. or of the environment at the levels it considers appropriate.doc. respect and fulfil human rights. in 2000 the Sub-Commission on Human Rights affirmed the primacy of human rights obligations over economic policies and agreements. Human Rights and Intellectual Property Issues.12/2001/15. which requires that the interpretation of a Treaty must take subsequent agreements on the interpretation of the Treaty. should not be implemented in a way that negatively impacts on the enjoyment of human rights as provided for in international human rights instruments.ca/Maincontent/issues/cts/righttohealth. See also R. This was reiterated in the UN Resolution of the Sub-Commission on Human Rights 2001/21.68 Therefore.67 It also affirmed that the TRIPS Agreement should be interpreted and implemented in a manner supportive of WTO Members’ right to protect public health. Social and Cultural Rights. and are otherwise in accordance with the provisions of the WTO Agreements’ (para 6) Doha Declaration (2001) op. WIPO Publication No.69 States parties must take action that is conducive to realising the right to health. international human rights law addresses the need to ensure that the TRIPS Agreement.2000/7.2/RES. Furthermore. 69   Ibid. Intellectual Property and Human Rights (Geneva: World Intellectual Property Organization and the Office of the United Nations High Commissioner for Human Rights. subsequent practice. See also E/C. subject to the requirement that they are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions would prevail. and any relevant rules of international law into account. and as recognised in Doha. 762(E). or a disguised restriction on international trade. Realizing the right to health: access to HIV/AIDS-related medication. the TRIPS Agreement can and should be interpreted and implemented in a manner supportive of the right to protect public health and promote access to medicines for all. the TRIPS Agreement ‘can and should’ be interpreted in a manner that supports their obligations with regard to the right to health. and hence.aidslaw. 67   In the main Doha Declaration. Intellectual Property and Human Rights. United Nations High Commissioner for Human Rights. 1999). . Hence.4/SUB. Hence consideration must be paid to the protection of human rights in negotiating. A human rights approach to IP highlights the often implicit balance between the interests of the public and the right holder.C. amongst other things.4 The Right to Health as an Interpretive Principle in Patent Law The Report of the High Commissioner on the Impact of the TRIPS Agreement on Human Rights70 stresses the importance of a human rights approach to IP. Weissbrod and K. 25 June 1993. Economic.2/2001/27. in 5 Journal of International Economic Law 861 (2002). ‘The human rights approach is predicated on the centrality of protecting and nurturing human dignity and the common good.’72 A similar approach has been advocated in the context of trade liberalisation. the need for the WTO to endorse a human rights approach to trade and promote and protect human rights was recognised in the Report of the High Commissioner on the liberalisation of trade. 72   A. The TRIPS agreement envisages human rights as exceptions to the rule rather than as an explicit guiding principle.R. 73   E/CN. Report of the High Commissioner. J Britz.4/Sub. Liberalization of trade in services and human rights. 27 June 2001. See also D. 25 June 2002. 2 Ethics and Information Technology 49–71 (2000). The goal is to improve human welfare and not to maximize the economic benefit.’71 A human rights approach to IP differs in some ways from commercial IP rights. This approach relies upon striking a balance with the primary objective of promoting and protecting human rights without causing a negative impact on any other rights in the Covenant. T. implementing 70   E/CN.73 This approach.A. Human Rights Approach to Intellectual Property Protection: The Genesis and Application of Sub-Commission Resolution 2000/7. The Human Rights Implications of Intellectual Property Protection.3. Schoff.4/Sub. and makes it more explicit. Pekari. In 2002. Lipinski and J. The Impact of the Agreement on Trade-Related Aspects of Intellectual Property Rights on Human Rights. ‘Human rights are the first responsibility of Governments. Chapman. and promoting international cooperation for the realisation of human rights and freedoms in the context of trade liberalisation. taking the rights of individuals into account in determining the effects of trade liberalisation. . 71  Vienna Declaration and Program of Action.2/2002/9.90 The patent balance 4. Social and Cultural Rights. involves setting the promotion and protection of human rights among the objectives of trade liberalisation. 5(1) Minnesota Intellectual Property Review 1-46 (2003). World Conference on Human rights. From a human rights perspective IP protection is understood more as a social product with a social function and not primarily as an economic relationship. Rethinking the ownership of information in the twenty first century: Ethical implications. Report of the High Commissioner. subverting issues such as compulsory licensing to address health concerns and exceptions to patentability to the right to health body of law. the interpretation of ordre public as involving something ‘abhorrent to the overwhelming majority of the public or a contravention of the totality of accepted norms’ op. The use of human rights as an interpretive principle in the patent CL provisions would not only require that the provision referring to ‘extreme urgency’ including public health. 75 . the lack of democratic control and participation.76 A human rights (or at least a right to health) approach would differ from the approach of IP law. especially in the case of employment. encouraging compatibility with human rights in the interpretation of GATS. GATS also includes general exceptions to protect public morals as well as human. as well as in the long term. In this way. 76   See.R. cit. For example.4. a right to health standard should be applied as a guiding principle. These include: the fact that IP does not necessarily protect the rights of the inventors. cit. but 74   Ibid.1 Effect on specific patent provisions It would therefore seem that a human rights approach to IP would require that the limitation provisions and those relating to compulsory licensing (CL) should be given a broader interpretation. The right to health 91 and interpreting the scope of GATS and in assessing the limitations of trade practices. patent law could incorporate the right to health standards in its decision-making process. Chapman (2002) op. who contends that many factors indicate that IP rights are inconsistent with the human rights approach. would be judged from a human rights perspective. This could be seen in the case of patent law. undertaking human rights assessments of trade policies. and the often inadequate protection of the human interest or ethical concerns.   See. and that health issues should be considered in the application of standards relating to patentability. for example. animal and plant life and the protection of certain aspects of individual privacy. if the application of a law could potentially impact on the right to health. for example. the preservation of states parties’ right and duty to regulate.74 The report lists some types of action to promote a human rights approach to the liberalisation of trade in services. and perhaps even human rights law in general.3. as it would place greater emphasis on the interests of the public in the short term. A. including: the guarantee of equal access for basic services.75 This would require a more explicit consideration of the public’s interests to the detriment of the economic interests of individual right holders. the provision of international cooperation and assistance and increasing dialogue between human rights and trade. In addition to this interpretive requirement. 4. 92 The patent balance Patent scope Public health, including the right to health as determined by human rights law and public policy; not IP law. Figure 4.1 What the CL provisions show in relation to IP and public health it would also potentially affect the interpretation of the CL provisions relating to significant technological advances. In such cases, it might lead to a more lenient application of the provisions and, also, to a lower threshold for CL. If the impact of the improvement on public health is deemed to be significant, it will be easier to prove that a technological advance has taken place.77 In addition, 77   Apart from the interpretive principle to be used in cases of CL or to exclude specific cases from patentability, it might also be possible for the principle to become a defence to patent infringement. Cases of a similar nature have been brought in the USA, in which the question has been posed in terms of the First Amendment guarantee of freedom of speech, and the extent to which it may be used as a defence to copyright infringement. See Howard Hughes case 366 F.2d 303 (2nd Cir. 1966). See Time Inc. v Bernard Geis Associates NYLR, 21 January, 1994, p. 5 (CD Cal. June 11, 1993). In Germany see LG Berlin (Photographs of Ulrike Meinhof) [1978] GRUR 108 and BGH, 7 March 1985 (Lili Marleen) [1987] GRUR 34. See also Pinto, The Influence of the European Convention on Human Rights [2002] EIPR 217; P. Loughlan, Looking at the Matrix: Intellectual Property and Expressive Freedom [2002] EIPR 30; Dutch Scientology decision [2003] Mediaforum 337, note Visser; (2003) 6 AMI 217, note Hugenholtz; (2003) 6 IER 352, note Grosheide. An appeal to the Supreme Court is pending. In this case, while an infringement of the copyright was found, it was argued that it was disproportional in comparison to the general interest in freedom of information of Art. 10, para. 1 of the ECHR and therefore the publication was allowed. It should also be noted that the Dutch Civil Code provides for cases of abuse of copyright including cases where there is a disproportionate balance between the interest protected and those harmed by the exclusive right. ((Civil Code Art. 3:13): ‘Instances of abuse of right are (1) the exercise of a right with the sole intention of harming another or (2) for a purpose other than that for which it was granted or (3) the exercise of a right where its holder could not reasonably have decided to exercise it, given the disproportion between the interest to exercise the right and the harm caused thereby.’) See also H.C. Jehoram, Copyright and The right to health 93 in considering exclusions on the grounds of ordre public, the right to health would also need to be considered. 4.3.4.2 Case-law on public health Health emergencies provide sufficient ground for derogating from the rules laid down in TRIPS, which on the one hand reflects the potential supremacy of human right concerns such as the right to health, and on the other hand, it demonstrates the flexibility granted by the TRIPS Agreement allowing for the consideration and implementation of fundamental concerns, such as those relating to the right to health.78 The experience of both Brazil and South Africa reflect these considerations. In South Africa, the debate centred on the 1997 Medicines and Related Substances Control Amendment Act, which represented a response to the HIV/AIDS crisis and the lack of access to affordable drugs. This Act authorises the government to determine the extent to which a specific drug patent may apply, and to authorise parallel imports from other countries where the same medicine is also manufactured.79 The pharmaceutical companies challenged the first provision of this Act, alleging that it was unconstitutional in granting too much discretion to the government in determining the circumstances in which patents could be curtailed. The upholding of the right to curtail patent rights would appear to confirm the supremacy of health concerns. The Act could either be seen as compatible with the limitations provided for in the patent system itself and thereby constitutional, or it could be found that the right to property did not allow for such interventions in the exclusivity and was unaffected by the right to health, and therefore be found to be unconstitutional. The petition was abandoned in April 2001 in the face of strong public opposition. While we can only speculate on the outcome of the case, the abandoning Freedom of Expression, Abuse of Rights and Standard Chicanery: American and Dutch Approaches, 26(7) EIPR 275, 2004. In such instances, use of the defence is rare, although IP statutes are increasingly being openly read and narrowly construed in order to take the requirements of freedom of expression into consideration. Hence, it might be that one could legitimately raise the defence of the right to health in a patent infringement case, although it is more likely that the latter would work as a ground for the granting of a CL rather than a right to infringe it. Otherwise, this would lead to private companies being found to have infringed the right to health by restricting access to drugs, despite acting in line with patent law. However, it is difficult to imagine that the right to health would ever be entrenched to such a degree. 78   Cullet (2001) op. cit. 79   Section 15C of the Medicines and Related Substances Control Amendment Act 1997 (Republic of South Africa, Government Gazette, 12 December 1997). 94 The patent balance of the case could be interpreted as support for the predominance of health concerns. The Brazilian experience could also be seen as a reflection of the flexibility envisaged in TRIPS in order to give effect to human rights. In this case, the government made a decision to facilitate access to drugs in the face of the HIV/AIDS crisis by implementing a strong CL regime. It was stipulated that unless it was economically unfeasible, inventors had a duty to manufacture the products in Brazil. The US government objected to this requirement and initiated WTO complaint proceedings, on the grounds that the ‘local working’ requirement constituted a protective industrial policy measure inconsistent with the provisions of the TRIPS Agreement. Following some bilateral negotiations, the case was withdrawn after a few months. Brazil has gone further than TRIPS in recognising the possibility for CL for national emergencies and public interest, as well as establishing the rules for the granting of these licences and defining the public interest to include public health, nutrition, the protection of the environment, and elements of primordial importance for technological, social or economic development.80 The fact that the case was dropped could be read as the acceptance of the subordination of patent policy to the public interest or at least it could be interpreted as reflecting the flexibility of patent protection in addressing health emergencies. In line with the TRIPS Agreement, the parties are permitted to address national emergencies and public health issues without infringing patent laws, by interpreting the flexibility in a manner that is conducive to the public interest and health. This would be consistent with the right to health as an interpretive principle in patent protection.81 4.3.4.3 European cases on IP and fundamental rights analysis Within the EU framework, the ECJ has handed down two judgments on IPRs involving fundamental rights, although it should be noted that neither of these cases involved the right to health. In Netherlands v Council and Parliament, the ECJ analysed the Biotechnology Directive.82 In this case, the ECJ stated that the granting of a patent does not preclude legal limitations from applying to research into or the exploitation of patented products. It further held that the purpose of the Directive was not to 80   See WTO, WTO Agreements and Public Health, A Joint Study by WHO and the WTO Secretariat, 2002, pp. 104–6. 81   M.G. Bloche (2002) op. cit. 82   Case C-377/98 Netherlands v Council, Judgment of the Court of 9 October 2001, ECR I-07079. The right to health 95 place restrictive provisions guaranteeing compliance with certain ethical rules outside the scope of the Directive.83 The ECJ adopted a narrow reading of fundamental rights by finding that they are ‘misplaced as against a directive which concerns only the grant of patents’.84 The ECJ thereby insulated ethical and fundamental rights considerations from the granting of the patent and, in this way, it could be argued that its approach differs significantly from the idea of a human rights interpretive principle. ‘The potential existence of restrictive provisions outside patent law does not exclude the need to take fundamental rights into account also within patent law. When the exclusion from patentability is related to the protection of a fundamental right, the patent law principle of narrow interpretation of exclusions from patentability becomes very problematic.’85 In Metronome Music v Music Point Hokamp the ECJ considered whether the Directive on rental and lending rights was consistent with the freedom to pursue a trade or a profession and also with the right to property.86 The Advocate General Tesauro had contended that Art. 27(2) recognises copyright as a human right and the Court found that the granting of an exclusive right ‘certainly constitutes the most effective form of protection …’. 87 The Court also found that the freedom to pursue trade or profession cannot be interpreted in isolation from the general principles relating to IPRs. Insofar as the Court omitted any reference to the ‘collective good’ provided for in the human rights treaties and in the public interest, the reasoning is insufficient. In addition, the view that the exclusive property regime is the least restrictive and most effective regime, can be criticised as the right to IP does not precipitate exclusive rights and a liability system could also be put in place to safeguard these interests.88 In both cases, the ECJ did not attribute any particular importance to the fundamental rights in interpreting IP and, to this extent, it appeared to be in favour of stronger IP protection.89 This is regrettable as it is set against the background 83   Ibid. para. 79–80. See also M. MacLaren, Patently Unsatisfactory?: Community Legislative Competence and the ECJ Biotech Decision, 2 German Law Journal 18 (2002). 84   Ibid. para. 79. 85   T. Mully (2004) op. cit. 86   Case C-200/96, Metronome Music v Music Camp, Judgement of the Court of 28 April 1998, ECR I-01953. 87   Ibid, para. 24. 88   See Chapter 5 at 5.3.1.2. However, the Court also referred to the right to property (in addition to the freedom to pursue trade or profession) as not being absolute but rather should be viewed ‘in relation to their [its] social function’ which could be used in future cases in such way as to support the public interest. 89   T. Mully (2004) op. cit. 96 The patent balance of the proliferation of IPRs and the increasing concerns in the biopharmaceutical industry,90 although arguably, if the right to health had been at stake, the ECJ might have ruled otherwise. To the extent fundamental rights analysis does not form part of the balancing instruments within IP laws, a right to health interpretive principle should be endorsed where applicable. 4.4 Conclusions In this chapter it was shown that the right to health constitutes a central concern and continues to be one of the primary obligations of governments. It assumes a particular significance in relation to the biopharmaceutical industry, as goods are used to enhance the quality of life. The right to health has become increasingly justiciable, particularly in countries where access to medication has become a national emergency. In this context, the relationship between the right to health and patent law has become critical. In general, the right to health and the right to IP (whether this is regarded as a human right or not) are not incompatible.91 It is, therefore, unlikely that the right to health would have a direct impact on patent law in the sense of finding the latter unconstitutional. None the less, the subordination of the analysis of IP rights to the public interest plays a pivotal role, and in light of these conditions the right to health could be decisive as an interpretive principle to patent law. The Doha Declaration clarified that TRIPS should not prevent members from taking action to protect public health and that the flexibility provided for in TRIPS could be used for this purpose. It also highlights that the TRIPS Agreement should be interpreted and implemented in line with the right to protect health and promote access to medicine for all and highlights the importance of the reference to the ‘balance’ of interests within the objectives and principles of TRIPS. The right to health as an interpretive principle would most likely have the greatest impact in the interpretation of the CL provisions and the provisions relating to exclusions in the interest of the ordre public. In the case of CL, it would direct the determination of ‘extreme urgency’, ‘public health’ and 90   See Chapter 2.   Patent law deals with long-term health considerations by providing the incentive for the development of pharmaceutical products. In addition, patent law contains a provision allowing for CL in cases that are warranted by public health and other similar provisions such as the interest of ordre public. 91 the health interpretive principle does not resolve the problematic issues in the biopharmaceutical industry. The principle is directed more to end product accessibility and dissemination rather than access to research inputs.doc.92 In the absence of more general IP provisions. Imposing a direct obligation in cases involving access to inputs to carry out downstream research to ensure consistency with the right to health would be too far-fetched. (2003) op. and in both cases that analysis worked to strengthen IP protection.93 This would also be consistent with the obligations of states to protect the right to health. 93   See Chapter 7. P.. Feb.94 In a situation of alleged conflict between patent law and the potential health and right to health implications. 14. competition may have a role to play in this instance of restricted access to necessary inputs to downstream innovation. 95   H. . goods and services’ in contemplation of the ESCR Committee’s General Comment No. cit. as it involves potential innovation with only potential effects on health. the human rights approach could require more flexibility in analysing competition law provisions.95 Indeed 92   See also the attempt of families of children afflicted with Canavan disease. to sue the research scientists who had patented the gene in an effort to ensure broader and improved licensing terms. making no reference to the ‘public interest’. the ECJ has considered fundamental rights in relation to IP on two occasions. a rare genetic disorder of the brain. p.org/ip/health/cl-cases/rsa-tac/cptech-statement-3feb2003. a right to health interpretation would not be helpful. 12. therefore. The international trends demonstrate a wider application of fundamental rights analysis and the increased justiciability of the right to health.. None the less. the health interpretive principle to patent law. Parents Suing Over Patenting of Genetic Test. Chi. 94   ‘Strong enforcement of anti-competition rules where patent holders refuse to grant licenses to generic producers and excessively price their products is therefore a measure that can and should be taken ‘to reduce the inequitable distribution of health facilities. cit. The right to health 97 ‘public interest’ to the health provisions and related considerations. concerning an alleged prohibited practice in terms of section 49B(2)(a) of the Competition Act 89 of 1998. It could also serve to lower the threshold of CL in cases involving secondary dependent patents of significant economic advantage. an invention would be more likely to warrant a licence if it has clear relevance to public health concerns. in the absence of a patent mechanism. While it is true that there has not been a case in which the right to health has been explicitly violated in the EU. Gorner. Cornish et al. would appear to be consistent with its obligations and with the international trends in this domain. In such cases. p. B. On the other hand. 2003 at http://www. 19 November 2000. where applicable.cptech. 1. Hogerzeil (2003) op. Trib.’ Statement by consumer project on technology. and ensure compliance in their interpretation of competition laws. and GlaxoSmithKline (Pty) Ltd. 18 June 2003 at www. Nelislwe Mthethwa.96 96   In The Matter Between Mpho Makhathnini. AIDS Healthcare Foundation Limited. . See Chapter 7. Case Number 34/CR/Apr04.za/decidedcases/pdf/68IRJUN00kinesis.co. See also the South African Competition Tribunal’s decision and order in Pharmaceutical Wholesalers and Glaxo Wellcome. in which the South African courts found GlaxoSmithKlyne to have abused its dominant position by virtue of the excessive price of drugs.comptrib. Glaxo Group Limited. 15/CAC/Feb02. and Case No.98 The patent balance the recent South African judgment which found an abuse of a dominant position by virtue of excessive pricing could be seen as a move in this direction. Case 68/IR/Jun00. Elijah Paul Musoke.pdf. Musa Msomi. Tom Myers. PART III Antitrust as a complement to the patent system . . Whilst both share a common objective. 101 . ‘In the short run consumers are supplied with an additional choice.5. whilst intellectual property rights (IPRs) endeavour to achieve the same result by providing a legal monopoly as an incentive for innovation and for the manufacture of new and cheaper products. Merkin. or to pursue aims against the letter and the spirit of the EU competition provisions. the industry as a whole can produce more and at lower cost. Anderman. Unilateral conduct. there are still cases where EC competition law will intervene if it is perceived that the shortterm impact on competition outweighs the long-term efficiencies. p.     R. This is usually the case where the patent holder is able to extend his legal monopoly beyond the statutory grant.     Allocative efficiency presupposes that the price mechanism will ensure that producers produce what the consumers want.1 Introduction The relationship between intellectual property (IP) and competition is a controversial subject. and in the long run when the patent expires. See S. often to overlap with an economic monopoly. and the possible pro-competitive role of IPRs has been recognised. intellectual property rights and competition law: a systems’ interaction 5. EC Competition Law and IPRs: The Regulation of Innovation. some problems arise as they operate in different ways. 17. at least for long-term competition. Oxford University Press (1998). namely. Antitrust seeks to achieve the object of maximising allocative and productive efficiency by preventing monopolistic output reduction and unlawful restrictions on competition. albeit at a monopoly price.’ Hence. The Interface between Antitrust and Intellectual Property [1985] ECLR 377. the enhancement of consumer welfare and promoting innovation. while the relationship between IP and competition is no longer perceived as inherently conflictual. and productive efficiency presupposes that competition from other producers will produce at near optimum costs. Art. of obstacles to the free movement of goods. 30 The provisions of Arts 28 and 29 shall not preclude prohibitions or restrictions on imports.1 EC Treaty relevant provisions EC Treaty Wording Provisions Art. Art. Art. (c) applying dissimilar conditions to equivalent transactions with other trading parties. Such abuse may. 82 Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States. services and capital… (g) a system ensuring that competition in the internal market is not distorted… Art. 29 Quantitative restrictions on exports and all measures having equivalent effect shall be prohibited between Member States. the activities of the Community shall include… (c) an internal market characterised by the abolition. 28 Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between Member States. constitute a means of arbitrary discrimination or a disguised restriction on trade between Member States. (b) limiting production. thereby placing them at a competitive disadvantage. Such prohibitions or restrictions shall not. however. persons. . (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which. by their nature or according to commercial usage. 295 This Treaty shall in no way prejudice the rules in Member States governing the system of property ownership. 3 For the purposes set out in Art. markets or technical development to the prejudice of consumers.102 Antitrust as a complement to the patent system Table 5. Art. as between Member States. have no connection with the subject of such contracts. exports or goods in transit justified on grounds of … the protection of industrial and commercial property. 2. in particular consist of: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions. can be traced back to Art. the unilateral refusal of an IP holder may even be found to constitute an abuse.’   .     A-G Jacobs in Oscar Bronner (Case C-7/97 [1998] ECR I-7791) referred to the essential facilities doctrine in relation to IPRs: ‘Where such exclusive rights are granted for a limited period. 5. the Courts and Commission came up with several doctrines seeking to balance the national character and independent status of property rights with the Community laws and policy objectives.1 The Existence/Exercise Distinction The tensions that have been traditionally perceived between national IPRs and EC competition law has led the Commission and Courts to try to achieve a balance between the two bodies of law. in certain cases.2. intellectual property rights and competition law 103 Whilst it has been repeatedly recognised that the grant and scope of IPRs is a matter for national law. the ECJ and the Commission have also repeatedly confirmed that the exercise of IPRs can be subject to competition control and. 295. the Courts and Commission have followed an approach that distinguishes IP from other cases. Unilateral conduct. a more favourable stance is taken whereby the exercise of exclusivity will only constitute an abuse in exceptional cases. thus. distinguishing between     Case 89/205 Magill [1995] ECR I-743. the precise content of an abuse in the case of IPRs is a contentious issue. most significantly. 82. The Commission and Courts have struggled to draw a clear distinction between a lawful exercise of exclusivity and an unlawful one. The approach of the European Courts is examined against the economic theory and the conclusions are drawn in the final section. However. The whole debate on how competition should deal with IPRs and whether it is able to trump national IP laws. 295. which provides that the Treaty ‘shall in no way prejudice the rules in Member States governing the system of property ownership’. constitute an abuse. under Art. in the absence of harmonisation. It is therefore with good reason that the Court has held that the refusal to license does not of itself. In general. This chapter examines the relationship between the two bodies of law as applied to unilateral conduct.2. in the absence of other factors.   See case-law analysed in 5. that in itself involves a balancing of the interest in free competition with that of providing an incentive for R&D and for creativity. In an attempt to uphold Art. 5.2 The practice of the courts Article 82 of the EC Treaty prohibits the abuse of a position by dominant undertakings. at www. 36. the court then developed the specific subject matter concept (SSM). According to this doctrine. Smith. See also M.’ Marenco and Banks note that ‘the Court could have given a wholly different answer by pointing out that Art. 36 if such exercise is in the course of protecting the SSM. 11   See Commission Decision DSD and others. p 8.uk/law/ssmith2. In an attempt to distinguish between the existence and exercise of IPRs in line with the principle of free movement.C.     Marenco and Bancs. IPRs are ‘interpreted’ and applied in order to ensure compatibility with Community law. in which it was stated that the crucial question concerns the essential function. 30) but a provision ensuring that the Treaty does not detract from the freedom of Member States (MS) to determine the private or public ownership of enterprises’. the existence of an IPR would be unaffected by competition law. 222 (now Art. Magill: Its Impact on the IT industry [1992] EIPR 397. the doctrine was criticised as being incoherent and unnecessary. In the context of the free movement (specifically Arts 30 and 36) (now Arts 28 and 30) the doctrine was believed to be necessary at a time when IP laws were only national in nature.’ 12     Case 56 and 58/64 Etablissements Consten SA and Grundig-Verkaufs-GmbH v Commission [1966] ECR 299. 222 of the Treaty of Rome (now Art. 295) (providing that the ‘Treaty shall in no way prejudice the rules in Member States governing the system of property ownership’). The origin of this distinction can be found in the competition law case of Consten and Grundig. It was felt that a balance had to be struck between the need to respect national IP laws while also ensuring that they were not used in a way to impede the free movement within the Community. In this way. Following this judgment. ‘The existence/exercise distinction appears to have arisen from a hasty response by the Court to Consten’s and Grundig’s argument regarding Art.     T. Will IP on Technology still be Viable in a Unitary Market [1992] EIPR 9. the doctrine was used to justify a de facto harmonisation of IPRs. 10   Case 78/70 Deutsche Grammophon [1974] ECR 1147. OJ 2001 L 319/1.11 ‘The exercise of IPRs in a manner inconsistent with Art. Art 86: The Limits . while competition law could control the way these rights were exercised in certain cases. Vinje.solent. See Myrick. 222 (now Art. 295) is not a guarantee of property (as is Art. Van Der Wal. 15 ELR 224 (1990). IP and the Community Rules on Free Movement: Discrimination Unearthed.ac.     When IPRs are reviewed under Art. the Court ‘strikes out one part of national IP law’. The Changing Approach of the European Court to Intellectual Property. in which the Court stated that the Commission’s decision did not affect the grant of the rights but only limited their exercise in order to avoid a presumed violation of Art. 36) (now Art.html.104 Antitrust as a complement to the patent system the existence and exercise of IPRs. 30 is only permitted under Art. 12   S. 295).10 referred to elsewhere also as the ‘essential function’. 86 should be taken into account in determining this function. does not include this requirement. it is apparent that that right is exercised in such ways as in fact to pursue an aim manifestly contrary to the objectives of Art.’14 In addition. a licence for the supply of products incorporating the design would lead to the proprietor thereof being deprived of the substance of his exclusive right. the existence/exercise distinction is not particularly helpful in distinguishing a permissible use from an abuse of IPRs. Reindl.G. 14   Myrick (1992) op. and thus is an attack on the very existence of such laws. at least in competition cases. 17   Ibid. 13   S. cit. The ECJ. will not attempt to second guess the national legislature’s wisdom in granting an author or inventor a particular right. its existence cannot generally be divorced from its availability in each particular case. 222. which is applicable to the competition rules. p 8. Robertson. in particular. ‘Arts 85 and 86 (now Arts 81 and 82) should not be invoked to limit the substance of IPRs under national laws.’ Beier. ‘An obligation upon the proprietor of a protected design to grant third parties. Miller.’ While the Court made reference to the essential function. leads to inconsistent results and is wrong’. 15   Case 238/87 Volvo v Veng (UK) Ltd [1988] ECR 6211. cit. A. Article 36 requires that the restrictions on imports should be ‘justified’ by the protection of IPRs. in Magill.’17 Similarly. it is questionable whether these concepts are applicable. 86. Compulsory Licensing Under EC Law? [1992] LQR 39.’15 In cases where national law grants an IPR.13 Control is not directed to state measures but rather individual entities. Art 86.16 ‘Abusive exercise requires certain additional features over and above the mere refusal to allow others to use the protected rights. 18   See also C. it also stated that the objectives of Art. thus rendering the attempt to make this distinction largely redundant. Industrial Property and Internal Market. In this case the CFI stated that ‘while it is plain that the exercise of the exclusive right to reproduce a protected work is not in itself an abuse. ‘The distinction between the inviolability of the exercise of IPRs (per Art. intellectual property rights and competition law 105 In the competition law context. the copyright is no longer exercised in a manner which corresponds to its essential function which is … while respecting the aims of. who argues for the abandonment of the SSM because it is ‘illogical. causes confusion. it was stated that the aims of Art. however. He describes the . 1990.18 The abusive element of Compulsory Licensing [1994] ECLR 231. 2 IIC 131. now 295) and the vulnerability of their exercise under Treaty provisions is illogical. 86 should be respected. 16   See Case C-241 and 242/91P Magill [1995] ECR I-743. Unilateral conduct. that does not apply where in the light of the details of each individual case. even in return for a reasonable royalty. Smith op. Article 295. The Magic of Magill: TV Program Guides as a Limit of Copyright Law? [1993] IIC 60. since a prohibition on the exercise of rights means that an essential part of the relevant law is unenforceable. The SSM doctrine did not assist in clarifying the demarcation of unlawful conduct. In that event. Magill: Time to Abandon the Specific Subject-Matter Concept [1994] EIPR 415. Since the Magill case. Vinje. It is thus unnecessary to identify the core rights as they are already set out in legislation. The SSM and essential function of such rights are simply not an issue. Any exercise of its rights of property ownership over the land. and IP differs from other cases. Further. and most efficient manufacturing facilities in Europe.20 Economic theory supports the view that there is no reason to treat IP differently from other property rights. S. such an exercise can never be an abuse of market dominance. in which it is stated that the crucial question concerns the essential function. 82 and it was the objectives that were subject to control. and allows each case to be judged according to the circumstances. it is also not clear if this alludes to a different threshold than the general situations of a duty to deal. the ‘circumstance-based’ approach was upheld as a means of determining whether a particular conduct constitutes an abuse.106 Antitrust as a complement to the patent system related to the provisions of Art. He draws the distinction between the copyright itself. 20   T. to prevent competitors coming on to his property to use his facility to compete. The Aftermath of Magill [1996] Yearbook of Media and Entertainment Law 235. It is plainly and simply and obviously an exercise of property rights conferred by law. The author makes an analogy with real property: ‘an undertaking that has become dominant. And as to exceptional circumstances. cit. as they do not constitute per se an abuse or require exceptional circumstances. do the other refusal to license cases constitute an abuse per se? The response would appear to be negative according to the latest trends. the ECJ has not made reference to the existence/exercise doctrine and it is hoped that it is silently pronouncing its death. rather than an exercise beyond the SSM. and the ancillary freedoms stemming from this right.19 Instead. While the ‘circumstance’ approach represents a positive step as it is not reliant on an all-encompassing rule. could prevent or restrict competition. . buildings and machinery. This is not an exercise of market power in order to prevent others competing. it is believed that the ECJ should have provided more details on what constitutes exceptional circumstances. which are possible because of its dominance.’ 19   However. However. in part because it has built up the largest. he argues that abuses of dominance involving IPRs are committed without the exercise of an IPR. Anderman. However. or one of the few largest. distinction between the exercise of IPRs and the abusive exercise of market dominance as the source of the confusion. see also the Commission Decision in DSD (2001) op. Some have argued that this does not mean that IPRs have no special status. He explains that abuses are exercises of ancillary freedoms and not of copyright. The final word on Magill [1995] EIPR 297. and to ensure the equal social net rate of return on investments. National Academy Press (1993). he does not lose anything if he teaches him how to fish. information is also non-excludable. This means that once it has been obtained.22 While someone might be impoverished by sharing a fish that he has caught with someone. the fish.1 Public goods and market failure IPRs are an instrument used to further public policy objectives. Therefore. while the cost of producing information is 21   P. Its multiple and simultaneous use will not deplete it. it is a non-rival good. It works similar to the case of information about a shortcut to a place. In an information-based economy. More specifically.21 Knowledge is an unusual commodity with many distinct characteristics arising from its intangible nature.3 IPRs and competition: A systems’ interaction 5. the aim is to ensure the optimal flow of improvements and development of scientific and technological knowledge in order to ensure that the information created is used efficiently for the maximum social benefit of producers and consumers and that knowledge is diffused to a desirable extent. IP Institutions and Panda’s Thumb: Patents. . it can last forever.3. 22   However. Unilateral conduct. namely here. knowledge is indivisible and durable. It can function both as a pure consumption good and as a capital good having an intrinsic value when combined with another asset. As with traditional public goods. 24–45. information relating to a cost-reducing process has value of itself. therefore. but if too many people know about it then its value would be diminished. in Global Dimensions of IPRs in Science and Technology.A. intellectual property rights and competition law 107 5. and can be used repeatedly with no need to recreate it. and Trade Secrets in Economic Theory and History. It is difficult to define knowledge precisely or to clearly demarcate its boundaries or specific attributes and measurements. As with classical public goods. In addition. Copyrights. except to the extent that too many are educated in such a way as to depend on the same embodiments of the intangible knowledge. pp. and to ensure that the creative conditions are such that the social costs of productions are minimised with regard to the social costs of producing new knowledge and the use of existing knowledge.1 IPRs – Public Goods. in terms of consumption. policy objectives broadly refer to the desire to maximise the net social benefits arising from new information assets.1. Exclusivity and Information Goods 5. that is not crowded with cars. for example. David. Washington. knowledge can often be a positional good in the sense that its value may depend on how many other people possess it. Hence in many cases the value of information depends on whether it is also available to other people and to how many people.3. This might be very valuable information to a taxi driver. The complete contents of information are not known beforehand. often even by the interested parties. Property and Innovation in the Global Information Infrastructure. cit. therefore it builds on prior knowledge. 1996 U. thus rendering the production and sale of the products inefficient.108 Antitrust as a complement to the patent system high. This implies that in order to protect oneself against imitation. therefore there is some asymmetry in the distribution of information. knowledge is cumulative. Chi.27 23   For a more extensive discussion of public goods. 2000. Shavell. Rev. 24–45. See S. Harvard Law and . Price Discrimination and Digital Intellectual Property. as in the case of other public goods.25 In addition. the attributes. whether by means of secrecy or otherwise. interacts with other knowledge and involves a recombinant process. however. is subject to the qualification that it may be time-consuming or impossible to copy information in certain cases. not easilyappropriable and non-rival by nature. but also to ensure that information is assimilated that learning takes place.A. 53 Vand. Its utility is based on its exchange and propagation. cit. the cost of transmitting knowledge is negligible in most cases. However. supplying only at the cost of copying. the competitive market fails to give sufficient incentives to induce the optimal amount of innovation. J. or Lavish? Economic Analysis. Economic Analysis of Property Law. 24   P. 26   J. Hence. May 2001. L. the inventor will have to incur high transaction costs. as witnessed in the form of under-investment in information goods. Law and Economic of IPRs: Cruel.A. 28. 27   This proposition. The problem with public goods is that because they are indivisible. Perritt. Boyle. This is because the competitive market leads prices near the marginal cost of production and thereby even fails to cover the high fixed production costs. see H. Perritt (1996) op.com/.24 Secondly. Legal Forum 261. without intervention. pp.europe-economics. P. had it not been for the incentives to create it. it should in most cases have been left free. Global Public Goods in Health. characteristics and value of the commodity are not known beforehand. David (1993) op. information resembles traditional public goods like a lighthouse. Every consumer is a potential producer. property rights may not be required to overcome under-investment. knowledge has two additional characteristics. at www. and it is non-excludable in nature. Europe Economics. pp. The costs are not only high for production. cit.23 Due to these characteristics. 2007. a market failure would result. cit. This renders the conclusion of contracts for the production and use of new information particularly difficult. 25   H. in that it can be used to the benefit of many without any depletion in use. Boyle (2000) op. David (1993) op. 24–45. contrary to other public goods. First.26 Hence. This is apparently the case with Coca Cola which has not been copied in the past 100 years even though it is not subject to patent protection. therefore. Mean. a single unit may satisfy an infinite number of users at zero or almost zero marginal cost. property. that are analysed below. reflected also in the fact that some highly industrialised countries. 20. pp.1. 5.3. as many will be excluded. although patronage is more conducive to the speedy disclosure of information based on reputation. chapter 12. refers to state taxes to finance contracting with private parties. It is the only system that allows for individuals to respond to market opportunities and in this way it also grants economic freedom to the individuals concerned. 30   See. Dec. in turn. Right holders must choose the most efficient type of conduct. The advantage of this approach lies in the fact that there is no need to predetermine the economic benefits as these are left to the market. it would seem that it is the most desirable. however this is not guaranteed. . who discusses the reward system and concludes that ‘For a variety of reasons. there would be very high transaction costs coupled with a huge administrative burden. it is thought the level of creation would fall short of the optimal. the latter system won out’. pp.28 The first solution. due to the problem of asymmetry. S. 28   P. provide an opportunity for the right holder to benefit from the profits.31 Property rights are devised to allow for the efficient exploitation of scarce resources. due to certain characteristics of information. procurement and property There are three solutions traditionally associated with the problem of public goods: patronage/subsidies. such as Switzerland. cit. procurement/direct government production and property/regulated monopoly.2 Patronage. Indeed. avoiding problems relating to the overuse of common property. apparently more political than based on consensus about the intellectual appeal of the patent system. which will.A. David (1993) op. 29   Ibid. did not adopt patent legislation until recently. Both schemes involve the supply of information without charge. there would be some degree of creation. while the second. This consists of granting exclusive property rights which allow for the formation of a market.29 The major drawback of both schemes is that it is almost impossible to lay down efficient terms for the contract due to the uncertainty surrounding the nature of the information as well as its value. cit.30 The third option. chapter 12. 399. without some form of protection for information. however. however. p. Unilateral conduct. patronage. refers to publicly financed subsidies. refers to a publicly regulated private monopoly. procurement. 29–31. Shavell (2002) op. intellectual property rights and competition law 109 While the fact that there will otherwise be a market failure does not precipitate the creation of private rights. 31   It is clear that not all individuals will be able to make choices to respond to the market. Hence. which would only lead to imperfect agreements. 2002. which operates for a normal rate of profit. also known as the Economics Discussion Paper No. 24–45. 29. J. Dommering. Perritt justifies the grant of property rights based on the transaction costs of public goods stemming from their characteristics of non-rivalness and non-excludability. The priority system. The Tragedy of the Anti-commons: Property in the Transition from Marx to Markets. L. This reflects the objective of constant innovation. L.B. its specialisation is. while not scarce of itself. and the transferable exclusive rights – namely the cases where protection is granted. that the public goods justification is obviated. allows for the speedy disclosure of inventions. 621 (1998). 34   H.110 Antitrust as a complement to the patent system ‘tragedy of the commons’. the length and breadth of those rights. Hardin. and rapid development. costly copying. p.32 With regard to information. first. as well as the benefits and losses of that decision. 33   E.A. and secondly. If property rights are transferable. a market may operate and a price can be set. Deventer/Boston: Kluwer Law and Taxation Publishers (1992). P. Like in all systems. 32   R. when information deserves protection under property rights. As with all property rights. 659 (1993). Valuing Intellectual Property. cit. 75 (1994). where the property basis of IPRs is defended as it grants the remedy of an injunction that is desirable in view of the difficulty of calculating the losses resulting from copying. but also the legal costs of expected liability. less than perfect copies. However. 68 Chi. Information Law towards the 21st century. trade-offs are involved in the production of knowledge and in the grant of property rights. Rev. Every consumer is a potential source of supply at only the cost of copying and that increases transaction costs. Perritt (1996) op. 111 Harv. they are limited in some way by the needs of the public. Kent L. Kabel. Hugenholtz. As a means of managing scarcity. Perritt (1996) op.J. Some information may be protected by trade secret law and tort and contract law. while other might warrant strong property rights. Rev.J. See also H. The exclusive right turns a public good into a private one. 62 Tenn. the knowledge that is appropriable but not transferable. cit. IPRs and Bargaining Breakdown: The Case of Blocking Patents. inability to use copies without the assistance of the inventor and reputational advantages may be present in such a way in certain types of information. Heller. See also R. However. property rights assign the responsibility of working with the scarce resource to one individual.35 Hence. Property rights mitigate free riding by increasing the pirate’s costs so that he not only incurs the marginal cost of copying. 35   This is also reflected in the different forms of protection for information according to its perceived merit. 269. the two basic questions that IP protection faces are. . in the sense that its creation requires special incentives to ensure that the creator devotes time to this task. Rev. for example. on which the patent system is built. Lead time.33 Different information goods have different public and private good characteristics so that in certain cases there are sources of excludability and rivalness negating the need for a property right. M. Economic View of Information Law in E. Mackaay.34 The intellectual property system has to strike a balance between the free knowledge. the viability of these rights rests on the need to ensure a sufficient level of exclusivity. Merges. 36 It may also lead to allocative inefficiencies. the implications of the trade-off between the incentives for new knowledge and its efficient dissemination and exploitation may change by varying the length and breadth of the endowed property rights. namely.A. being built on the race-to-innovate.37 However. hindering the creation of similar knowledge of a superior quality at a possible lower price. may mitigate this wasteful effect. Problems. is the ‘deadweight burden’ of the patent monopoly. make coordination impossible. Too many inventors in the race to innovate and to be the first to discover or file a particular invention are likely to lead to common pool problems associated with the fact that people will be individually minded without consideration of their effects on other competitors. Merges and R.A. is far from clear due to all of these uncertain and competing interests that need to be addressed in the patent system. 24–45. The scope of protection includes different aspects. another disadvantage of the property system relates to the withholding of access to the new knowledge. 36   P. The difference between the benefit offered by the information under property rights and the benefit that would accrue if exploitation had been made on a competitive basis. In addition. cit. cit. it has been shown. pp. however. while strong broad patents may encourage more fundamental. and vice versa. for example. chapter 12. Shavell (2002) op. but may also lead to the control of a whole market. This can be witnessed both by reduced dissemination of the invention in question. p.39 The optimal length and breadth. It is generally believed that conduct will be judged to be an infringement if it produces benefits to the right holder at a low social cost. L.R. In this way. 90 Colum. 34. they might lead to wasteful duplication that may be an even larger problem than the common pool problem. as the IP systems like the patent system. initial breakthrough inventions. however. 38   P. On the Complex Economics of Patent Scope. or to the suppression of improvements on technology. such as the type of behaviour which constitutes an infringement. David (1993) op. and also in the reduced development of improvements or dependent products or services which depend on the initial invention. that weak and narrow patents may encourage cross-licences and hence allow for dissemination and improvements. 39   R. associated with excess or under-investment are sought to be resolved by the adjustment of the patent length and breadth. 839 (1990). Unilateral conduct.   Awarding the property rights early. It is difficult to achieve this balance. See S. 37 . so as to induce optimal innovation. The problems are aggravated by the fact the desirable level and type of innovation is also unclear. cit. Rev. intellectual property rights and competition law 111 it also leads to a rush to innovate and rivalries amongst inventors based on a winner-take-all solution. Nelson. David (1993) op. as soon as it is known that a party has worked out the essentials of an invention.38 As mentioned above. Ullrich. however.3.41 Hence. H. of Toronto L.40 IP itself. 51 U. in Expanding the Boundaries of Intellectual Property: Innovation Policy for the Knowledge Society. and are given the opportunity to respond to the market created. A Property Rights Theory and the Limits of Copyright. Oxford University Press (2001). Siebrasse. Grandstrand. The advantage of property rights is that they are granted at a time when the desirability of an invention is not known. that will in turn set the price of the information created. IPRs are devised to create a market for information goods that would not be established otherwise. The latter involves a compromise between the right to exclude as an incentive for new technology. 5. and competition for the optimal exploitation and dissemination of the new technology. While it is not the only means of overcoming the problem of public goods.3. 42   Ibid. Legal Protection of Innovative Technologies: Property or Policy? (2001) in O. and its use as an input for further research and development of a dependent or similar technology. or at least not at an optimal level: ‘IP is conceived to bring informational subject-matter into the realm of market rules to optimize their creation’. J. involves tradeoffs usually addressed through changes in the length and breadth of the patent. and contain a mechanism for enforcement. Access to Information and Antitrust: Harmony. IP is viewed as an effort to cure a form of market failure arising in the case of public goods. The trade-offs involved in IP have broadly been described as the vertical and the horizontal dilemma.112 Antitrust as a complement to the patent system In conclusion. provide valuable information. Hence.42 Private parties are left to internalise the decision of whether to create a type of knowledge whose value is not known beforehand. The former addresses the clash between the interests of new technology as an output. 41   H. . in the definition and demarcation of IPRs it is endeavoured to achieve the optimal balance between incentives and use and accessibility. and the difficulty of placing a value on knowledge prior to its creation. Wealth that is free for all is valued by no one because he that is fool enough to wait for its 40   N.2. The Swedish Intellectual Property Symposium. lower transaction costs.1 IP like other property rights for the purposes of competition IP statutes allow for a market to operate in four ways: they create property rights. Intellectual Property. Disharmony and International Harmonization. The rationale is similar to the rationale behind real property: ‘There appears then to be some truth in the conservative dictum that everybody’s property is nobody’s property. 1 (2001). These competing considerations reflect the difficulty and the clashing interests involved in IP as a system. it is the most desirable solution due to the asymmetry of information.2 Implications for competition 5. and pioneering works and improvement. Ullrich. whether an IP or any other case is concerned. Unilateral conduct. there is no economic justification for treating IP differently. Hence. 45   H. the IP system depends on the proper functioning of competition. Legal Protection of Innovative Technologies (2001). Ullrich. as with any other property. IPRs are not exemptions from the competition provisions. the IP system is not conceived as protection from competition.46 In such cases. The exclusivity of rights turns the public good into an economic good. 46   As the price is set by the market. however. this was the basic reason underlying the preference of property rights over the other schemes.’48 It is the competition provisions which determine when it controls the market. ‘The exclusivity is granted to allow to respond to the opportunities in the market not to control it. 62 Journal of Political Economy 124 (1954). As a piece of individual property.43 Efficient exploitation is therefore attained by privatisation. it merely grants the opportunity for a reward on the market. is a constitutive element of the market. Therefore. because there is no assurance that they will be there for him tomorrow if they are left behind today’. but rather. and as with any other property right. indeed. The Economic Theory of a Common-Property Research: The Fishery. Gordon. The Swedish Intellectual Property Symposium (2001). IP does not constitute a justification for the infringement of competition. . whose tangible embodiments are set against and valued according to the competitive market conditions which competition protects. intellectual property rights and competition law 113 proper time of use will only find that it has been taken by another … The fish in the sea are valueless to the fisherman. the exclusivity allows for the autonomous determination of conduct and does not modify antitrust rules. 43   H.44 Hence. 47   Related to this issue is the question of whether IPRs are a right to do something suboptimal but useful. nor does it grant the right to restrain or impair residual competition.45 IP sets out the regulatory framework. IP can only require equal treatment by virtue of the competition provisions. providing incentives and rewards in line with demand. or merely a basic right to optimise that can be overridden. it provides for the autonomy of decision-making and freedom of contracting. under which it provides for the grant of individual property. and has only been devised to allow for the response to the opportunities and conditions of the market. In a similar way to other property rights. 48   H. but rather protection for competition in the market of intangible products. Therefore. which must conform with competition rules.S. Ullrich. it depends on the proper functioning of competition within the market. 44   The IP system. Grandstand. IP does not guarantee a reward. for which competition alone can determine the value. Legal Protection of Innovative Technologies: Property or Policy? in O.47 In this case. in the same way. The analysis of this issue is beyond the scope of the present inquiry. Mackaay (1992) op. liability does not arise solely by virtue of the exclusion. Ullrich. While in one sense it excludes competitors from the technology market. however. and not a restriction of it. inter alia. holder to charge any price. mostly associated with physical and economic constraints preventing duplication.2 Competition embedded in the IP system IP. as IP addresses competing objectives. not an issue with regard to information. it is not clear what kind of competition system should be embedded in the IP system in order for it to achieve its objectives. 50   H. and the fair use and experimental use doctrine. competition considerations are built-in in the IP provisions. which allows the IP.3. in most cases. and seeks to achieve a balance between incentives and dissemination and exploitation. such as CL for non-use of patents.3 The transition from separate to unified fields The traditional confusion with regard to IP and its consideration as exempt from or requiring a different threshold from competition.3. Although.2.50 5. along with a framework regulation of the market. This is reflected in the limitations in the length and the breadth of the property rights. However. there may be other problems in the case of real property also. it creates a confusion between the 49   E. . Legal Protection of Innovative Technologies (2001). cit. The paradox only seems to arise in cases where the exclusion (as such) becomes the reason for anti-trust liability. even here. by an equation of the protected intangible subject-matter with its tangible embodiments.114 Antitrust as a complement to the patent system 5. None the less IP is a ‘constitutive element’ of competition allowing for a market to operate. It is no more different than the case with real property and the right to exclude. as it will enhance dynamic competition in the long term. However. It modifies the conditions of competition and thereby creates new markets. such as in the refusal to deal cases. By changing a non-market into a market place. the terms and conditions for autonomy of exploitation are provided. It is feared that imposing competition law liability for conduct consisting solely of a refusal to deal negates the grant of property rights whose essence is the right to exclude. and also with capacity to supply. springs from the assumption that there must be complete exclusivity.2. but as set against the market conditions and structure. only that in the case of intangible goods the exclusivity might be less efficient and may entail a far larger amount of monopoly power. The problem with this approach is that. this does not mean that it is also exempted from competition liability arising from anti-competitive conduct.49 In addition. and so IP is allowed to exclude competition in the short term. is not neutral to the competition rules. and in exceptions. that are. 66 Antitrust L. unless they are protected against imitation. It is in this context that the European Courts and Commission resorted to the doctrines of existence/exercise. so that anything within was lawful whereas anything beyond.K. Newberg. 7. where IP granted a monopoly within which the property rights were absolute. as indeed did. consideration of the effects allows for a more accurate determination of what constitutes pro. namely. without resorting to artificial doctrines. This is also reflected in the fact that claims of patent infringement and the abuse 51   Ibid. p. the specific subject matter and the essential function. Therefore it assumes an antagonism where there is none. in one way or the other. 52 . While such a formalistic approach may have the advantage of creating clear rules that are predictable and transparent. Competition addresses these questions by maintaining competition in the face of exclusivity as defined by IP.51 Hence. In viewing these fields as separate spheres involving an inherent tension required the determination of the precise scope of the property rights. Unilateral conduct. intellectual property rights and competition law 115 reasons justifying the exclusivity (on the technology market) and an alleged right to restrain competition (on the product market). which may lead. and might result in a slow. it is undesirable as it shifts the emphasis in the determination on the precise scope envisioned in IP statutes. 167 (1997). introduces the benefits of treating IP in the same way as any other property right. constituted an antitrust violation. IP and competition policy address the same dilemma through different means. and can be efficiently administered. and its dissemination—the vertical and horizontal dilemma. While this might impose a burden of analysis of the market conditions. J. to artificial results and distinctions and effects that may prevent certain types of transactions that foster innovation. Antitrust and IP: From Separate Fields to a Unified Field. The result was an artificial and incoherent demarcation of the scope of property rights. and to set the boundaries for anti-competitiveness. resource-intensive and less predictable system. These doctrines attempted to determine what was in the scope of the property right in question. the balance of the ‘monopoly privilege’. … The reason for protecting technologies … is that by their very nature.52 The transition from the perception of antitrust and IP as two separate and competing fields. IP addresses these questions through the definition of exclusivity and outlining its limitations. in the sense of working towards the common goal of maximising wealth by producing what consumers want at the lowest cost. Tom and J. the traditional approach viewed antitrust and IP as two competing and separate fields. or lead to a false determination of illegality.A.   W.and anti-competitive activity. to a unified field. they cannot be exposed to competition. as a piece of individual property. In conclusion. but they may also come externally from other sources. Scherer (1977) op. . cit. IP and competition policy are interdependent and mutually determining. Genevaz (2004) op. Secondly.M. economically there is no reason for treating IP differently from other property. With regard to competition. and by granting exclusive rights it limits competitors in certain respects. 54   F. See Anderman (1998) op. IP confers a property right as in the case of tangible property.53 5. However. especially where a monopolisation of derivative markets might otherwise have been permitted. in a similar situation the IP owner might be required to grant access to products or services covered by the IPR. however. Hence. competition law assumes its usual role. It is in this sense that IP can be said to be a constitutive element of competition. and in favour of immunising it from liability. and indeed a protection for competition. therefore. While IPR legislation can change the market conditions and has built-in safeguards to restrict the scope of the exclusivity granted. cit.3.4 How antitrust control affects incentives to innovate The idea that antitrust law would hamper incentives to innovate is the most common and strong argument against using antitrust law as a means to control conduct that is condoned under IP laws. cit. such as competition laws.116 Antitrust as a complement to the patent system of a dominant position based on refusal to grant access address the same problem: the definition of degree of exclusivity permitted and patent breadth. IP changes a non-market to a market. if the latter is present.2.55 First.54 it is none the less argued that such a concern is based on a series of erroneous assumptions. it is open to abuse. IP grants a legal monopoly that does not necessarily coincide with the economic monopoly. and therefore may point to different conclusions depending on their different policies. 55   S. sets out a regulatory framework embodying competition concerns. economic and political considerations. Restrictions may be built into the system granting these rights. competition controls the IP-holder and the way in which he uses his property rights as in any other case. that is not unlimited and unqualified. for example. but is not a restriction or exemption from competition law. as provided for in competition law. While there is very little empirical evidence on the effects of this control in general. IP and competition law are interdependent and inter-determining. it assumes that the 53   Hence. While IP restricts competitors and affects the competitive market. While both respond to a series of social. as with any other type of property. and compulsory licensing in particular. just as a port owner might be required to grant access to competing ferry services. It is the exclusivity as exercised against the market conditions that is controlled and not exclusively by virtue of the exclusivity. it assumes that IP laws grant holders an economic monopoly. both exploitatively or structurally as any other case. it cannot be expected to assume the responsibilities of competition law and ensure the proper functioning of market forces.  990: ‘Because the last bit of monopoly overcharging is so disproportionately damaging. 750. Klemperer. intellectual property rights and competition law 117 acquisition of monopoly power is the only way to appropriate revenues from inventions. and thirdly. Markham Publishing Co. (1999). p. 97 Mich. 60   Ibid. p. and patents in particular.59 Kenneth Arrow suggests that a monopolist has less incentive to innovate than a firm in a competitive industry.’57 The law encourages the creation of substitutes. This right is a property right that is not different in principle from other property rights. IP rights in general. Economic Welfare and the Allocation of Resources for Invention. cit. The benefit of reducing the deadweight loss 57 .61 Ayres and Klemperer suggest that the loss of incentive is negligible in comparison to the increase in social welfare stemming from limited restrictions on the patentees’ market power. See also K. cit. restricting the patentee’s monopoly power a small amount is likely to increase social welfare. expression or symbol covered by the intellectual property interest. it would only rarely impose a constraint on the courses of action available to IP owners. the latter’s suggestion applies only in cases 56   Ibid. Unilateral conduct. 59   S. Limiting Patentees’ Market Power Without Reducing Innovation Incentives: The Perverse Benefits of Uncertainty and Non-Injunctive Remedies.J. 61   Ibid. of inventing around inventions and therefore substitutes may exist in the market. in this specific case. Chicago. reputation and costly copying may present greater sources of excludability and profit. however. as antitrust control is limited to exceptional cases. 58   See H. In addition. it assumes that antitrust liability would necessarily have overall adverse effects on incentives to innovate. p. the legal monopoly granted by a patent does not coincide with an economic monopoly in the marketplace in most cases.58 While it is true that patents are the most significant factors in appropriating returns in the pharmaceutical industry.60 Hence. Hence. Rev.56 ‘The intellectual property laws do not purport to confer any monopoly. L. but only the right to exclude others from producing the good. (2003) op. Arrow. As regards the appropriation of revenues which provides an incentive to innovate. 62   I. do not necessarily and automatically confer monopoly power on their owners. Perritt (1996) op. as the latter has a higher incentive to reduce the cost of its product. Ayres and P. ‘economic analyses dispute the idea that the concentration of market power is the best way to ensure an optimal appropriation’. Genevaz (2004) op.62 However. Factors such as lead time. (1971). cit. in Essays in the Theory of Risk-Bearing.   H. 985. Hovenkamp et al. it is clear that IPRs are not the most significant factor in most cases in ensuring returns in most industries. 10. anti-trust liability does not necessarily lead to an overall reduction in incentives to innovate in the relevant industry. 19th March 2002. 752. although also stresses the importance of two factors. A firm not faced with competition will only consider innovation’s demand-expanding and entry-delaying effects. ‘predictability’ and ‘importance’ that may be decisive in the impact of CL. A firm faced with competition. cit. as distinct from end product situations. a competitor. pp. Ross. p. judiciously confined to cases in which patent-based monopoly power has been abused … would have little or no adverse impact on the rate of technological progress …’. . p. The Efficiency and Fairness of Enforced Sharing: An Examination of the Essence of Antitrust. (1990): ‘all in all the substantial amount of evidence now available suggest that compulsory patent licensing.V. where demand for the end product is not elastic as consumers need access to medicine (as opposed to luxury products). Boston. In addition. and this is not perceived to impact negatively on incentives. Hence the author argues against a blanket exclusion to CL.’ See also S. Scherer concluded that CL had little effect on incentives to innovate in industries in which the parties had to maintain a high level of R&D to remain competitive or where the ability of competitors to invent around patents reduced the value of patent protection. 52 Kansas Law Rev.M.65 Finally.. But all things are not equal. and the desire to gain it from. Scherer and D. and that competition may stimulate investment to a greater extent than forced sharing may reduce it. B. 3rd edn.63 In industries such as the biopharmaceutical industry. a reduction in the monopoly price may have few consequences on the deadweight loss and can greatly diminish incentives to innovate. will have an incentive to innovate not only to expand the existing market and deter entry. 65   FTC/DOJ Proceedings on Competition and IPRS: A. in practice.118 Antitrust as a complement to the patent system where there is high price elasticity in the market so that every price reduction results in an increase in demand. F. Chien (2003) who compares inventive activity with compulsory licenses to conclude that no decline in innovation can be seen. to have different rules for immunity for refusals to deal by patent holders as that would encourage the arbitrary incorporation of protected components in designs simply to escape of supra-competitive pricing is likely to outweigh the costs of a slightly lower incentive to innovate. forced sharing may discourage both the innovator and the sharer from investing in improvements. 456–7 See also C.’ 63   S. Scherer (1977) op. 25: ‘All things being equal. 64   F.64 Even testimonies of industry operators themselves seem to take for granted that antitrust liability might arise as in any other case. Nevertheless. 57 (2003). Shared property may enable more vigorous competition than would otherwise occur. Genevaz (2004) op.M. Business perspectives on patents. cit. it would also make little sense. Biotechnology and Pharmaceuticals. Houghton Mifflin Co. Industrial Market Structure and Economic Performance. Diverse perspectives on patents. Semerano. but also because of the fear of losing market share to. this may not be the case in the pre-commercial stage of research where demand for research tools by competing firms takes place on different levels of the market. however. . OJ 1991 L 122/ 42.3 Recent Recognition of Antitrust Control This approach has come to be recognised in recent IP legislation. Hence. See also Berne Convention for the Protection of Literary and Artistic Works of 9 September 1886. Furthermore. intellectual property rights and competition law 119 liability. 132. and by Council Directive 91/250/EEC of 14 May 1991. on the legal protection of computer programs. and that licensing may allow complementary factors of production and hence be pro-competitive. See also UK Patent Act s. Rep.67 This could be seen as a reflection of the fact that. cit. in which action may be taken in situations that are likely to operate against the public interest either because of a refusal to license or of the licensing conditions. in which it is stipulated that an abuse of the property rights conferred is possible. and the explanatory Memorandum. 51 on powers exercisable following the report of the Competition Commission. this is explicitly recognised in the US FTC/DOJ Antitrust Guidelines for the Licensing of Intellectual Property (6th April 1995). 5. available at http://www. and thus IPRs are not unlimited rights. In the 27th recital. no provision is made for a different threshold. The Directive can be interpreted as reflecting the idea that IP is not exempt and that it is subject to the application of competition rules. the patent system could provide for the compulsory licensing of patents if it would be judged anti-competitive by competition law and not IP. that Directive states that its provisions are without prejudice to the application of the competition rules under Art. reprinted in 4 Trade Reg. Hence. it is submitted that the solution cannot be found in immunising IP. in 66   In the USA. just as with any other property rights. The EC Database Directive 96/9/EC also envisages the possibility of abuse by a copyright holder: ‘protection by the sui generis right must not be afforded in such a way as to facilitate abuses of a dominant position. but rather in determining the cases in which antitrust liability should be imposed for a refusal to deal. that there should be no presumption of market power.66 Article 8 of TRIPS provides that ‘appropriate measures … may be needed to prevent the abuses of intellectual property rights …’ This reflects the fact that IPRs are not immune from the competition provisions and that it is possible for patent holders to abuse their position. in accordance with TRIPS. Unilateral conduct. 67   See the Draft Proposal for a Council Regulation on the Community Patent (2000) op.usdoj.3. … Whereas the provisions of this Directive are without prejudice to the application of Community or national competition rules’. as last amended on 28 September 1979. 82 EC ‘if a dominant supplier refuses to make information available which is necessary for interoperability as defined in this Directive’.gov/atr/public/guidelines/ipguide. (CCH) ¶ 13. htm#back1 which provide that liability IP will be treated like any other kind of property for the purposes of antitrust. it is clear that IP is subject to competition law rules as shown in the practice of the EC Commission and Courts. as in practice. cit. Patents grant a legal monopoly that cannot necessarily be equated with an economic monopoly. however. There is no defining-line in IP determining when an act will be deemed anticompetitive. because there may be static distortions outweighing the dynamic benefits or other concerns regarding follow-on inventions. With regard to competition law. the latter will be determined according to the impact of specific practice under a rule of reason analysis. 69 . the patent is the same as any other property right for the purposes of competition law. but is also dependent on external 68   This is recognised in the US FTC/DOJ IP Licensing Guidelines (1995) op. but IP remains subject to competition law liability as provided for by the latter for any case according to its effects.69 As has been shown. On the one hand. Rather. The fact that a legal monopoly does not coincide with an economic monopoly operates on two levels. so that the metes and bounds must be sought within which IP is absolute. in their latest decisions they still nevertheless continue to reflect a theoretical understanding that IP warrants a different threshold of general immunity except in ‘exceptional circumstances’. and that the incentives and need for innovation do not justify an immunity. patents do not award a legal monopoly over the treatment of a specific disease. when the legal monopoly that patents confer. this difference cannot be justified.68 Equally. it should not be assumed that patents create market power. they will not be exempt from competition control. while patent protection operates ex ante irrespective of the market conditions. Hence. The scope of a patent is not something concrete that exists in isolation. in the pharmaceutical industry. While the Courts and Commission have abandoned the insistence on defining the scope of IP protection under the existence/exercise and specific subject matter doctrines. coincide with an economic monopoly. first. and therefore it may not be sensitive to these limited instances of control.   I insist on theoretical understanding. but only over a specific product or process. and secondly. because it is not clear how much incentive is required. The circumstances should be regarded as more exceptional than in other cases. it would seem that the circumstances are not any different from the other cases. For example. Competition control operates ex post according to the market conditions. Indeed TRIPS may be read as the legitimation (on the part of IP instruments) of such competition control. there is often some potential for strong competition between products in a therapeutic class. The provisions of TRIPS are important in recognising that IP and competition are no longer understood as separate spheres.120 Antitrust as a complement to the patent system accordance with economic theory. in exceptional circumstances.’ . intellectual property rights and competition law 121 factors such as antitrust control. even if it is the act of an undertaking holding a dominant position. 550: ‘The Court of Justice stated that “the refusal by the owner of an exclusive right [copyright] to grant a license. Unilateral conduct.70 The next chapter addresses the antitrust duty to deal under Art. In this way. 70   See C-3/37 Microsoft Case 792. a case has been made for the lack of economic justification in treating IP differently from other property rights for the purposes of competition law. The EU Commission seems to be more willing recently to recognise this approach. 5. that “the exercise of an exclusive right by the proprietor may. and indeed in its recent Microsoft decision. It pointed out. it resorted to the Magill case to argue that ‘intellectual property rights are not in a different category to property rights as such’. 82 and its application in the biopharmaceutical industry. antitrust law should be seen as simply another factor in determining patent scope. however. this control has been applied in practice as exceptionally as in other cases. involve abusive conduct” thereby clarifying that intellectual property rights are not in a different category to property rights as such. cannot in itself constitute abuse of a dominant position”.4 Conclusions In this chapter. thus according to the facts of the case. Whilst different doctrines were created by the EC Courts to distinguish IPRs in theory. para. 2004. the leverage cases and/or the essential facilities cases. 122 . While it is clear that there is no general obligation under EC competition law to deal with somebody (whether a competitor or a customer). none the less in certain ‘exceptional circumstances’. 82 EC to refuse or cease to deal.6. Furthermore. nevertheless. In contrast. it is still possible to use Art.1. 82 in its current form to address concerns relating to access in the biopharmaceutical industry. and what each of these circumstances involves. a duty to      Case C-7/97 [1998] ECR I-7791.1 Introduction This chapter considers the duty of a dominant firm to deal with competitors/ customers and the cases in which it is lawful under Art. as will be shown in the next chapter. These involve the ‘dependence’ cases. this chapter undertakes a pragmatic examination of the case law and seeks to propose a specific interpretation of the state of the law. it does not consider the role of contract law as this is beyond the scope of enquiry for the purposes of this chapter.1 What is a Refusal to Deal and What is the Rationale Behind its Prohibition? Clear guidance on the refusal to deal is difficult to find as the existing case law is scarce and rather inconsistent. There is no consistent rationale behind the case law in this area and therefore the state of the law is far from clear. The duty to deal under Art. 6. 82 EC 6. which identifies the three main factors leading to a duty to deal under EC competition law. Based on these factors. The chapter proceeds on the basis of the categorisation of the Advocate General in Oscar Bronner. The chapter does not address the general objections and rationale behind compulsory licensing as these have already been addressed. Many questions remain unanswered. it examines the rationale behind the duty to deal. leaving potential licensees with no option but to seek a compulsory licence. Radio Telefis Eireann (RTE) and Independent Television Publications (ITP) v Commission (‘Magill’). 145 referring to the requirement that it should be ‘impossible or at least unreasonably difficult for any undertaking seeking to operate in the market to create’ an alternative. However. and may not be reasonable. a duty will be imposed. such as high royalty rates.      D. Hence. cannot be invoked to challenge a refusal to license or to order a licence on the same terms. 82 EC 123 deal will be imposed.1. para. IMS. 82(c). a refusal to deal refers to a situation in which the licensor refuses to give a licence. [1995] ECR I-743. In general. tying.2 Concerns Relating to a Refusal to Deal: Potential Harm to Competition The main economic consideration behind the striking down of certain refusals to deal relates to the potential of harm to competition. See also the ECJ in Case C 418/01.      Delays in negotiations are only abusive if there is a duty to deal. 6. Cases C-241/91 P and C-242/91 P. there should not be an automatic obligation to grant identical access to everybody else.      Case 238/87 Volvo v Veng [1988] ECR 6211 (para 9). W. even dominant undertakings have the right to refuse to license and to unilaterally decide which third party they wish to deal with. para 50.      Once access is given to one licensee. In this context. Carlton. confirming that harm to competition should not be equated with harm to a particular competitor. then the offer to deal may amount to a refusal.      ECJ. Antitrust at the millennium: A general analysis of exclusionary conduct and refusal to deal.g. . The duty to deal under Art. when negotiations are delayed it should first be examined whether there is a duty to negotiate and reach an agreement in the first place. Art. However. In the absence of other special circumstances. as this would inhibit the first license. judgement of 29 April 2004. non-compete obligations etc) there may also be cases where this is not the case.      See Chapter 5.      With regard to the licensing terms. which requires the application of similar conditions to equivalent transactions. a refusal to license is not limited to cases of outright refusal but may also include situations in which there is a delay in negotiations or cases in which the acceptance of the licensing terms proves to be so difficult that they amount to an effective refusal to deal. as opposed to individual competitors. (2001). while they may in themselves on many occasions amount to an abuse of a dominant position (e. 68 Antitrust L J 659. if a certain ‘abusive conduct’ or ‘exceptional circumstances’ are deemed to exist. Where the terms are such that any licensee is prevented from making an economically viable use of the license. The duty is exceptional regardless of whether an intellectual or other property right is involved. Where an enterprise in a dominant position refuses to deal with any customer who deals with his competitor.11 The concerns relating to the potential harm to competition consider the direct impact on end consumers. Accordingly.   13   D.12 In essence.   14   Case 27/76 United Brands [1978] ECR 207.   12   J. What about Unilateral Refusal to Deal? In FTC/DOJ Hearings on IP and Competition Policy 2002. 2. This was. who may have to pay higher costs. and the refusal to supply with the object/effect of restricting parallel trade. On the other hand. Opinion of the AG Jacobs.K. also raise competitive concerns as if economies of scale are present. . As stated by AG Jacobs. This case may. however. based on the particularities of the pharmaceutical industry. economic theory provides that exclusive dealing may be pro-competitive insofar as it creates incentives for UB to incur expenses that might otherwise have been avoided due to the possibility of free riding by the competitors.’   11   Ibid para. Carlton (2001) op. resulting in a loss in consumer welfare. 104. 82. a refusal that merely restricts the supply and distribution of an end product so as to restrain parallel trade is not abusive if there is no harm to competition. in GlaxoSmithKline the AdvocateGeneral made a distinction between the negative consequences for competition of a refusal to supply that may be abusive. with a more restricted choice or lower product quality by virtue of the refusal. it is found that if the parties do not wish to take part in such a venture there is no harm to competition as it means that the joint venture would not have been efficient for them. the refusal to license can be seen as the means. This echoes the situation in United Brands14 in so far as United Brand’s (UB’s) refusal was based on Olesen’s promotion of a competing firm. four categories of refusals have been identified in the literature:13 1. In such a case.10 A refusal which seriously disrupts competition on a market may constitute an abuse. Hence. Mackie-Mason. ‘I would note that the above analysis does not preclude the possibility that a restriction of supply by a dominant pharmaceutical undertaking might fall foul of the Court’s established case-law on refusal to supply if it had negative consequences for competition arising other than as a consequence of its restriction of parallel trade. cit. W. 28 October 2004. however. prohibited in Art.124 Antitrust as a complement to the patent system The refusal to license will not in itself constitute an abuse in all cases. A refusal to take part in a joint venture: in such a situation. which was found on the facts to be non-abusive. exclu-      Case C-53/03 Synetairismos Farmakopoion Aitolias & Akarnanias (Syfait) and Others v Glaxosmithkline AEVE.   10   Ibid para. 104. and harm to competition as the end. forcing him to leave the market. the amount of additional innovative effort it is likely to induce and the amount of future consumer welfare induced by the incremental investment. but also. F1 will wish to keep F2 in the market if he is more efficient as he can receive profits from his supply of product A. how the latter will affect ex ante future decisions to invest. a rule of reason is required. but there is a possibility of competition in A and economies of scale in B. as this affects the expected returns from innovation. Economic theory suggests that F1 will only refuse F2 if the latter does not allow him to price discriminate. as in other cases.   16   J. In this case. This is not the case.15 In economics. The optimal balance will depend on the static allocative inefficiency resulting across firms. and the product of market A is a necessary input for market B. customers only want product B and will be faced with a monopoly and thereby suffer as a result of the reduced competition. in order to inquire into the possibility of economies of scale and offsetting efficiencies. Hence. 4. if products A and B are not complements for some consumers and economies of scale are present. F1 may refuse to deal in order to preserve its power on market B. Economics clearly cautions us about the possible net harm to competition if there is a significant foreclosure of the distribution system. thus preventing a competitor from achieving economies of scale. In such a case. the optimal balance is empirical. Mackie-Mason (2002) op. industries. This will also allow F1 to transfer his monopoly over time from one product to another. F1 will seek to limit the power of F2 in market B so that it preserves its power in market A. and F1 refuses to license F2.16   15   It should also be remembered that economics takes not only the local effects of the case at issue into account. 3. By keeping F2 small in market B so that it is not an effective supplier of market B to competitors. The duty to deal under Art. the dynamic model. time. 82 EC 125 sive dealing might inhibit the second firm (Olesen) from achieving efficiency. F2’s scales will drop. F1 protects its position in market A. in which firm two (F2) is also present. Where there are two markets. If F1 refuses to supply product A to any customer consuming B from F2. however. however. or if the monopolist excludes a competitor by depriving it of customers who also need the first product of the monopolist. in which F1 is present on market A and both firms are present on market B. . In this case. Finally. cit. in which firm one (F1) is present. this is complicated due to the potential global effects and the fact that the decision should not only take ex post rewards for investments into account. but also its global effects.K. 2 The State of the law A duty to deal has been imposed in the following EC competition law cases:22 1. J.26 Decca Navigation Systems. NY. Parisi. Cheltenham. to preserve market power in market B: Sabena. in The Economics of Copyright: Developments in Research and Analysis. Ind.23 Magill. OJ 1988 L 317/47. USA. Cases involving two markets: (a) Refusal to supply an input to downstream competitors in vertically related markets to preserve market power in market B: Commercial Solvents.21 6.27 Sea Containers.   20   J.   29   Case C-418/01 IMS [2004] ECR I-05039. cit.   19   S. J. Depoorter.25 (b) Denial of access to a facility necessary to compete with a downstream competitor. The Market for Intellectual Property: The Case for Complementary Oligopoly. published on the Commission website for consultation in December 2005.   28   Commission Decision Sea Containers v Stena Sealink.   25   Case T-504/93 Tierce Ladrbroke [1997] ECR 927.19 The conclusions in this regard are ambiguous: ‘Permitting greater consolidation of market power in a market may increase or decrease innovative activity in that market’. cit. Mackie-Mason (2002) op.17 To some extent. W. OJ 1994 L15/08. UK and Northampton.29   17   See ABA (2002) op. Edward Elgar (2003).   27   Commission Decision Decca Navigator System.20 A clear economic formula which would differentiate between desirable and undesirable refusals to deal has not yet been devised. New York. Capitalism.28 IMS. (2001).   18 . eds. Market Structure and Incentives to Innovate: The Case of Cournot Oligopoly. 65 Economics Letters 379–388 (1999). 19 Inter’l J. Intensity of Competition and Incentives to Innovate.K. MA.   22   See end of chapter for a closer analysis of the cases.   23   Case 7/73 Commercial Solvents [1974] ECR 223. OJ 1989 L 43/27. Watt. B. Socialism and Democracy.24 Ladbroke.   21   See also the Commission discussion paper on possible principles for the application of Article 82 to exclusionary abuses. Schumpeter.   F. Org’n 705. this is reflected in the clash between the monopolist18 and competition theorists.   26   Commission Decision London European-Sabena. Boone. Harper (1942). Gordon and R. Yi.   24   Case C-241 & 242/91P Magill [1995] ECR I-743. See also chapter 7..126 Antitrust as a complement to the patent system The risk of harm to competition is also dependent on the type of market structure put in place and the extent to which it is conducive to innovation. The relationship between these categories.   34   Commission Decision British Midland/ Aer Lingus. 82 EC 127 (c) Refusal to grant access to the distribution system to an upstream competitor or a refusal to share methods in reaching customers to preserve market power in market A: Bronner. (e) Refusal to share spare parts with independent providers of aftermarket support/complementary markets: Volvo. l Cases in which an undertaking holding a dominant position on a particular market reserves to itself an ancillary activity without objective necessity which might be carried out by another undertaking as part of its activities on a neighbouring but separate market. Cases involving one market: (a) Refusal to deal with distributors promoting a competing brand to preserve market power in market A: United Brands. Magill. with the possibility of eliminating all competition from such undertakings: Telemarketing.   33   Case 311/84 Centre Belge d’Etudes du Marché-Télémarketing SA (CBEM) v Companie Luxembourgeoise de Télédiffusion [1985] ECR 3261.   31 . These main considerations are also reflected in the categorisation of the Advocate-General in Oscar Bronner. and the indispensable nature of facilities for the operation of a firm on another market. the possibility of using power on one market to create or preserve market power on another market. is unclear and some may indeed overlap to some degree.34 (d) No competitive relationship between parties in any market: Ladbroke. OJ 1992 L 96/34. Ladbroke.32 (b) Refusal to deal with suppliers dealing with competitors to preserve market power in market B: Telemarketing. IMS.35 who outlined the situations in which a duty to deal will arise under EC competition law: l Cases involving the cutting off of supplies to existing customers: Commercial Solvent.30 (d) Essential facilities: Sabena.   32   Case 27/76 United Brands [1978] ECR 207. United Brands. There are three common denominators in the cases in the sense that they may involve the cutting off of previous relationships as a response to the conduct of the dependent firm.   30   Case C-7/97 Oscar Bronner [1998] ECR I-7791. Sea Containers. however. Bronner.   35   Case C-7/97 [1998] ECR I-7791 para 33-53. The duty to deal under Art. Decca Navigation.   Case 238/87 Volvo v Veng [1988] ECR 6211.31 2.33 (c) Refusal to join or continue a joint venture with competitors/ (disproportional sanction?) Aer Lingus. 28 October 2004 at para. . It seems that the Advocate-General is looking for an additional element to find an abuse. or a new product whose entry might have been prevented despite the constant.39 Similarly.41 Such conduct would be incompatible with Art. 182 of the judgment. Magill.   40   Case 27/76 [1978] ECR 207.42 The Court also held that a dominant undertaking has the right   36   He concludes that ‘a dominant undertaking commits an abuse where without justification it cuts off supplies of goods and services to an existing customer or eliminates competition in a related market by tying separate goods and services. in the sense that there was no actual or potential substitute.1 Cutting Off Existing Customers: The Dependence Cases The case-law demonstrates that an obligation to deal has been imposed in situations where a dominant firm cuts off supplies to existing customers. Tierce Ladbroke. despite its decision to vertically integrate and also become operative on the downstream market for the supply of the derivative. 183 of the judgment. will only be imposed after ‘close scrutiny of the factual and economic context’ and even then within narrow limits. 82 as it would ‘limit markets to the prejudice of consumers and would amount to discrimination which might in the end eliminate a trading party from the relevant market’.   42   Para.   38   Case 6/73 Istituto Chemioterapico Italiano and Commercial Solvents v Commission [1974] ECR 223.36 Any obligation to deal. if the orders placed by that customer are in no way out of the ordinary’. in the United Brands case40 the Court considered that an undertaking in a dominant position ‘cannot stop supplying a long standing customer who abides by regular commercial practice. such as tying sales.   41   Para. In Commercial Solvents38 the party was compelled to continue supplying Zoja with the raw materials necessary for the production of a derivative.37 6. 25 of the judgment.   39   Para.2.128 l Antitrust as a complement to the patent system Cases in which the refusal concerned a product or service that was either essential to the exercise of the activity in question. The Court held that a refusal to license in such cases constitutes an abuse of a dominant position where it thereby ‘risks eliminating all competition on the part of this customer’. However. however. or discriminating vis-à-vis independent competitors. Opinion of the AG Jacobs.   37   Case C-53/03 Synetairismos Farmakopoion Aitolias & Akarnanias (Syfait) and Others v Glaxosmithkline AEVE. it also seems that an abuse may consist in mere refusal to license where that prevents a new product from coming on a neighbouring market in competition with the dominant undertaking’s own product on that market’ para. specific and regular potential demand by consumers: Volvo. 43. 53. be imposed in circumstances where the retaliation to a behaviour of the customer/competitor is not proportional to the behaviour that it aims to sanction.43 Hence. the restriction of supply by a dominant petroleum company during an oil shortage in a manner which was reasonable to the particularities of the commercial situation and relations between different customers. cit. flexibility should also be preserved.44 There is a three-fold rationale behind the relevance of previous dealing. and 42 of the judgement.   49   See s 26(2) of German Act Against Restraints of Competition: ‘relative dominance’ for dependent customers/competitors.47 An obligation to deal can. 30. Chapter 14. in Germany for example.. Competition and IP Law and Policy in the Knowledge-Based Society: Is there a Cause for Concern about Unilateral refusals to Deal? in DOJ/FTC Hearings on IP and Competition Law. as the conditions of the licence may have changed.   47   Courts must be careful not to penalise people for making bad licensing choices which cannot be reviewed or altered as this might create an incentive to refrain from licensing in the future.   Case 77/77 BP [1978] ECR 1513 paras. rather than some sort of broad antitrust regime that would require ongoing dealing?’   48   See also analysis of S. J. it is possible to use the previous terms as a benchmark.48 This may be seen as an extension of the abuse of market power to cases of relational market power. in the BP case. or the party may reasonably seek to change the terms and cost of the licence. then he should be held to the representation that he made. Competition and IP Law and Policy in the Knowledge-Based Society: Is there a Cause for Concern about Unilateral refusals to Deal? in DOJ/FTC Hearing on IP and Competition Law. under which ‘a company may be   43   Paras. Secondly.   45   C.45 First. The duty to deal under Art. The rationale for estoppel is based on the idea that if somebody makes a representation on which the other party relies to his detriment. was not found to constitute an abuse of a dominant position. 33. 1 May 2002. Anderman (1998) op. See also C.46 However. who states ‘shouldn’t private parties if they are going to make reliance on investments seek their own assurances that a standard will be open or something will be licensed on an ongoing basis. thus. 189 and 190 of the judgment. Furthermore. and thirdly. 82 EC 129 to take reasonable steps to protect its commercial interests. 28. cit.   46   The latter argument echoes the estoppel argument present in UK common law. the concept of economic dependence has been introduced. May 1 2002.49 Nacke also contemplates that a partenaire obligatoire may also be found in the Community law. 32. Glenken.   44 . 29. previous dealing proves that dealing is feasible and consistent with investment and creation. Shapiro. Shapiro (2002) op. people may have relied on the expectation of a deal. provided its behaviour is proportionate to the threat and not aimed at strengthening or abusing a dominant position. one could even argue that following the Telemarketing case.   55   Magill (1995) op. despite the existence of previous dealing. the Court focused on the essential nature of the facility and the leverage possibility.51 While one may question the extent to which the concept of ‘dependence’ makes sense from a competition law perspective.54 6. with the possibility of eliminating all competition from such undertaking.53 claimants will also have to establish the presence of the other considerations. p. but the focus was on the hardship suffered by the customer/competitor. 56 of the judgment. it could be considered to be legitimate if it is limited according to the proportionality principle of EC law since the leverage and/or essential facilities rationale is also present in most cases. cit. The Court held that where an undertaking holding a dominant position ‘reserves to itself or its subsidiary another activity’ on a neighbouring but separate market.50 These dependence considerations are also consistent with the proportionality principle contained in Art. Nacke. in Telemarketing (1985) op. Similarly.2.52 Indeed. by their conduct.int/comm/competition/speeches/text/sp1995_025_en. cit. . the focus was on the essentiality of access for the secondary market to operate. and on the possibility of leverage. ‘reserved themselves the secondary market of weekly television guides by excluding all competition on that market’. para.   53   Case 311/84 [1985] ECR 3261. 1995 at http://europa. it constitutes an abuse of its dominance. 6. as it seems to be more similar to a contractual notion. in United Brands (1978) op.eu. On the other hand. was relevant in determining an abuse of a dominant position.   51   Ibid. It also noted that the input withheld should be indispensable for the activities. and there might even have been a case for arguing that the raw materials were essential facilities.130 Antitrust as a complement to the patent system found guilty of an abuse if those dependent on it cannot substitute. Abuse of Dominant Positions. without any objective necessity. para.55   50   T. for example consideration was also paid to the possibility of leverage by virtue of vertical integration. cit.   52   In Commercial Solvents (1974) op. which requires that the action taken by the dominant firm to attain a legitimate objective should take the form of the least restrictive means available. if the abuse is unlikely to encourage new competitors and if the company is not constrained in its behaviour by competition in wider “downstream” markets’. In this case. none the less.2 ‘Reservation of an Ancillary Activity’ and Leverage Economics In line with the Telemarketing case.html. in Magill the Court considered the fact that the broadcasters. 82. these considerations were present. 25 to 27. and British Midland/ Aer Lingus (1993) op.   54   Ibid. cit. cit. which are capable of having more than one end use and therefore it is believed that the number of markets that the patent can be divided into. 1069–1085. ‘The presumption that vertically integrated plaintiffs seek to decrease competition in downstream markets contradicts the widely held view that vertical arrangements generally cannot augment monopoly power. Gerber (1988) op. This is because the profits of the licensee firm can be extracted through the pricing of the product on the upstream market. This theory has been criticised as it is argued that a firm cannot obtain two monopoly rents. 82 EC 131 This was based on the concern that the dominant firm would limit access to the upstream product to gain power in the downstream market. he may do so by favouring a particular downstream competitor by exclusive dealing or by discriminatory treatment. and that there is no gain from leveraging as one can extract all monopoly rents on the first market.W. cit. The theory has also been criticised for failing to capture the essence of patents. The duty to deal under Art. should be irrelevant for antitrust purposes. May 1 2002.   60   Ibid. the monopolist would welcome competition in the complementary segment as this would increase the value of the good and the consumer could still be charged the monopoly price.56 The rationale behind this can be found in the idea of the economics of leverage which claims that a firm with market power on one market may use that market power to gain additional power in a related but independent market. the monopolist could simply charge a high price for it. if a variable fee for use would lead   56   In the case that the firm is present in the downstream market (hence.61 If the monopolist is unable to obtain monopoly rents.59 The ‘chain link’ model thus concludes that refusals are generally efficient as monopolists do not need to refuse to deal in order to extract monopoly profits. Rethinking the Monopolist’s Duty to Deal: A Legal and Economic Critique of the Doctrine of Essential Facilities.57 The Chicago school has argued that if product A is used as an input. If such vertical integration is not present. then it might refuse to deal in order to eliminate competition on lower levels and receive a monopoly price. cit. Carlton. .58 If it is used on a stand-alone basis.60 It cannot be assumed that efficiency can be found in cases in which the monopolist is unable to make monopoly profits. charging high wholesale prices or by making the upstream product incompatible with the downstream ones.G.62 This would arise in the following cases: if the nature of the product and business relationship renders the transaction costs of metering prohibitive. pp.   57   M. Gerber. to which access is required in order to produce in the downstream market. vertically integrated) it can do this by refusing to deal.   61   Ibid.   59   See for example D. Competition and IP Law and Policy in the Knowledge-Based Society: Is there a Cause for Concern about Unilateral refusals to Deal? in DOJ/FTC Hearings on IP and Competition Law. Whitener. 74 VA L Rev 1069 (1988).G.’ See also D. amongst other.   62   Ibid. (2001) op.   58   D. certain structural preconditions must exist before vertical integration can become harmful competition.   64   Ibid. it can also lead to efficiencies. Efficiencies can result from the elimination of the double marginalisation problem associated with successive monopolies. in which case the dominant firm will wish to ensure that the dependant firm remains limited in its production of the downstream product so that it does not become an effective supplier of competitors in the upstream product. If the upstream and downstream products are not complementary for some consumers. leverage will only be profitable if the monopolist controls an input that can be used in variable proportions with other inputs so that the monopolist induces   63   Ibid. P. internalizes certain transactions and avoids the necessity of having to protect oneself against opportunistic behaviour such as hold up and free riding. . By vertically integrating. 115 (1999).65 It becomes clear that vertical integration is not necessarily a negative development and must be reviewed through a rule of reason approach in order to establish if the structural preconditions exist for a possible harm to competition and whether other offsetting efficiencies are also present.W. there may be instances of dynamic models in which there will be the possibility of competition for the upstream product in the future periods and scale economies for the downstream product. 1 May 2002. there may be a risk to competition arising from the refusal to supply. Hawker. or in cases where the link between charging user fees on market A and creating a monopoly price on market B has been disrupted – as in the public goods case. Competition and IP Law and Policy in the KnowledgeBased Society: Is there a Cause for Concern about Unilateral Refusals to Deal? in DOJ/FTC Hearings on IP and Competition Law. Vertical integration can also lead to efficiencies arising from the reduction of transaction costs. Rey.63 An anti-competitive refusal to deal therefore arises either in situations involving a regulated industry in which the monopolist vertically integrates in order to avoid regulation.132 Antitrust as a complement to the patent system to resource under-utilisation and thereby sub-optimal profits for the competitor. by requiring competitors to enter both markets simultaneously. and there are economies of scale in the production of the downstream product. and the secondary market must be concentrated and protected by barriers to entry. Open Windows: The Essential Facilities Doctrine and Microsoft. Even in such cases. 25 Ohio NUL Rev. Hence.   65   Ibid. there must be a monopoly in the primary market (as there is nothing to leverage otherwise). or where the monopolist seeks to eliminate risk sharing. This is because it reduces the friction in the organisation of the enterprises.64 In order for a leveraging claim to be valid. and. which suggests that vertical integration by a monopolist may also increase the difficulty of entering either market. In addition. The latter relates to the fact that all parties wish to maximise profit by increasing prices. however. See however N. there are no longer several companies seeking to make a profit but rather one and this may lead to lower prices. in fact. It traditionally requires the existence of two markets. v Donnelly Information Publishing. v Aspen Skiing Co. vacated. 1984) aff’d on other grounds.S.   70   See United States v Terminal Railroad Ass’n of St. 933 F. Ct.S. 472 U.2d 982 (D.S. The duty to deal under Art. BellSouth Advertising & Publishing Corp..2d 297 (11th Cir. 570 F. but also that the service itself must be indispensable for the running of the individual’s business.67 6. it is necessary to establish not only that the refusal of the service would most probably lead to the elimination of all competition in the market and that such a refusal would be incapable of being objectively justified. 436 U. Consolidated Gas Co.3 The Indispensability Requirement and the Essential Facilities Doctrine (EFD) In Oscar Bronner68 the Court. United States v Griffith 334 U.. denied.S.69 The indispensability requirement alludes to the essential facilities doctrine (EFD). 880 F. 383 (1912).66 In this way.C. 1991) . para. 738 F. MCI Communications Group and MCI Telecommunications Corp v American Telephone & Telegraph 708 F. 100 (1948). observed that in order to find an abuse. 114 S..2. the economic theories on leveraging and foreclosure have hence largely been discredited and. 956 (1978). 19 Yale Journal on Regulation 171 (2002). 56. 977 F. or where the monopolist is subject to rate regulation and integrates in order to avoid it. 1983). 1993). 82 EC 133 customers to deviate from the most efficient input mix. Vertical Integration and Media Regulation in the New Economy. 38.2d 1436 (11th Cir. of Florida . 1977). 224 U. Aspen Highlands Skiing Corp.2d 1509 (10th Cir. Inc. even if they still have some support. In Magill the Court reasoned that the reservation of the secondary market of weekly TV guides was abusive as it excluded competition from the market by denying access to the ‘basic information which was the raw material indispensable for the compilation of such a guide’.   68   Case 7/97 [1998] ECR I-7791. Hecht v Pro-Football.2d 1-81 (7th Cir.S.2d 952 (11th Cir.   69   Ibid. 807 F. Inc. 585 (1985). 1992). in line with Magill. 42 and 44. Yoo. as ‘there is no actual or potential substitute’ for this scheme.70 It specifies the situations in which the owner of an essential facility (EF) is required to provide access to this facility to competitors at a reasonable price. The EFD has its origins in US antitrust cases and it describes instances in which access to something is mandated for those who would not have access otherwise. para.2d 1435 (11th Cir. denied. 1989). cert. 1986). 999 F. the upstream market   66   C.2d 520 (7th Cir. cert. of Florida v City Gas Co. Fishman v Wirtz. and reversed en banc on other grounds. 41. 943 (1994). Cir.   67   Case C-241 & 242/91P [1995] ECR I-743. they depend on structural preconditions underlying the exceptional nature of a duty to deal. . Louis. Essential Facilities. or mere inconvenience or economic loss). It has even been described as follows: ‘It is less a doctrine than an epithet. J. Goldman.   74   However. 1994 Fordham Corp. 245-344. Essential Facilities: A Comparative Law Approach. Kezsborn and A.134 Antitrust as a complement to the patent system and the downstream market. Others argue that as antitrust cannot change the structural characteristics of natural monopolies. in Hawk ed. in natural monopolies. Troy. 87 Cornell L. and there are many equilibrium points. In such cases.74   71   Whether the existence of two markets is a prerequisite is a matter of debate. Essential Facilities: An Epithet In Need of Limiting Principles. On Refusing to Deal with Rivals.V.S. The latter normally seeks access to an input of the integrated firm that has been denied. 1996 Colum Bus L Rev 1. See A. Unclogging the Bottleneck: A New Essential Facilities Doctrine. and the other firm will be active or wish to become active in the downstream market. Venit. J. Institute. Lipsky and J. (1999). the tendency will be for a monopoly. Harz.73 They include: the control of an essential facility by a monopolist. B. A monopolist can use the monopoly base to tip the downstream market creating a ‘bandwagon effect’.H. the denial of the facility to the competitor (including the charging of unreasonable prices). OECD. 11 Emory Int’l Rev 189 (1997). the key to maintaining a monopoly the key is to create a large installed base. and this is evident from the conflicting arguments of the parties in IMS.O. indicating some exception to the right to keep one’s creations to oneself. See also C. L. A. 58 Antitrust Law Jnl 841. Paris (1996). Robinson. Dominance and Duty in the EU: A Look through Microsoft Windows at the Essential Facilities Doctrine.   72   While the EFD may arise in purely private circumstances. Kallaugher. No Shortcut to Antitrust Analysis: The Twisted Journey of the Essential Facilities Doctrine. Rev. (1989).J. Areeda. by creating technological links between the two products.   73   P. for example. 83 Colum L Rev 441 (1983).72 The usual elements quoted as necessary for the establishment of mandatory access are found in the US case MCI. This explains why it is often a public policy choice. See.71 The dominant firm will usually be active on both markets. Tipping may move the market off its equilibrium point towards a new point that favours a competitor or a particular product. Essential Facilities Doctrine. the competitors’ inability to practically or reasonably duplicate the EF (requiring more than being more economical than alternatives. M. Harz explains that. as it tends to become self-perpetuating afterwards as users will become locked-in because of high switching costs. 1177 (2002). . it is often raised in situations involving regulation or involving some state-related or state-owned facility.’ Ibid. and the ability to provide the facility.G. the issue of whether the doctrine should be limited to natural monopolies. its applicability in these industries will depend on the specific costs and benefits of an EFD and whether it is likely to do more good than harm. pp. there are significant variations in the definitions of the doctrine. 51 Stan Law Rev 1187. Sidak. free market forces do not gravitate toward an equilibrium point. but not telling us what those exceptions are. This is based on the argument that as these markets are particularly vulnerable to tipping. the maximum production and most efficient resource allocation. 6. the facility must be centrally located. and thirdly.75 The facility. whether physical or technological.3. without access to which one cannot provide services to their customers’. duplication of the facility is beyond the standard cost of entry into the foreclosed market and the plaintiff cannot commercially exist without access to this. It requires the presence of four characteristics: a. must be indispensable to enter or stay on the market. N. c. and that there would be a potential effect to eliminate competition by the requesting party or from any third party. b. Ct for Dist.77 the Court defined an essential facility as ‘a facility or infrastructure. 472.E. requires that there would not be any workable alternative technology available. 8 Marq L Rev 117 (1997). Other commentators claim that a facility is essential only when ‘public necessity justifies treating the facility as essential’.   75   Commercial Solvents (1974). The Essential Facilities Doctrine: What does it mean to be Essential?. 1970   76 . the monopolist must be able to regulate his facility. cit. Others have defined essentiality according to whether it is required by a competitor in order to compete effectively. See D. and that duplication of the facility and practical alternatives must not be available. Of Columbia.1 Indispensability Different definitions have been proposed as regards the issue of essentiality/indispensability. analysis of the market and the needs of competitors are irrelevant in a determination of essentiality. Troy (1983) op. The legal definition as established in Hecht v Pro-Football No. The application of the indispensability requirement (similar to essentiality in the EFD) raises three fundamental questions on its application: first. cit. who offers a legal and economic definition of essentiality. The test advocated by the author is objective. Bronner (1998) op. who proposes that a facility should not be deemed essential unless the facility is necessary for entry into the market. The duty to deal under Art.76 In Sealink. cit. Supp.   Areeda understands that to meet the threshold of essential the following requirements must be met: the competitor must be essential to competition in the market place. 82 EC 135 The essential facilities doctrine requires that the facility should at least be indispensable to viably compete on the market and that there should be clear anti-competitive effects in the product or technology market. what classifies as an objective justification. in effect.M. W. Economically. 2815-66. see also D.2. secondly. and d. it involves facilities that can impede the users’ production or access to a market. the denial of access will amount to an abuse of dominance.. what constitutes indispensable/essential. Gerber (1988) op.functional control. the facility must be unique in that there are no similar and competing facilities and duplication is precluded. Telemarketing (1985). P. (in the sense of being critical to its competitive vitality).. 312 F. C. J. focusing solely on the effects of the monopolist’s decision. Seelen. Once a facility is deemed essential and unless there is a legitimate justification. cit. so that consumer preferences. Areeda (1989) op. whether there is a need for two markets. it must be essential to the individual competitor. cit. and the flow of production and distribution must flow from there. Hawker (1999) op. US Dist. This. preservation of uniqueness. 78 It would also be wrong to have a test that focuses on the survival of a particular competitor as opposed to whether it was generally economically viable for any competitor to survive without access to the ‘facility’. then access should be available to all competitors as it is impossible without it to compete.   82   This has influenced the Commission in IMS in deciding that the product was indispensable and in favour of granting a compulsory licensing order. The test can only be objective. The Bronner Case – A Turning Point for the Essential Facilities Doctrine? [2000] 2 ECLR 59.S. certain factors may be taken into account in the determination of essentiality. Bergman. They identify three requirements: a. It is only in the context of ‘dependence’ and cases that reflect the estoppel rationale that one may argue that abuse has acquired a subjective character. Art. as clarified in Bronner.   80   Case C-7/97 Bronner. cit. LEXIS 12049. who believes that the requirement of a market share equivalent to the dominant firm in Oscar Bronner is too strict. Hence.136 Antitrust as a complement to the patent system 77 It would seem difficult to justify a test of essentiality or practicability of duplication that was in any way less stringent than the tests of market power. 16th April.81 In addition. 82 applies an objective concept of abuse. cit. and it is necessary to expand the capacity of the facility to accommodate for the new user.79 Accordingly.   79   In general. the ‘facility connotes an integrated physical structure or large capital asset with the unique character that usually confers monopoly power and control by virtue of the superiority of its intended purpose. whether the facility has become an industry standard. Sidak. even if they are less advantageous for competitors. in this sense the industry standard consideration could militate in favour of finding of indispensability.80 any alternative technology must be assessed on the assumption that comparable assets would be invested for its development.B. Dist.’   77   Stena Sealink (1994) op. the dominant undertaking was not allowed to refuse access to it. it is argued. who believe that inherent in the notion of essentiality lies the premise that the owner of the facility possesses monopoly power. It is believed that once a service or product develops into a standard. 43-45. 1970 Trade Cas. (1999) op. Ideally. 1970.170. cit. would seem to be that duplication of the facility would be economically infeasible and the denial of use inflicts severe handicap on potential entrants in the market. .   81   Ibid. [1998] ECR I-7791.G. paras. See M. according to consumer preferences. and situations in which such significant risk is at hand and the application of the doctrine can potentially result in substantial efficiency gains. However. the EFD should not be applied simply if a firm finds it impossible to establish an EF. J.’ They also believe that the EFD is inappropriate in the following situations: where there is no monopoly power. (CCH) P73. Lipsky. some uniqueness and market control.   78   Lipsky and Sidak (1999) op.A. For example. that the criterion should be ‘able to distinguish between situations in which investments and other desirable behaviour might be jeopardised by its application. See also A.82 U. an IPR is involved. the lack of feasible alternative or ability to reproduce. b. and c. The Commission reasoned that as the 1860 brick structure had developed into an industry standard. the facility is not an indivisible unit. 483 (1996). It is interesting that both cases involved a national IP law that did not exist in the rest of the EU countries. it would be seen as exempting IP from something.792 Microsoft [2004] where a lower standard for indispensability was adopted. it was argued that those were not in reality alternatives. Accordingly. This would also be consistent with the AG Jacobs’ opinion in Glaxosmithkline on taking the regulatory context and other factors into account in the determination of abuse and objective justification. Admittedly if an IP of no merit is concerned. unjustifiably. even if they are less advantageous. as argued in Chapter 5. this should be remedied in the IP provisions. If it was controlled by competition law. The duty to deal under Art. it would be seen as addressing IP failures and not treating IP like other cases. See below. The perception that the laws in question were of limited value. and competition law should not be seen as correcting perceived IP regulatory failures. The dominant positions in both cases successfully invoked the national copyright law to drive the complainant out or prevent him from entering the business. the easier it may be for a facility to be deemed indispensable. if competition law merely controls it. Lunney. However. may have been a consideration that influenced the Courts to find the refusals abusive. stemming from IP or otherwise.83 On the other hand. 49 Vanderbuilt L. In IMS84 the ECJ confirmed that the test for determining the indispensability of a ‘facility’ or input relates to whether there are ‘products or services which constitute alternative solutions. on the ‘incentive/access paradox’. where there are significant sunk costs involved. para 28. The weaker the rationale for protecting the exclusivity of the facility. In this sense. While it was recognised that there may be less advantageous alternatives. Re-examining Copyright’s Incentive/ Access Paradigm. the alternative products or services’. the IP in question is not relevant in determining the effects of exclusion. then. the Commission Decision in Case COMP/C-3/37. the weak nature of the IP in question may be relevant after all. However see also G.   84   Case C-418/01 29 April 2004   85   Ibid. and was viewed with disbelief as failing to warrant IP protection. possibly in cooperation with other operators. there would arguably be no objection. the threshold of essentiality may be higher. but may be relevant as a matter of fact in the determination of essentiality/indispensability of the facility.85   83   This is an unspoken consideration that seems to have influenced the EU Courts and Commission in the Magill and IMS case. . See however. legal or economic obstacles capable of making it impossible or at least unreasonably difficult for any undertaking seeking to operate in the market to create. who posits that access is more likely to be precipitated in exactly those cases where the invention involved is important and deserving of the incentives. and whether there are technical. because of the effect of these laws on the market as they eliminate downstream competition. If competition law did not control it. Rev. 82 EC 137 or whether the intellectual property (IP) in question does not require or merit any incentive might militate (whether expressly or impliedly) in favour of a ruling of essentiality. or if the incentives to innovate are very important. 70 Antitrust L.3. in which it is either desirable to impose judicial regulation. 23–4.2 Two-market requirement Opinion is divided with regard to the question of whether there is a need for two markets. it would appear that it refers to a factual situation in which the important relationship is a vertical one between the monopolist and the user. and so emphasis should not be placed on the horizontal relationship. M. D. R. the focus is placed on the essentiality of the input.’ pp. D. as the facility concerns an unregulated natural monopoly for which overly high returns are not warranted (as they have not been achieved by merit or skill) and would lead to an inefficient allocation of resources (as it would attract too much investment to the detriment of regulated goods). If it is not vertically integrated it would again be inclined to limit downstream competition in order to reap a downstream price.138 Antitrust as a complement to the patent system 6. Patterson and Hooks. 847 (2002). The Essential Facilities Doctrine under US Antitrust Law.2. the denial might be present in both cases.87 It would appear that the effect of the denial of access is the same regardless of whether the firm is vertically integrated or not. Viewing the doctrine from this perspective directs attention to the situations. Leddy. J.   88   Given that the essential facilities doctrine refers to a situation where the users’ production or access to a market is impeded by the lack of access to the essential facility.88 If a firm is vertically integrated and unable to price discriminate. Gerber (1988) op. 70 Antitrust L. Marquandt. Patterson. Pitofsky. is controlled by a monopolist who could practically make access available.86 while others stress the necessity of the existence of two markets arguing that there is no obligation to create competition in one’s own market. and is not capable of duplication. J. The Essential Facilities Doctrine and Intellectual Property Rights: A Response to Pitofsky. 443 (2002).   86   R. either to increase market power or to maximise profits. it would be inclined to deny access as part of a predatory practice. Accordingly.J. The harmful effects on welfare are also present in this case. . Some argue against the need for two markets and focus instead on the competitive relationship between parties.   87   P. J. or the refusal to deal would be anticompetitive from a dynamic point of view. 2002. ‘The courts require only that the plaintiff prove that the facility is indispensable for competition in a relevant product market. Hence. The policy concern is simply to ensure competition in the market where the two parties could compete but for the refusal to provide access to the essential asset… the vital issue is whether a plaintiff has a competitive relationship with the alleged monopolist in the relevant product – not what the relationship is between the plaintiff and the defendant with regard to the asset alleged to be essential. irrespective of vertical integration. Pitofsky. cit. Thus whether the dominant firm is present on the downstream market also does not seem to be decisive for the purposes of the essential facilities doctrine. a competitive relationship would not be necessary and the issue of whether two markets are necessary is avoided. Hooks. Paper submitted to the European Commission in support of National Data Corporation in its essential facilities case against IMS. The Essential Facilities Doctrine under US Antitrust Law. the existence of unwarranted IPRs that lead to unreasonable monopolisations of the market may constitute an unspoken consideration in the determination of essentiality. the upstream is indispensable in as much as for supply of the downstream product. the analysis undertaken in the previous chapter supports the conclusion that IP. para 44.E. See also Dutch Telegraaf case (Decision of director-general Dutch Competition Authority 10 September 1998.   92   See J. cit. Killick (2004) op. it is sometimes impossible to characterise some markets as separate markets in an antitrust sense. 82 EC 139 as it would lead to the same effect if there was another sole downstream supplier.94   89   J.93 Furthermore. . cit.’90 Therefore. As it was contended earlier.3 Objective justification The third contentious issue relates to the scope of an objective justification. This should not be seen as competition law adopting a different threshold for IP. Should there be an Essential Facilities Doctrine.3.   91   Ibid. inability to pay (the foreclosed party is unable or unwilling to bear the monopolists’ costs of doing business that include not only the actual expenses. it adopted a wider definition which does not require two markets in the traditional antitrust sense: ‘it is sufficient that a potential market or even hypothetical market can be identified. In addition. and also in the case for research tools. and cases where access would interfere with the service of other customers. REV. In cases where weak IP laws are involved which grant an extra advantage in the market without justification.89 The conclusions drawn by the ECJ on the two market requirement in IMS should be seen in light of these considerations. A legitimate justification generally includes situations such as: the lack of capacity to supply or grant access. 327 (1988) p. Such is the case where the products or services are indispensable in order to carry on a particular activity…’.   90   IMS Case (2004) op. but also a reasonable return for the investment). The duty to deal under Art.   94   See Chapter 5.   93   D.91 If the criterion of a secondary market is the hypothetical one then effectively the threshold has been significantly lowered and it will be met in all or almost all cases. Ratner. cit.2. but rather as similar to the case in which an industry standard is involved as it will affect the application of the essentiality/ indispensability requirement. the essentiality benchmark may effectively be lowered. 382. but nonetheless there is a dependence situation as in the case of IMS. This effectively involves taking the specific regulatory and other contexts into account in determining indispensability. would not constitute an objective justification as this would amount to the exemption of IP from antitrust control. 21 UC DAVIS L. para 45. ‘It is determinative that two different stages of production may be identified and that they are interconnected. in itself. Troy (1983) op.92 6. . d. c. para. which is responsible for price differentials between the Member States. First. 105). para. given that they are themselves responsible for fixing prices within their territories (para.nl. 76. the common market and incentives to innovate.140 Antitrust as a complement to the patent system The recent opinion of Advocate-General Jacobs in GlaxoSmithKline95 sheds some light on the objective justification. and most importantly.   98   Ibid. the fact that end consumers of pharmaceutical products may not benefit in all cases from parallel trade and that public authorities in Member States. www.   97   Ibid. he concluded that a refusal to license which was intended to restrict parallel trade. Trade and Industry Appeals Tribunal. as well as the likely impact of unmoderated parallel trade upon pharmaceutical undertakings. the Advocate-General took the pervasive regulation of price and distribution in the pharmaceutical industry into account.792 Microsoft [2004] ‘Microsoft’s refusal cannot be objectively justified merely by the fact that it constitutes a refusal to license intellectual property’ (recital 712). and the effect of such trade upon consumers and purchasers of pharmaceutical products. given the economic characteristics of the pharmaceutical industry. LJN-number: AQ1727) in which the Rotterdam District Court decided that the existence of IPRs could not be used to establish an objective justification. 72.97 In this case. 2004.   99   Ibid. cit. para. b. See also Commission Decision in Case COMP/C-3/37. the regulation of the distribution of products which establishes nationally demarcated obligations upon pharmaceutical undertakings and wholesalers to ensure the availability of adequate stocks of those products. the potentially negative consequences of parallel trade for competition. 100. In addition. para.96 Secondly. cannot be assumed to benefit from lower prices. as the main purchasers of such products. insofar as he considers abuse and objective justification one question.rechtspraak. did not constitute an abuse and was capable of ‘justification as a reasonable and proportionate measure in defence of that undertaking’s commercial interests’. he stated that the question of abuse and justification should be dealt with together as a single issue.   96   Ibid.99 The Advocate-General’s opinion is illuminating insofar as it takes consideration of the broader context and specificities involved in line with the characteristics of the industry.o119 (Telegraaf v NOS/HMG).   95   AG Opinion in Glaxosmithkline (2004) op. The AG considered that this was the case due to the particularities of the industry as well as the fact that the case dealt with: a. the pervasive and diverse measures of State intervention in the pricing of pharmaceutical products. 15th July.98 Based on the particularities of these factors in the pharmaceutical industry. consideration of the economic and regula- 1/501. he considered that the specific and regulatory context can be taken into account in the determination of abuse and objective justification. 68. the Court stated that in order for the refusal to give access to an indispensable product or service to be treated as abusive three cumulative conditions must be satisfied: the refusal prevents the emergence of a new product for which there is potential consumer demand. cit. including indispensability. para. cit. as it will be shown in Chapter 7 this is important in view of the fact that access is sought at a stage where it is not known whether a new product will be developed.2.101 100   In the case of IP. Ladbroke (1997) op. This is likely to be crucial in finding in favour of a duty to deal where a weak IP is concerned. In biotechnology and specifically in the case of research tools. See Bronner (1998) op. did not make any reference to the new product rule. 101   IMS (2004) op. This differs from the Magill case. Bronner did not perceive it as an essential element of the test. cit. Hence. cit. it is only required here that there should be an ‘intention to produce a new product’ which one may also argue negates the very requirement itself. inasmuch as there is no actual or potential substitute in existence for that home-delivery scheme. Other cases however have not made reference to the new product rule or found it not to be decisive. cit. not only that the refusal of the service comprised in home delivery be likely to eliminate all competition in the daily newspaper market on the part of the person requesting the service and that such refusal be incapable of being objectively justified.100 6. Similarly. and it amounts to the exclusion of any competition on a secondary market. while Magill identified the new product requirement. 131. the Court further referred to the circumstances in which a refusal by a dominant undertaking to grant a licence (to use its IP) might constitute an abuse under Art.4 New Product Innovation In the IMS case. See also. this again does not amount to an exemption but rather to a consideration of the regulatory context that may include IPRs. See also Magill op. 82 EC 141 tory context should also be taken into account in determining abuse and its individual elements. Following Magill. for the Magill judgment to be effectively relied upon in order to plead the existence of an abuse within the meaning of Article 86 of the Treaty in a situation such as that which forms the subject-matter of the first question. The duty to deal under Art. para 41: Therefore even if that case-law on the exercise of an intellectual property right were applicable to the exercise of any property right whatever. para. it is unjustified. however. it would still be necessary. The Court in Ladbroke interpreted the prohibition on the refusal to deal as applying either in cases where the product or service is essential or in cases where a new product might be prevented despite ‘spe- . the Commission Decision in Microsoft (2004) op. 38 of judgment. but also that the service in itself be indispensable to carrying on that person’s business. On the other hand. 82 EC. as although the product was not yet in existence there was certitude as to its development and what it would involve. The Bronner case made no reference to the new product rule in its interpretation of the duty to deal. para. Therefore. even if it is as yet impossible to identify the new products that would be developed. para.102 There are two fundamental issues which should be noted with regard to the new product rule. as there may be a duty to deal where access to an input is required as a basis for further research and development. or even to state with certainty that new products would be developed. the refusal by an undertaking in a dominant position to allow access to a product protected by copyright. There may be significant implications arising from this broad definition. See however the Dutch Telegraaf case (1998) op. may be regarded as abusive only where the undertaking which requested the licence does not intend to limit itself essentially to duplicating the goods or services already offered on the secondary market by the owner of the copyright. but not a necessary one. the emphasis should not only be on the indispensability of the facility but also on the creation of a new product. 102   IMS (2004) op.103 Taking this argument to the extreme. 103   Unfortunately. it should be noted that the ECJ adopted a liberal definition of the new product. as it refers to ‘intention to produce new goods’ as distinct from their actual production. but intends to produce new goods or services not offered by the owner of the right and for which there is a potential consumer demand. strict adherence to the requirement would imply that the EFD is insufficient to capture the essence of the duty to deal under Art. thus applying the considerations of the ECJ in IMS. this may be seen as the departure from the essential facilities doctrine as this emphasis is not only placed on ‘indispensability’ but also on the ‘new’ product. cit. without analysing the new product requirement. constant and regular potential demand’ on the part of consumers. cit. The EFD did not contain a requirement relating to the new product. 82. cit. one could also argue that the reference to an intention to produce actually negates the very requirement of a new product. 693–701. . See Commission Decision in Microsoft (2004) op. Hence. in which the Commission briefly discusses whether the refusal ‘limits technical development to the prejudice of consumer’. where that product is indispensable for operating on a secondary market. The new product rule would accordingly be a sufficient ground for liability.142 Antitrust as a complement to the patent system This new product rule alludes to both consumer preferences and also to innovation and the need to promote new and efficient products. 51. in which the Trade and Industry Appeals Tribunal found that a refusal to license did not amount to an abuse of a dominant position as the television guide which Telegraaf sought to publish did not qualify as a new product as required in EC case law. particularly in the biopharmaceutical industry. cific. First. Secondly. to ‘enable’ further innovation. the Commission did not address the issue of this requirement in its Microsoft decision. 105 .106 Determining whether there are exceptional circumstances which amount to a risk of harm to competition requires a ‘comprehensive examination’. p. 107   Microsoft Commission decision (2004) op. the refusal is not objectively justified. that it is unjustified and such as to exclude any competition on a secondary market. the refusal prevents the emergence of a new product with a potential consumer demand. namely that the refusal is preventing the emergence of a new product for which there is a potential consumer demand. para. 4. 82 remains exceptional and only sanctioned within narrow limits. 53 ‘any obligation to deal pursuant to Article 82 EC can be established only after a close scrutiny of the factual and economic context. Oscar Bronner: Legitimate Refusal to Supply. the duty to deal under Art. It confirmed that ‘in order for the refusal by an undertaking which owns copyright to give access to a product or service indispensable for carrying on a particular business to be treated as abusive.3 Conclusions As recently confirmed in EC case law.’ 110   N/e/r/a. as industry-specific characteristics may be decisive in establishing indispensability and objective justification. 3.110 It should be recalled that the decision provided that the defendant should make the port available to the rival ferry service.104 It is applicable where the refusal to license leads to harm to competition.107 In addition. 82 EC 143 6. 53. The events that followed showed that the latter did not avail of this option and instead chose to 104   AG opinion in Glaxosmithkline (2004) op.com. the refusal effectively excludes all competition on the secondary market. it is sufficient that three cumulative conditions be satisfied. The case law clarifies that the duty to deal remains limited to situations in which: 1. rather than to a specific competitor105 or to the restriction of parallel trade. para. cit. Sea Containers.109 The aftermath to the Sealink decision underlines the importance of considering alternatives and avoiding an over-eagerness in finding something ‘essential’. the product or service is indispensable for carrying on a particular business. at www. cit. IMS (2004) op. 106   See Glaxosmithkline (2004) op. cit. 1999. cit. The duty to deal under Art. 108   AG opinion Glaxosmithkline (2004) op.108 This is important. the regulatory and economic context needs to be considered. para. 3.nera. cit. cit.’ 109   IMS case (2004) op.   See Bronner (1998) op. cit. Competition Brief. 2. 555–558. it is important not to dismiss the alternatives too easily. in the words of paragraph 38 of the judgment in IMS Health. p. being too readily persuaded by the claimant claims as to the essentiality of the facility.   Ibid. It is also important not to encourage competitors to rely on the dominant firm’s facilities but rather to encourage them to develop new and innovative services themselves.111 It therefore becomes clear that in imposing any obligation to deal. 4. It is likely that the essential nature of a product is overstated and thereby found essential. that it is not yet clear whether the conditions laid down by the Court in IMS are necessary or merely sufficient to impose liability for refusal to deal. that it is unjustified and [that it is] likely to exclude all competition on a secondary market. however. cit. however. At the time. that question cannot be resolved at the interim relief stage. 82. 206: ‘Clearly. that the Court of Justice has held. the Commission had dismissed this as an alternative. even though it might not have been more than an inconvenience to the competitor. It would rather seem to be more appropriate in this case to refer to a more generally phrased duty to deal in cases of indispensable ‘facilities/inputs’ which also prevent potential ‘new’ products from entering the market.”’ 112 . 113   IMS Case (2004) op.144 Antitrust as a complement to the patent system operate a service to Ireland from Liverpool rather than Holyhead. It should be noted. It should be pointed out. “that that refusal is preventing the emergence of a new product for which there is a potential consumer demand. 114   This debate is reflected in the Order of the President of the CFI 22 December 2004 (1) (Proceedings for interim relief – Article 82 EC) Competition Microsoft v Commission Case T-201/04 para.112 In conclusion. that “it is sufficient”. 114 111   Ibid. in order for “the refusal by an undertaking which owns a copyright to give access to a product or service indispensable for carrying on a particular business to be treated as abusive”. the introduction of the new product rule as a prerequisite for liability113 leads to a reconsideration of the applicability of the EFD in this context and the extent to which it is the appropriate term to capture to the essence of the duty to deal under Art. Commercial Solvents (CS). as it was particularly concerned about vertical integration. which required a high level of know-how and for which barriers to entry were high. it was not clarified whether this order was made to protect the interests of Zoja or the consumer. was the world’s only producer of an industrial scale raw material which was used to produce ethambutol. The ECJ upheld the finding of abuse. CS took the decision to integrate down the market vertically and produce the drug itself.1 Commercial Solvents: Refusal to supply input to downstream competitor in vertically related market/ to preserve power in market B The first case in which a refusal to supply was found to constitute an abuse of a dominant position contrary to Art. 82 Box 6. who ordered minimum quantities be supplied. Zoja was one of the three main manufacturers of ethambutol in the common market and had asked to be released from the contract. Finally. however. Zoja complained to the Commission. However.115 The defendant. . The latter refused to supply Zoja with the raw material and instructed the other companies who received the supplies not to sell it on to Zoja. 82 EC was Commercial Solvents. an important drug in the treatment of tuberculosis. The duty to deal under Art. Market A: Raw material D Long-standing customer  Vertical Integration Market B: Ethambutol P 115 D   Case 7/73 ICI and Commercial Solvents v Commission [1974] ECR 223. 82 EC 145 Appendix  The Refusal to Deal Cases under Art. when it became impossible to buy the drug elsewhere. even if he was a competitor. as it would eliminate competition from one of the principal manufacturers in the market. It held that the decision by a dominant firm to vertically integrate did not justify the refusal to supply a long-standing customer. Zoja requested CS to begin supplying the raw materials again. and an unreasonable means to protect its own interests. To what Extent can Art 86 be used to compel dominant undertakings to supply competitors? at www.co. also Boosey & Hawkes OJ [1987] L286/36. but had none the less refused to supply Zoja. See.jumper. if the failure to supply would lead to the elimination of a significant competitor in the market. Therefore.146 Antitrust as a complement to the patent system The ruling in this case thus imposes an obligation to grant a licence to existing customers. in which the Court held that BP had not abused its dominant position during the 1973 oil crisis. as it was believed that CS would have refused to license. even 116   R. even in this case. however. 119   See BP. p. in response to the latter’s initial preference of another upstream supplier? It is probable that.118 If the conduct of CS were to be deemed to be proportionate and reasonable. but such measures must be fair and proportional to the threat’. fearing that dominant firms in the production of raw material would use their power in an upstream market to gain power in a related downstream market.demon.uk/comm8a.htm. what constitutes a legitimate objective justification and in what cases is it proportionate?119 The Court did not provide any guidance on the latter questions. Benzine en Petroleum Handelsmaatschappik BV and others v Commission [1978] ECR 1513. CS would have been forced to supply as it would have been found to have been a disproportionate response to the conduct of Zoja. with the possibility of also monopolising that market. shaping the market in line with its structural objectives. . however. when it reduced supplies significantly more to the complainant than to its regular customers. where the Commission stated that ‘a dominant undertaking may always take reasonable steps to protect its commercial interests. 118   See also Case 27/76 United Brands v Commission [1978] ECR 207. 3. However. Grosvenor. it took an interventionist approach. beyond its mandate to protect the interests of customers and competitors. on the issue of proportionality. This conduct was justified as reductions were relative to the oil shortage. 117   Ibid. then it could have also qualified as an objective justification for the refusal to supply.117 The decision. How would the court have ruled if CS had not chosen to integrate vertically. Case 77/77. makes a clear appeal to the need to protect the interests of consumers so that conduct that may ‘directly or indirectly prejudice’ them by impairing the competitive structure will be found abusive.116 The case supports the view that consumer interests are served by having as much competition as possible in the final market. The ECJ seems to have been particularly wary of vertical integration. The duty to deal under Art. 82 EC 147 without the initial cancellation of Zoja and stressed that vertical integration cannot be used to justify the elimination of a principal manufacturer. Box 6.2 United Brands: Refusal to deal with a distributor promoting a competing brand to reserve market power in A The next case that arose involving a refusal to deal was United Brands.120 The defendant had reduced supplies to Olesen, a longstanding customer (distributor/ ripener) of bananas, because he had taken part in an advertising campaign for a rival brand, Dole. United Brands (UB) argued that the complainant was pushing Dole bananas at the expense of Chiquita bananas. The Commission was concerned that if such conduct were permitted, it would discourage other distributors from advertising and promoting other brands. ‘In this manner UBC succeeds in keeping its principle distributor/ripeners within its own marketing network and in preventing competitors from having access to them, thus denying to such competitors the essential facilities which they may require in order to ripen their bananas before sale.’ The ECJ advised that an undertaking in a dominant position ‘cannot stop supplying a long-standing customer who abides by regular commercial practice, if the orders placed by this customer are in no way out of the ordinary’.121 Market A: banana production D and Competitors Long-standing customer Market B: distributors/ripeners P The argument that Olesen was selling a competitor’s product and neglecting the sale of UB’s product did not justify a failure to supply. The reduction of supplies was found to violate Art. 82. The ECJ stressed that a dominant undertaking can only take reasona- 120   Case 27/76 United Brands v Commission [1978] ECR 207.   Ibid. para. 182. 121 148 Antitrust as a complement to the patent system ble steps to ensure that its produce is properly sold. Hence, the Court seems to be raising proportionality requirements again in this case, as the right to protect one’s own commercial interests is only justified if the action taken is reasonable and appropriate. In considering the proportionality of this type of sanction, the economic strength of the undertakings at stake will be taken into consideration. Any attempt to extend and abuse the dominance of the firm will be found to have violated Art. 82. This is also in line with the requirement that the justification must be objective. It is unclear, however, what steps UB could have taken in this instance to defend its legitimate interests. It is important to distinguish between the requirement of equal treatment in relation to a distributor’s sales policy,122 and the actual restriction of competitors from access to the distributor’s marketing networks—the so-called ‘essential facilities to ripen the bananas’. However, had UB crossed this line? It appears that the Court was also concerned about the independence of SMEs, which allows them to preserve their business interests and determine their own sales policy. A restriction upon a firm’s right to participate in the advertising of a supplier would effectively hamper the actual sales of other brands, as well as the buyer’s freedom to decide its business interests. The arbitrary interference in the management of Olesen’s business had resulted in serious damage, and if the Court had found in favour of the behaviour of UB, it would have strengthened its bargaining position even further and effectively allowed UB to indirectly discourage the promotion of competing brands. However, would this factor not exist in most cases? One might argue that the Court chose to uphold the business interests of Olesen, but denied UB the right to enforce its respective business interests. Nevertheless, as it has been repeatedly recognised, dominant undertakings are under more onerous obligations,123 as they also have more potential for abuse, and more commercial 122   In effect, it could be argued that it was as if the Court was applauding the actions of Dole leading to Olesen treating him favourably, but not those of UB wanting to be treated equally. 123   See Case 322/81 Michelin v Commission [1983] ECR 3461 on special responsibility. See also Case C-333/94 Tetra Pak v Commission [1997] 4 CMLR 602, where the dominance in one market and the close links with another market gave the latter a ‘freedom of independence of conduct compared to the other economic operators such as to impose on it a special responsibility under Art. 82 to maintain genuine and undistorted The duty to deal under Art. 82 EC 149 bargaining power. In this light, the Court sought to encourage SMEs to make their own commercial decisions, uninfluenced by threats of large and more powerful companies, and to discourage the latter companies from exerting this type of pressure in the first place. The Commission and Court seem to have paid particular attention to the fact that the market for bananas had many barriers to entry; as UB was vertically integrated to a large degree, from plantation to marketing, it controlled the sources of supply and was able to guarantee regular supplies to competitors. It is also worth noting, moreover, that by providing a requirement to supply long-standing customers, the Court was in effect setting a general rule prohibiting a refusal to supply unless justified, irrespective of the fact that competitors were not an issue and that there was no possibility for leverage as in the Commercial Solvents case.124 Hence, this case seems to provide a more general and broader obligation not to go against a pattern of dealing, by refusing to license a long-standing customer, regardless of the rationale. Hence, in the case of a refusal to supply, an objective justification would seem to be necessary in order to escape liability, and while the Court did not provide guidelines on what constitutes such a justification, it appears that the requirements of reasonableness and proportionality will be strictly applied. It should be remembered, however, that the behaviour of UB was also found abusive, as there was evidence of price discrimination and a restriction on the resale of green bananas, resulting in the segmentation of the market in practice. As integration was an important consideration at stake, the Court was determined not to allow any possibility for discrimination along national boundaries, and therefore its strict ruling against the refusal to supply may have been influenced by its condemnation of price discrimination and its desire to prevent any perceived barriers to integration.125 competition on those markets’. V. Korah, Competition Law of the European Communities, 2nd edn, Lexis Nexis (2001). 124   In this case, the parties only had a vertical relationship, and not a horizontal one of competition as in the ICI and Commercial Solvents v Commission 7/73 [1974] ECR 223. 125   For a critique of the unclear economic rationale of the Court’s condemnation of price discrimination, see L. Zanon di Valgiurate, Price Discrimination Under Art 86 of the EEC Treaty: The United Brands Case [1982] Internat’l and Comparative Law Quar- 150 Antitrust as a complement to the patent system Box 6.3 Hugin: No effect on trade The Hugin126 case involved Hugin’s refusal to supply spare parts to its former exclusive distributor in the UK which were needed to repair and maintain the large numbers of Hugin cash registers that it rented out. The Commission ruled against Hugin, using a similar rationale to the previous case, as it was concerned for the interests of consumers and the preservation and independence of SMEs. The Court, however, did not find any infringement of Art. 82, as the firm only operated locally and therefore there was no effect on trade. Box 6.4 IGR: Refusal to license an essential facility? IGR Stereo-Television127 involved the refusal of a firm, IGR, the proprietor of patents for stereo receivers which were necessary for providing German television sets with stereo reception, to license non-members (or the plans to license at a later stage along with restrictions on quantity), and the use of the patent rights to prevent a Finnish company, Salora, from supplying stereo TV sets which required a patent licence. The Commission found that the conduct constituted an abuse of a dominant position that could not be justified on the basis of patent rights. Compulsory licensing was not imposed, however, despite the Commission’s willingness to impose it, as IGR agreed to grant a licence to Salora without limitations after the initiation of proceedings. Market A: Patents for stereo receivers D New entrant Market B: TV manufacturing P terly 37. The author states that that ‘the judgment appears more akin to those laws aiming at the protection of existing competitors rather than of competition itself.’ p. 53. 126   Hugin v Commission Case 22/78 [1979] ECR 1869. 127   IGR Stereo Television EC, Comm XIth Competition Policy Report, 1982, p. 63. The duty to deal under Art. 82 EC 151 In this case, the Commission was concerned with the control by a firm in an upstream market of a downstream market, regardless of the rationale behind this control, or whether it was due to an IPR or otherwise. This case is similar to the previous cases, and again, it concerned a vertical relationship. It differs, however, from the previous cases as there was no previous relationship between the parties, and therefore there was no consideration of the long-standing relationship or the pattern of behaviour. The refusal to license the Finnish company effectively prevented a new entrant into the German market of TV manufacturing. The obligation to license or supply was hence extended by the Commission, to situations beyond those involving existing dealers, requiring dominant firms to take affirmative action to ensure that competition is allowed to take place in all markets on which they have an influence.128 Box 6.5 Telemarketing: Tying/ Refusal to deal with suppliers dealing with competitors/ to preserve market power in B In the Telemarketing case,129 a subsidiary of Radio and TV Luxembourg refused to accept advertisements from advertisers who had not used the telemarketing services of its associated phone-in marketing company when it sought to enter the field. The Commission treated this as a case of tying, and held that ‘there is an abuse of a dominant position where an undertaking which occupies a DP on a market and which is thus able to control the activities of other undertakings on a neighbouring market decides to establish itself on the second market and for no good reason refuses to supply the product or service in question on the market where it already occupies a DP to the undertakings whose activities are centred on the market which it is penetrating’. The ECJ treated the case as a refusal to supply and found that Art. 82 applies even where dominance is due to some legal provi- 128   R. Subbiotto, The Right to Deal with Whom One Pleases Under EC Competition Law: A Small Contribution to a Necessary Debate, 9 ECLR 234 (1992). 129   Case 311/84 Centre Belge d’Etudes du Marché-Télémarketing SA (CBEM) v Companie Luxembourgeoise de Télédiffusion [1985] ECR 3261. it held that Art. While the case the Court referred to liberalised companies by virtue of Art. 82 applies even where dominance arises from provisions enshrined in law. and (d) with no objective necessity. this also implies the same attitude for IPRs. (c) with the possibility of eliminating all competition from such undertaking. which are also granted by law. First. The case might also be seen as a refusal to deal with suppliers (for example advertising as in this case) which dealt with competitors on a secondary market (such as answering services) to preserve market power in the latter market. . the Court and Commission were particularly concerned about the existence of related markets. in the present case. and the possibility of extending market power from an upstream to a downstream market with the possibility of eliminating competition. it appears that in the present case. (b) the reservation of an ancillary activity. with the possibility of eliminating all competition from such undertaking. seem to include: (a) the existence of a dominant position. Secondly.152 Antitrust as a complement to the patent system sions providing for limited or no competition. The requirements for an abuse would hence. 90(2). Market A: TV D Vertical integration Market B: Answering services D Competitors Market C: Telemarketing P The judgment is significant for several reasons. thus far. An abuse is committed where an undertaking holding a dominant position on a particular market reserves an ancillary activity without objective necessity to itself or to an undertaking belonging in the same group which might be carried out by another undertaking as part of its activities on a neighbouring but separate market. It also stated that the same applies where an undertaking has a dominant position on the market for a service that is indispensable for another undertaking on another market. as it refers to a factual situation. the fixing of prices for spare parts at an unfair level or a decision no longer to produce spare parts for a consumer model even though many cars of that model are still in circulation’ provided that such conduct may affect trade between Member States. in the absence of harmonisation ‘the determination of the conditions and procedures under which protection of designs is granted is a matter for national law’.130 Volvo had used its design rights in the UK to restrain Veng from importing wing panels of Volvo cars from another Member State. in its defence. Veng. Nevertheless. Consequently. 82 in certain cases. rather. 82 EC Box 6. 82 if it involved ‘certain abusive conduct such as the arbitrary refusal to supply spare parts to independent repairers. Advocate-General Mischo concluded that the right to restrain third parties from exploiting the design constitutes the very subject matter of the exclusive right. argued that Volvo’s refusal to license spare parts for Volvo motor carts constituted an abuse of a dominant position. this would also 130   Volvo v Veng (UK) Ltd Case 238/87 [1988] ECR 6211. The ECJ refused to rule against the injunction imposed on Veng. it also clarified that their exercise could be limited by Art. It alleged that there had been an infringement of its registered design. . Market A: Car manufacturer and spare parts D Registered design rights on replacement body panels Market B: Repair of car/replacement parts P The case highlighted that a dominant position does not arise only by virtue of the existence of exclusive rights. the ECJ held that an order for the granting of a licence would deprive the right of the substance of its exclusivity and that a refusal to license did not constitute an abuse of that right. Whilst the Court emphasised that.6 Volvo: Refusal to share spare parts with independent providers of aftermarket support Another case which involved a refusal to supply was Volvo v Veng. it added that the exercise of a holder’s exclusive right might be prohibited by Art. 153 The duty to deal under Art. as it sought to enter the London–Brussels route. in particular as the CRS was essential for operating in the market and its access would have to be granted on the basis of objective criteria and of the competitive (or anti-competitive for this matter) strategies of the controlling company. 131   Commission Decision London European-Sabena.131 Sabena. It also took consideration of the fact that the refusal to grant access was not based on a lack of capacity.154 Antitrust as a complement to the patent system depend on the absence of substitutes. and it was therefore treated by the Commission as an abuse. but on a desire to prevent the competitor from entering the market. OJ 1988 L 317/47. Box 6. which consisted of refusing access to an essential service. competing with it on the fare rates. However. as the dominant firm in the market for computer reservation services (CRS) in Belgium. .7 Sabena:  Denial of access to a facility to downstream competitors which is necessary to compete/ to preserve market power in market B In London European/Sabena. Market A: Computer reservation services D Market B: Flights/London-Brussels route D P The Commission was paving the way for the essential facilities doctrine. the Court’s reference to ‘arbitrary refusal to supply spare parts’ does not address the question of when such a refusal will be deemed arbitrary. Sabena’s operations on both markets opened the possibility for leverage. refused access to its CRS to London European. clarifying that the existence of an IPR is not concomitant with dominance. The refusal prevented London European from covering this route. Market A: Navigation signals D© Essential for operation on downstream market Market B: Receivers D P In this case. 82 EC Box 6. as navigation signals were essential to all receivers. There was no potential competition on the market for the signals. 155 The duty to deal under Art. OJ 1989 L 43/27. The recurring pattern seems to involve a firm which is dominant on the upstream market and is also present on the downstream market in which another firm seeks to enter or continue to operate. access to the upstream product or service is necessary to compete in the downstream market.8 Decca: Essential Facilities? Denial of access to a facility to downstream competitors that is necessary to compete/to preserve market power in market B In Decca Navigation Systems. whereas with the agreement and the change of frequencies in the signals. The Commission believed that such action would lead to a negative impact on consumers as it would limit their freedom of choice. as Racal had entered into an agreement with competitors to partition the market for commercial and pleasure boat receivers. other considerations might also have influenced the Commission. Abuse was therefore found on the basis of use of power on the market for signals to foreclose and limit the access of third parties 132   Commission Decision Decca Navigator System. As in the case of IGR TV. .132 Decca refused to grant access to its navigation signals that were protected by copyright to users of non-Decca receivers. The Commission found that this constituted an abuse of a dominant position. the emphasis seems to be on the exclusionary behaviour on a secondary market. DNS-compatible receivers for commercial use enjoyed a de facto monopoly. and hence Decca was under a positive duty to grant access to other receivers. regardless of whether dominance was due to or associated with the IPR. rather than fostering innovation. 135   Commission Decision British Midland/ Aer Lingus. the Commission seems to have been influenced by the following factors: (a) there was an agreement between competitors allocating the markets. 134 .135 the two companies had an interlining agreement. It also clarified that IPR do not enjoy immunity from the competition provisions: ‘The Community system of competition does not allow the improper use of rights under national copyright laws which frustrate Community competition law’. A disproportionate sanction? In British Midland/Aer Lingus. The Commission found that such a withdrawal constituted an abuse 133   Ibid. Regarding the copyright in question which aimed to partition the market. as its patents on the receivers had lapsed and there was no ‘legal property in the transmission of signals.156 Antitrust as a complement to the patent system to the market for receivers. Box 6.133 It seems that the Commission was also concerned about the possibility of extending the legal monopoly (of the patents) after they had lapsed. which involved issuing tickets reciprocally on behalf of the other airlines.9 Aer Lingus: Refusal to continue joint venture with competitor. para. When BM began to compete on a specific route with AL (the Dublin–London route).134 Hence.   Ibid. the latter decided to end the interlining agreement. 104. which is the service supplied but only in the equipment (chains)’. in its finding of abuse. OJ 1992 L 96/34. The Commission also found that Racal (DNS) did not have any legitimate property interests. (c) it was acting against the interests of the consumers. thereby also affecting consumer interest. para. which rendered BM flights less attractive. 104. (b) it impeded competing receivers resulting in a de facto monopoly. it was not found to justify ‘farreaching restrictions on competition’. and (d) there was no justification for this conduct as it eliminated innovative competition and limited technological and economic progress. 138 136   See Commission Speeches on short-term benefits. Boosey & Hawkes and United Brands as cases of dependence rather than essential facilities.co. 1998. 82 EC 157 and fined AL. Grosvenor. or joined with competitors to enter into competition with their “supplier”. in http://europa. They were all cases of retaliation by dominant firms against customers who either entered into.jumper. He refers to the notion of economic dependence of some Member States. ‘Network externalities magnify disadvantages of exclusion.eu. . recognised that new entrants should not be allowed to operate on their competitor’s networks forever. The Commission. however. EC Competition Law and IPRs: The Regulation of Innovation.html.eu. specifically referring to airlines’ interlining.html which refers to cooperation between competitors that might be essential to carry out certain operations. The author proposes that we should develop a concept of partenaire obligatoire so that there is an abuse if the dependent company cannot substitute. 138   Anderman. The duty to deal under Art.uk/comm8a. 86 can apply even if the degree of dominance is such that there are some alternative sources of supply and the legal test is one of objective justification and proportionality for the dominant undertaking’s use of the sanction of refusal to supply as a punishment’. but instead should be encouraged to develop their own and therefore only imposed the interlining agreement for a period of two years. To what extent can Art 86 be used to compel dominant undertakings to supply competitors? at www.demon. hinder the maintenance of competition’. Exclusion would be hard to justify.int/comm/ competition/speeches/text/sp1996_0542_en. and reduce the viability of otherwise essential competitors. In such a situation Art. unless admission would reduce the efficiency of the network. Both the refusal to grant new interline facilities and the withdrawal of existing interline facilities may.’ p.htm. 17. depending on the circumstances. See also T. Nacke Abuse of Dominant Positions.int/ comm/competition/speeches/text/sp1995_025_en. where more participants is considered better as there is usually only scope for one system. 202. pp. 1995 at http://europa. 137   R.137 It has been suggested that it might be more ‘helpful to characterize Aer Lingus. p. The Commission also referred to ‘… objectively likely to have a significant impact on the other airline’s ability to start a new service or sustain an existing service in account of its effects on the other airline’s costs and revenue…’.136 It stated that ‘refusing to interline is not normal competition on the merits … the argument that interlining would result in a loss of revenue would not of itself make the refusal legitimate. if it is likely to deter new competitors and if the company’s behaviour is not constrained by competition in the wider downstream market. 4–5. in which a company has market power but is not dominant. as it would create a category of second-class competitors. S.158 Antitrust as a complement to the patent system Box 6. Kallaugher. There was indeed a double monopoly as both the upstream and the downstream market were monopolised by the defendant and not through his skill and merit. OJ 1994 L15/08. The Commission therefore imposed more onerous obligations on the owner of the facility who had to negotiate as an independent standard operator. that the standard of an independent operator was perhaps imposed here as the case involved a natural monopoly. it appears that here the requirements for an obligation to grant access on a non-discriminatory basis would include: (a) an essential facility controlled by a dominant undertaking. The Commission imposed a strict duty of non-discrimination as the owner of the facility had to satisfy the dual role as administrator and operator of the facility.J.140 139   Commission Decision Sea Containers v Stena Sealink. This involved a port owner who refused to give access to a new ferry service. Market A: Port owner D Market B: Ferry service D P In the present case. For the first time.   It should be noted. as it competed with its own ferry service from Holyhead to Ireland. however. It would seem again that the rationale was the fear of extending power from an upstream market in which the defendant is dominant to the downstream market. Venit and J. and that the denial of access was not based on an objective justification. holding that the port constituted an essential facility. the Commission explicitly referred to the essential facilities doctrine. and that the owner had to offer access to competitors and customers on a non-discriminatory basis. (c) no objective justification. Essential 140 . (b) denial of it to a competitor or access on less favourable terms.10 Sea Containers: Essential facilities? Refusal to grant access to a facility to a competitor/to preserve market power in B Sea Containers v Stena Sealink139 also seems to follow the same pattern of the previous cases. J. and not just on reasonable grounds. The duty to deal under Art. 82 EC 159 Box 6.11 Magill: Essential facilities/ Refusal to supply input to downstream competitor/to preserve market power in market B The next case that led to significant debate on the dominant firm’s obligations to deal with competitors and the compulsory licensing of IPRs was the Magill case.141 The case involved the monopolisation of the weekly TV programme magazines. Three channels, RTE, BBC and ITP, each published their respective weekly listings for their TV programmes. These were sent to newspapers and magazines free of charge who were allowed to publish daily TV programmes one day in advance during the week and two days in advance at weekends. The TV listings were protected by copyright law. There was no comprehensive weekly guide published for all channels and injunctions restrained Magill from publishing a comprehensive weekly TV magazine. As a result, a complaint was made to the Commission. In this case, the ECJ stated that although mere ownership of an IPR cannot confer a dominant position, the broadcasters had a factual monopoly over the basic information that was required by a third party; they had complete control over the raw material for weekly TV guides. Therefore, they were deemed to be in a dominant position. The ECJ also held that the exclusive rights of reproduction form part of the rights of a copyright holder and that a refusal to grant a Facilities: A Comparative Law Approach, in Hawk ed., 1994, Fordham Corp. L. Inst. 315 (1995). Hence, it might reflect concerns about liberalised industries and the possibility for leverage and extension of power on secondary markets, with the possibility of eliminating competition on such markets, or to evade regulation in the upstream market by extending power in other unregulated markets. ‘In Europe important sectors of industry are being deregulated or at least liberalized by the EU. These measures would be of little value if the companies concerned, most of which are dominant in their own areas, were free to integrate forward and to discriminate in favour of their own downstream operations. Regulated or state-owned companies often own facilities that are essential for all or most of their downstream competitors. The essential facilities principle is in effect the follow-up of Art 90 of the EEC Treaty.’ J.T. Lang, Defining Legitimate Competition: Companies’ Duties to Supply Competitors and Access to Essential Services, 1994, Fordham Law Inst. 245. 141   Case C-241 and 242/91P Magill [1995] ECR I-743. 160 Antitrust as a complement to the patent system licence cannot in itself constitute an abuse. However, the exercise of exclusive rights may amount to an abuse in exceptional circumstances. It was relevant that the refusal to supply the raw information prevented the emergence of a new product for which there was substantial demand. Secondly, the refusal was not justified and, thirdly, through their conduct, the broadcasters had reserved to themselves a secondary market excluding all competition on that market, as they had denied access to the basic information to the public, the raw material that was indispensable for the creation of such a guide. The Court also highlighted that the case was not concerned by the differences in granting IPRs by Member States, but at the same time it emphasised that it was wrong to assume that conduct consisting of the exercise of copyright which is legitimate under national law cannot be reviewed under Art. 82. It confirmed that the Commission had the power to impose compulsory licensing (as it was the only way to bring an end to infringement), and that for effect on trade potential effect is enough. Market A: TV listings/ programme information © D Market B: Weekly programme listings and weekly D P TV publications (including non-listings material) The impact of Magill largely depends on its interpretation. Two interpretations may be made of the ECJ’s requirement of exceptional circumstances. The narrow requires both the prevention of a new product for which there is significant demand, and that IPRs are linked to essential inputs for a secondary market. The broad interpretation states that the essential input in a secondary market is sufficient, thus placing positive duties on IPR holders.142 Thus, on the position regarding a refusal to license, the impact of Magill depends on whether one views the exceptional circumstances as consisting of two separate rules (the new product rule and the essential facility rule) or as one cumulative one. Evidence of the fact that it constitutes one rule can be found in para. 57 of the judgment 142   S. Anderman, EC Competition Law and IPRs: The Regulation of Innovation, Oxford University Press (1998). 161 The duty to deal under Art. 82 EC in which the Court found that ‘in the light of all those circumstances the Court of First Instance (CFI) did not err in law in finding that the appellant’s conduct was an abuse of a dominant position within the meaning of Art. 86 of the Treaty’.143 Box 6.12 Ladbroke: The absence of a competitive relationship/ Refusal to license input/ Essential facilities In the case of Tierce Ladbroke v Commission,144 the CFI held that the judgment in Magill did not apply to the refusal by the copyright holders of French horse racing to grant Ladbroke a licence to show the races in its Belgian betting shops. The relevant market was defined as the sound and picture of horse racing in general in Belgium. Ladbroke argued that the conduct of the copyright holders was discriminatory as it had licensed the French horse racing to other countries. The CFI rejected this argument, however, as the refusal could not have been discriminatory in the absence of competition in the relevant market, notably Belgium. It also believed that this did not result in the partitioning of the common market as the pattern of demand showed that the markets were divided along national lines and not as a result of the right holders’ licensing policy. Furthermore, the latter did not operate nor had they granted a licence to other operators in Belgium. Market A: Broadcasting coverage of horse racing © D Market B: Operation of betting shops P The Court also strictly distinguished the case from Magill, as in the present case, Ladbroke was not even present on the market let alone enjoyed a monopoly. The CFI explained that for a duty to deal to arise the product must either be essential or it must involve a new product. While the broadcasting was ‘an additional and suitable 143   Magill case, op. cit., Judgment of the Court, para. 57.   Case T-504/93 Tierce Ladbroke v Commission [1997] ECR II 923. 144 162 Antitrust as a complement to the patent system service for bettors’, it was not indispensable to the main activity, in other words, to the taking of bets, nor did it constitute a new product. Ladbroke showed other races on screen, and its betting activity was very strong even without a licence to the French horse races. The case is important as it offered a broad interpretation of Magill in the wider way, holding that the new product rule and the leverage rule were separate, rather than cumulative. However, it should be noted that this is not an authoritative interpretation of Magill, as it was discussed obiter dicta. The case also reflects how market definition is crucial in deciding whether an IPR holder has abused its dominant position by refusing to license a product.145 Box 6.13 Bronner: Refusal to grant access to a distribution system to an upstream competitor/ Refusal to share methods to reach customers/Essential facilities?/To preserve market power in market A Oscar Bronner v Mediaprint146 involved the obligations of a dominant newspaper firm to grant access to its nation-wide home-delivery service of daily newspapers to Mediaprint, a newspaper of smaller circulation. It was held that the access to the home-delivery system was not indispensable and, therefore, it was found that no abuse had occurred. The case displays a narrow interpretation of the doctrine of a refusal by a firm that was not in the public sector to grant access to an essential facility.147 Market A: Newspapers D P Market B: Home delivery service D 145   The CFI spoke in terms of ancillary markets that were not independent of the main market and not of sub-markets as in Magill, but it is not clear what the term signifies. See Fitzgerald, Magill Revisited EIPR 154, 1998. 146   Case C-7/97 [1998] ECR I-7791. 147  V. Korah, Competition Law of the European Communities, 2nd edn, Lexis Nexis (2001). The duty to deal under Art. 82 EC 163 The Advocate-General explained the doctrine applied in cases where a dominant firm in the provision of facilities for the supply of goods or services on another market abuses its dominant position by refusing access to those facilities without objective justification. This involves cases in which a dominant firm is obliged not merely to refrain from anti-competitive activity, but also must actively promote competition by allowing potential competitors to have access to the facilities that it has developed. He also acknowledged the importance of the right to choose one’s trading partners, the need to preserve the incentive for a dominant position to invest, and that the primary purpose of Art. 82 is to prevent distortion of competition and to safeguard the interests of the consumers rather than protect the position of particular competitors. He observed that reserving oneself to the downstream market ‘will not have an adverse impact on consumers unless the dominant position is sufficiently insulated from competition to give it market power’.148 With regard to IPRs, the Advocate-General stated that in the absence of other factors, the refusal to license does not in itself constitute an abuse, and recognised that a wide duty to provide access would have a harmful effect on the incentive to make the original investment, particularly bearing in mind that duplication of the facility was possible and the difficulty of the courts in establishing the amount of compensation. There should be a real stranglehold on a related market before a duty to license is imposed, for example if ‘duplication of the facility is impossible or extremely difficult owing to physical, geographical or legal constraints or is highly undesirable for reasons of public policy. It is not sufficient that the undertaking’s control over a facility gives it a competitive advantage.’149 He also noted that the test must be objective: ‘it must be extremely difficult not merely for the undertaking demanding access, but for any other undertaking to compete’.150 The Court upheld the Advocate-General’s decision in the sense that the refusal must be likely to eliminate all competition in the market, it must be incapable of being objectively justified, and the service in question must be indispensable to carrying on that person’s business, inasmuch as there is no actual or potential substitute in existence for that home-delivery scheme. ‘For such 148   C 7/97 Oscar Bronner, A-G Jacobs Opinion, ECR [1998] I-07791, para. 58.   Ibid. para. 65. 150   Ibid. para. 66. 149 46. The Bronner Case—A turning point for the Essential Facilities Doctrine? 21 ECLR 59 (2000) who believes that if such a high standard is applied without consideration of the specific circumstances.152 151   Oscar Bronner op. there was no objective justification for refusal. He concludes that in the end the traditional test of Commercial Solvents and the modern approach of Magill and Oscar Bronner are the same. See Stothers. The author shows that two out of the three requirements laid down by the Court for abuse involve dominance. Finally. It viewed Magill as an exceptional case. Judgment of the Court.164 Antitrust as a complement to the patent system access to be capable of being regarded as indispensable it would be necessary at the very least that it is not economically viable to create a second home-delivery scheme for the distribution of daily newspapers with a circulation comparable to that of the daily newspapers distributed by the existing scheme’. On the facts of the case. 2000 E. as the question of whether it could be expected to establish a second such system was not judged from the position of Bronner but that of an undertaking of comparable position to Mediaprint. if this is not the case. He also believes that the ECJ replaced the ‘circumstance approach’ of economic analysis for legal certainty. Rev. The author also believes that although the strict criterion encourages strong firms to take risks and invest. Refusal to Supply as Abuse of a Dominant Position: Essential Facilities in the EU. 152 219. whether it had been abused. In the present case. and if there was. the ECJ found that the home-delivery system was not essential and access was not indispensable.   R. the author believes that . For a criticism of this see M. 7 ECLR 256 (2001). The author further argues that the essential facilities doctrine involves the importation of an unnecessary concept in EC law and that refusal to supply cases may be sufficiently and better dealt with under Art. thus undermining the flexibility of the notion of abuse which is perceived by many commentators to be its virtue. Bergman. it must also be necessary. even if an alternative system would not be economically viable due its small circulation. para. the facility was not indispensable. it hampers competition (at least in the short run) and reduces incentives for small firms to invest. refusal to supply will only constitute abuse if it is determined that there is no sufficient possibility of substitutes to prevent dominance. the facility should not only be desirable. 82.. the dominant firm will not be able to take monopoly rent at that level in any case. cit. This test involved the question of whether there was a dominant position on the market. Regarding the need to preserve incentives for investment. This case has also been criticised for confusing the issues of dominance and abuse.151 In this way. in which the information was indispensable to the publication as: Magill could not publish a magazine for which there was consumer demand at all without it. only natural/inevitable monopolies will qualify as EF. and the refusal would result in the elimination of all competition in the secondary market of TV guides. Whish. It is unnecessary to show dominance in a downstream market as.L. Recent Developments in Community Competition Law. however. and any dominant firm in general. Compulsory Licensing Under EC Law? 1992 LQR 39. refusal to supply should be seen as abusive unless an objective justification is given. any IP owner in more than one EC Member State will be capable of satisfying them. Hence the solution he proposes involves the use of Art. none the less be desirable. (c) no objective justification. (d) service indispensable to carrying business/no substitutes. The ECJ treated the obligation to license as much narrower than in previous cases such as United Brands and Commercial Solvents. as limiting the situations in which a dominant firm will be under a duty to supply/license. See also Case T-374/94 European Night Services [1998] ECR II-3141 in which the Court took the view that train crews could not constitute an EF. 10 August 2001. at the very least imposes an obligation on IPR holders. as the service should be indispensable. 153   IMS Health Inc v Commission. and Info-Lab/Ricoh (Competition Policy Newsletter (1999)) in which the Commission referred to the restrictive approach of Oscar Bronner and rejected a claim that Ricoh was under an obligation to supply the complainant with new empty toner cartridges to enable him to compete with Ricoh’s filled cartridges. apart from the most exceptional ones. Germany was divided into the maximum number of geographical the transaction costs of enforcing this aspect of competition law would outweigh its benefits. 82. It may. Furthermore. and a real stranglehold must exist before compulsory licensing is imposed. Order of President of CFI. and therefore abusive. 82 EC 165 Therefore. Box 6. this assumption of an obligation on dominant firms to license. the requirements for liability in this case appear to include: (a) refusal to license. Within this structure. but without readily finding dominance. . The duty to deal under Art. Hence. It is submitted that such an approach would then redirect attention in IP cases of which exceptional circumstances negate the justification.14 IMS: Refusal to license input (format) to competitors/ Essential facilities/To preserve market power in market A In the IMS case153 NDC complained to the Commission that IMS had refused to license its ‘1860 brick structure’ for reporting German sales data in the pharmaceutical industry. (b) likely to eliminate all competition in market. 26 October 2001. Order of President of Court.’ See Robertson. IP should be considered as an objective justification for all cases. Order of President of CFI. to give reasons for their refusal to supply to avoid interference on the grounds that the refusal was arbitrary. ‘Although jurisdictional requirements remain. Once dominance is established. 11 April 2002. however. it directs criticism to the definition of dominance rather than abuse. Indeed the essential facilities doctrine may not be necessary to analyse refusal to supply cases. at www. In this instance.166 Antitrust as a complement to the patent system units permitting data collection. based on its reading of Ladbroke. In its decision. It is also argued that while access to the information was vital in Magill as 154   D. 155   Ibid. . while not enabling users to match the data to a specific pharmacy. J. the Commission greatly expanded the ambit of third party rights of access.Global-Competition.com.154 IMS which collects and sells regional data services for sales data collection and analysis. NDC argued that the refusal to license the structure prevented it from effectively competing. and that there were exceptional circumstances in this instance. and it also neglected the requirement of a secondary market. 2002 European Antitrust Review 36. used its copyright on the brick structure to prevent competitors from marketing data services using the same or similar reporting formats. Atwood. It hence ordered interim measures. NDC…) check and format using   brick structure Regional Sales Report The Commission found that the relevant market was the German regional sales data service. their complaint was effectively based on the essential facilities doctrine. Perrine. Intellectual Property Compulsory Licensing. as that would contravene German data protection rules. consisting of a licence on a non-discriminatory basis in return for a reasonable royalty. J. Market? Brick structure standard? Market A: Selling regional data services D (brick structure) P Market B: Sales data collection and analysis Wholesalers using input data of Service Provider Service provider (IMS. as an alternative structure would not serve the customers’ needs and would be unmarketable. Hull.155 It effectively did away with the requirement of a new product. as it became clear that the brick structure had developed into a de facto industry standard and that an alternative standard would not be economically viable. The decision of the Commission was suspended by Order of the President of the CFI on 10 August 2001. In reaching its conclusion on the indispensability of the brick structure. therefore. access to medical data was not at issue. The duty to deal under Art. 37. In the IMS case. nor could it publish the non-listings material without this information. the Commission was also concerned that it would not be likely for competitors to create an alternative structure due to technological and legal constraints. The fact that the pharmaceutical companies were economically dependent on the brick structure was also relevant in this decision. as although consumers’ interests are an important consideration. This was also confirmed by the practice in other countries that showed that the brick structures were either similar. 82 EC 167 there was no alternative and Magill could not invent or develop the listings. as IMS argued that the 156   Ibid. This might be criticised. which means that any alternative is bound to be similar and.157 These included administrative boundaries.156 In reaching its conclusion on the indispensability of the structure particular attention was paid to whether customers would buy data formatted in other structures. the brick structure was therefore built to suit their interests over a long period of time and there were many disincentives in switching. as switching would be an unviable economic option in light of the comparability and compatibility of data. but the ‘use of the format developed to present this information to the pharmaceutical companies’. the Commission based its decision on the fact that the brick structure had been developed by a working group. the change of sales territories and the costs of modifying the software applications. likely to lead to an infringement of the data. It therefore found that it had evolved into a de facto industry standard. 157 . p.   It might also have been relevant that there was a low margin of creativity in the brick structure of 3–5%. or identical. it is only natural that they prefer a higher product developed with a significant level of skill and merit. along with whether IP is treated or should be treated differently from other cases. and pharmaceutical companies had participated in this process. data protection constraints and uncertainty surrounding the sale of data and whether it would infringe the copyright of the 1860 brick structure. However. The Commission’s willingness to impose compulsory licensing and to find that the brick structure constituted an essential facility raises many questions regarding the need for two markets. the Commission argued there was no separate product in Magill either. when it is exercised in such ways and circumstances as ‘in fact to pursue an aim manifestly contrary to Art. On 26 October 2001. access to it was necessary to compete and there was no justification for such refusal. Order of President of CFI. Order of President of CFI. 29 April 2004. 234 reference opinion relatively recently in the IMS case. 82 EC. The ECJ gave its Art. IMS was not seeking to exploit market power in a separate market. 15. On the other hand. 82’. and in accordance with Oscar Bronner. The President of the CFI interpreted Magill as highlighting the exceptional circumstances in which the exercise of exclusive rights would constitute an abuse. not yet reported. 26 Oct 2001. there was no such requirement. 10 August 2001. or when an essential facility is at stake. it argued that there is no precondition for two markets. While there was no new product in IMS. which presupposes the existence of two markets. p.159 It adopted a cumulative reading of the Magill 158   IMS Health Inc v Commission. Order of President of Court. IMS argued that a refusal to license an IPR can only constitute an abuse if there is some additional behaviour that is in itself abusive. and secondly.168 Antitrust as a complement to the patent system competitive advantage was the essence of copyright. In the present case. The arguments of the parties are important.158 The applicants further argued that Magill was exceptional. adopting the broad interpretation of Magill. . as they illuminate. it found that there were exceptional circumstances (such as that it had been developed in cooperation with pharmaceutical companies and constituted an industry standard with no likelihood of alternative). as there was leverage from the upstream to the downstream market and the copyright from broadcasting was used to extend dominance in the weekly TV guides. Hence. however. He found. 295. the refusal was likely to eliminate all competition. In accordance with Magill. that the position regarding IP is also a matter of debate. first. and that compulsory licensing was incompatible with Art. when there is an obligation to deal is uncertain. and that in both cases the supply of service was indispensable. 159   Case C-418/01. that the balance of interests weighed in favour of the preservation of copyright and therefore suspended the Commission decision until the CFI judgment had been given. the President referred to the question at issue: whether the application of German copyright law may be affected by Art. 11 April 2002. the upstream is indispensable in as much as for supply of the downstream product’. As regards the presence of two markets in an antitrust sense.160 It hence adopted an expanded definition that did not require two markets in the traditional antitrust sense: ‘it is sufficient that a potential market or even hypothetical market can be identified. not yet reported. inter alia. however.   Ibid.15 Microsoft162 – refusing to provide interoperating information In March 2004 the Commission adopted a decision finding that Microsoft had abused its quasi-monopoly in desktop operating systems by. as it referred to the ‘intention to produce new goods’ as distinct from the actual production. 82 EC 169 requirements by stating that the refusal must prevent the emergence of a new product. 44. 45. The Commission amongst other things imposed an obligation on Microsoft to license the interface information to competitors on reasonable and nondiscriminatory terms and to provide an unbundled version of Windows without the media player. 160   Ibid. the Court concluded that ‘it is determinative that two different stages of production may be identified and that they are interconnected. refusing to provide interface information necessary for competitors to create their own desktop operating systems that could interoperate with Microsoft. Such is the case where the products or services are indispensable in order to carry on a particular activity…’. 162   Commission Decision in Case COMP/C-3/37. 161 . para.792 Microsoft [2004]. It adopted a broad definition of a ‘new product’.161 Box 6. para. The duty to deal under Art. 234 EC in relation to the extent to which a dominant company may refuse to fully meet orders placed by pharmaceutical wholesalers with the intention of limiting parallel trade.170 Antitrust as a complement to the patent system Box 6. 163   Case C-53/03 Synetairismos Farmakopoion Aitolias and Akarnanias (Syfait) and Others v Glaxosmithkline AEVE. mostly relating to the high level of regulation and sunk costs of R&D. The Advocate-General found that due to the particular features of the pharmaceutical sector. 28 October 2004. 234. He suggested that Courts should take a flexible. pharmaceutical companies may be objectively justified in refusing to fully supply wholesalers with the intention of limiting parallel trade. regulatory and otherwise) and the particularities of the industry. In 2006 the Greek Competition Commission followed the Advocate-General’s Opinion allowing GlaxoSmithKline to implement its strategy to combat parallel imports. however. Opinion of the A-G Jacobs. Advocate-General Jacobs gave his opinion on the matters. 82 to the pharmaceutical sector. taking into account the whole context (economic.16 GlaxoSmithKline. Syfait – refusal to fully meet supply requests to prevent parallel imports163 The Greek Competition Commission made a preliminary reference under Art. economics-based approach in applying Art. . The ECJ found that it could not rule on the case as the Greek authority is not a court or tribunal for the purposes of Art. essential service New entrant Vertical integration. Vertical integration long-standing customer 1. 82 EC 171 Table 6. essential for downstream research Leverage. dependence proportional sanction – Price discrimination and market segmentation Hugin: No effect on trade IGR Stereo-TV:* COM 1. Vertical integration Essential Facilities Doctrine (EFD)? same standard for IP Telemarketing: 1.1 An overview of the main case law Cases Principles Considerations Commercial Solvents: 1. The duty to deal under Art. no objective justification EFD Volvo v Veng:* additional abusive conduct same for non IP cases also? London European: COM 1. indispensable 2. for another market 3. no objective necessity Leverage. Leverage EFD? . long-standing customer 2. existence of a longstanding customer 2. regular commercial practice SMEs. reservation of ancillary activity 2. Vertical integration (VI) proportionate sanction United Brands: 1. elimination of important competitor in market Leverage. possibility of eliminating all competition from such undertaking 3. new entrant 2. new product 2. no objective justification Leverage. Significant impact on firm even if new entrant No indispensability—no EF No leverage dependence? Proportionality of sanction Sea Containers: COM 1. Vertical integration. denial 3. no objective justification No leverage? Not EF IP same as non-IP? IMS: 2 markets or one? EF? – indispensable – no alternatives – industry standard dependence of customers Note:  * and Italics for IP cases and considerations. EFD? same for IP and non-IP British Midland: COM 1. . no objective justification 3. EFD New entrant Magill:* 1. indispensable 2.1 concluded Cases Principles Considerations Decca Navigation:* COM 1. essential New entrant Leverage. likely to eliminate all competition 3. essential facility 2.172 Antitrust as a complement to the patent system Table 6. long standing 2. indispensable for secondary market IPRs exceptional circumstances New entrant Leverage EF In practice same for non-IP? Tierce Ladbroke: not essential nor betting shop new Oscar Bronner: 1. 2 The outcome of the main case law Abuse No Abuse IP Non IP IP Non IP Decca Navigation Commercial Solvents Volvo (on facts/in theory can be abuse) Ladbroke Magill United Brands IMS Telemarketing Microsoft Sabena AstraZeneca Sea Containers GlaxoSmith Kline Bronner . 82 EC Table 6. 173 The duty to deal under Art. . PART IV A more innovation sensitive approach to the interface of competition law and patents? . . This trend is also accompanied by the increasing use of the patent system to obtain proprietary rights for the research tools.1 The Particularity of Research Tools: Pre-commercial Stage Patents The nature of biopharmaceutical research and of the industry in general is such as to potentially give rise to concerns related to refusals to deal or lack access in certain cases.7.     The latter consists of the full range of resources that scientists use in laboratories. L. Blackburn in DOJ/FTC Proceedings on the Pharmaceutical Industry: Business Perspectives on the Use and the Role of Patents in the Biotechnology Industry. Tech. Innovation and Access: The Role of Compulsory Licensing in the Development and Distribution of HIV/AIDS Drugs. There may be competing interests among those who control the tools depending on whether they are scientists. p. university technology transfer 177 . 207. cit. NIH Report on Research Tools (1998) op. Many research tools are expensive to develop and have significant competitive value to the companies that own them. Ill. If institutions wish to gain a competitive advantage from their exploitation. They are used to find. 7. Bailey. R.     T. & Pol’y 193. J. 26 February 2002. refine or design and identify something else that is sold in the marketplace. The specific case of research tools was examined in this context.. 2001 U. The duty to deal as applied to address technology access problems in the biopharmaceutical industry Compulsory licensing is not an absence of patent protection but merely a lessening of that protection. While compulsory licensing may weaken the incentives to invest in pharmaceutical research the trend of rapid and significant increases in investment in pharmaceutical research demonstrates that the present incentives to invest are so strong that they would have to be weakened considerably before there would be any reduction in the amount of pharmaceutical research. they are likely to limit access and restrict their use and disclosure.1 Conclusions on the patent system in the case of research tools 7.C.1. recognising that one institution’s research tool may be another’s end product. Glaxo Group Limited. FTC March 1999. In addition. Steady the Course: Property Rights in Genetic Material. Epstein.A. While until recently the doctors’ prescriptions were the most crucial factor in determining which drugs would be dispensed by pharmacists.com/abstract_id=317101.za/decidedcases/pdf/68IRJUN00kinesis. See R. Foreclosure effects might also occur with regard to the exclusion of unintegrated PBMs from the market. Case Number 34/CR/Apr04. today pharmacies are usually part of PBM networks that administer the drug benefits as part of health insurance plans to employers and others.178 The interface of competition law and patents While concerns relating to access are not new in the area of antitrust law. For example there may be similar exclusionary concerns in cases involving Pharmacy Benefits Management (PBM) networks.     For more information on pre-commercial stage patents see R. . 18 June 2003 at www. professionals or private firms.co. and GlaxoSmithKline (Pty) Ltd. but rather the hindering of the ‘innovation process’. lead to less innovation. Nelislwe Mthethwa. AIDS Healthcare Foundation Limited. and Case No. The concern is that the lack of access may lead to reduced research which would. See In The Matter Between Mpho Makhathnini. The Law School of Uni of Chicago. Musa Msomi. A refusal to deal scenario may exist where C. Tom Myers. we are not concerned with something that may already crystallise in a product or technology market.comptrib. However. which are important in the pre-commercial stage when the impact of the restricted access cannot be easily determined. this could ‘raise the marginal costs of unintegrated drug companies and lead to higher prices and lower level in prescription drug markets’. but they are also tools for research. Bureau of Economic Staff Report. working paper no 152. research tools are merely an example of what might be a general problem.pdf. case 68/IR/Jun00. has no substitutes for the marketing services of A and B’s downstream PBMs and A and B have the incentive to coordinate to limit a company’s ability to undermine collusion. Therefore. Elijah Paul Musoke. an unintegrated pharmaceutical manufacturer. This could give rise to some concerns as drug companies now may acquire PBMs and the exchange of information may allow for the monitoring of deviations of coordination in the prescription drug markets. research tools are more complicated as they are not only end products whose dissemination/distribution effects can readily be measured or witnessed. 15/CAC/Feb02. 2003 at http://ssrn. depending on the availability of ways for the unintegrated company to avoid the exclusion. and whether they are importers or exporters. Levy. See also South African Competition Tribunal’s decision and order in Pharmaceutical Wholesalers and Glaxo Wellcome. in turn. See Chapters 2 and 3. but rather with something in even earlier stages of research and development. The problem in the case of research tools does not relate to the restriction of a product or technology market. where the South African courts found GlaxoSmithKlyne to have abused its dominant position by virtue of excessive prices of drugs. The Pharmaceutical Industry: A Discussion of Competition and Antitrust Issues in an Environment of Change. there may well be situations in which the patent owner would like to be the sole     See Chapter 3.   See Chapter 4. Technology access problems in the biopharmaceutical industry 179 7. it is assumed that access would be more desirable in some cases where it has been refused. 782 in which the Commission stated that a refusal to supply would ‘have the consequence of stifling innovation in the impacted market and of diminishing consumer’s choices by locking them into a homogeneous Microsoft solution. Compulsory licensing provisions. as opposed to experimenting with. hence. while the right to health does have implications for patent law as it affects access to drugs. While the economics of innovation and whether concentration or competition is more conducive to innovation is far from clear.2 A Gap in the Patent System? As shown in Chapter 3. such as the experimental use exemption. for example. it is not necessarily cost effective. While there are provisions on compulsory licensing and other limitations on the breadth of the patent permitting use. As such it is particularly inconsistent with the provisions of Art. In addition. cit.1. para. these are rarely used and usually address other concerns. are drafted to deal with more developed stages of research that have already led to the development of products or technology which already warrant a patent. However. Because this approach involves some duplication of effort.1.’ S. Anderman. it may be socially desirable to have many firms engaging in the next innovative step.3 The More the Better? Optimal Market Structure for Innovation It should also be noted that the desire to have broader access to fundamental research tools is also based to some extent on the assumption that the more research paths undertaken the better. as it was demonstrated. 7. ‘When more risky investment is required until there is a useful product. 82(b) of the Treaty’. the patent laws do not adequately provide for this possibility. effectively endorsing a ‘view of innovation which suggests that technical development in the IT industry is best promoted by a number of different firms innovating rather than one.     See Commission Decision in Microsoft (2004) op. The experimental use exemption is again usually concerned with experimenting on an invention in the sense of improvements. Does the Microsoft Case offer a New Paradigm for the ‘Exceptional Circumstances’ Test and Compulsory Copyright Licenses under EC Competition Law? Presented at the Clasf Conference on 9 September 2004. it is unlikely that the right to health would be helpful in the context of the innovation process as it is too far removed from the actual results and overly speculative about the innovation process.   . Yi (1999) op. Aoki and J. 609–26. 16 Information Economics and Policy 23 (2004).A. Varying the Course in Patenting Genetic Material: A Counter-Proposal to Richard Epstein’s Steady Course. Schumpeter found that large firms are more innovative than smaller firms.C. Depoorter (2002) op. 10   S.M. Empirical Studies on Innovation and Market Structure. 152 (2003) on the marginal cost and double marginalisation problem. Secondly. Dreyfuss et al. increasing the likelihood of success.11 On the other hand. Arrow. Expanding the Boundaries of Intellectual Property. . in R. Nelson (ed. 12   Ibid. Steady the Course: Property Rights in Genetic Material. on oligopoly in complementary as opposed to substitutable products. Schmalensee and R. Epstein. This may be due to two factors. these companies are able to incur less average total costs. which could mean that in concentrated markets there was more innovation taking place. Public Law Research Paper No. Cohen. 59 (2003).     R. Working Paper No. cit. of Chicago. Levin.). North-Holland. An Empirical Exploration of a Technology Rate. Oxford University Press (2001). Cohen and R. R. Econ’cs 228 (1997). As innovation involves significant fixed costs. ed. in pp. ABA (2002) op. in R. 11   J.R. See also R. Large firms may have more specialised resources undertaking many R&D projects which reduce the marginal costs of innovation. Economic Welfare and the Allocation of Resources for Innovation. J. Compulsory licensing of technology and the essential facilities doctrine. Some commentators have argued that firms which are insulated from competition may choose a quiet life. The Law School of Uni. The Rate and Direction of Inventive Activity.12 First.180 The interface of competition law and patents developer of the final product but society would be better off if this were not the case. Oxford. Handbook of Industrial Organization. Small. 1078. B. it might be the case that firms obtain higher benefits from innovative effort as they diversify products. S.D. Amsterdam (1989). innovative activity may be less costly for large firms as there are significant economies of scale in innovation. and they may have larger portfolios of R&D. cit.     See K. Willig (eds).’ A significant amount of economic research has focused on the issue of whether competition and potential competition are capable of increasing innovative activity. their benefit decreases in line with the number of firms under certain conditions.     W. Dreyfuss. Boone (2001) op. cit. Lerner.10 Boone has concluded that if competition is intense and innovations lead to major technological changes then small increases in competition may quicken innovation as they force the leading firm to innovate in order to refrain from losing its competitive advantage. other economic studies seem to support innovation by large firms in concentrated markets. NYU Law School.C. New York: New York. 28(2) Rand J. Yi has found that in the case of process innovations. The findings are ambiguous in this regard. See also F. R. De Santi and W. as long as they are not drastic. Parisi. Competition to Innovate: Strategies for Proper Antitrust Assessments. p.. Princeton University Press (1962). cit. Washington DC.L. Mass.   F.M.htm. 7. Maurer. 8 Boston University Journal of Science and Technology Law 254 (Symposium on Bioinformatics and Intellectual Property Law.13 Early studies showed that R&D rose more than proportionately with firm size. 2001. Market Structure. Empirical evidence shows that large firms have developed a significant share of innovation but in recent years small firms have also done so. and even the more effective marketing of new products. National Research Council (2002). 112 Yale L. available at http://ist-socrates. cit. J. Scherer.1 Patent Law Several proposals have been made as to how the patent system itself could be changed to account for the problem of research tools. Concentration and Technology in Agricultural Input Industries. Scherer14 has shown that was up to some size level. See specifically in the case of agricultural biotechnology: J. D.berkeley. conference paper.. J.X. Recent studies suggest that large firms may actually be generating less innovation per dollar of R&D than small firms. 15   On open source proposals see R. Technology access problems in the biopharmaceutical industry 181 thus increasing the likelihood of discovery. Promoting and disseminating knowledge: the public/private interface. cit. (Winter 2002)). Coase’s Penguin. p. 1 August 2000 (exempting acts ‘done privately and for non-commercial purposes’ and ‘acts done for experimental purposes relating to the subject-matter of the patented invention’). Benkler. 7.2. 2002. Kind. On the interpretation of the term ‘relating to’ in the experimental use exemption see the European Commission’s proposed Council Regulation on the Community Patent. 55 American Economic Review 1097 (1965). US Department of Agriculture Economic Research Serve. 7 November.15 Professor Eisenberg had 13   ABA (2002) op.edu/~scotch/maurer. European Policy for Intellectual Property.2 Two possible avenues for increased access to essential research tools Increasing access to patented research tools could either be achieved through patent law or through antitrust law. S. New Institutions for Doing Science: From Databases to Open Source Biology. 14 . Open Source Genomics. however. Mueller (2001) op. 27 April. or. 38 refers to the possibility of interpreting the term ‘relating to’ broadly to include the ordinary use of patented research tools to research downstream.M. 2001. Maurer. S. Cringely. Firm Size. Burk. University of Maastricht. Linux and The Nature of the Firm. Boston. Opportunity and the Output of Patented Inventions. Winter 2002–3. November 2003. The True Believer: Can Mike Doyle do to Microsoft what the rest of the computer industry and the Department of Justice couldn’t do? The Pulpit. 1017 (1989). the use should be exempt. Liability Rules and Inalienability: One View of the Cathedral. in cases involving use of a patented invention to verify that the requirement of enabling disclosure has been satisfied. p. the remedies of the patentee are limited to a liability rather than a property rule. that research tools should be excluded entirely from patenting. as there should not normally be any access problems. is unrelated to the problem of access to essential research tools. Melamed. however.19 This interpretation of the experimental use exemption. This situation is a variation of the compulsory licensing provisions as applicable to improvements and secondary dependent patents. the exemption should be inapplicable. there would be limitations in the remedies available against them. L. in cases involving use of an invention having a ‘primary or significant market’ among research users who are ‘ordinary consumers’ of the invention.S. 56 U. See public comments received from USPTO in response to its first round of Interim Written Description Guidelines. 71 (1999) 440. Property Rules. pp. In such cases. The patentee ‘will want to sell to these users – they fall squarely within the market for the patented invention’. Reg. Eisenberg. it was felt that there should be a licence prior to use. would still not cover cases where access is needed to the research tool for research on Others contend. Rev. 64 Fed.16 First. 19   On this distinction see G. 16   R. 1089 (1972). Chi. (1995). Rev. This situation is the least contentious and most countries allow such use. 1085. however. Secondly. Talley. 1074–78. Ibid. J. 18   It was believed that these tools could be readily licensed or bought on the open market. there should not be a need for any licence in order to encourage designing around patents. Solomonic Bargaining: Dividing a Legal Entitlement to Facilitate Coasean Trade. The patent holder would not be able to prevent use in such cases but would be entitled to a reasonable royalty in some instances. in cases where an improvement in the technological field of the patent is concerned. L. Patent and Trademark Office. Calabresi and D.17 This type of use. I. Ayres. 17   See Chapter 3. . although there is usually no need for a licence or to petition for a compulsory licence in the first place in the case of the experimental use exemption. however. Department of Commerce. published in June 1998 asserting that ‘ESTs are genomic research tools that should be available for unencumbered research to advance the public good’. Revised Utility Examination Guidelines. Patents and the Progress of Science: Exclusive Rights and Experimental Use.18 Finally.182 The interface of competition law and patents proposed the expansion of the experimental use doctrine based on a distinction between three types of cases. E. 1027. While the users would be infringers. From the start. 85 Harv. 104 Yale L. S. An excessively broad research exemption could eliminate incentives for private firms to develop and disseminate new research tools which could on the balance do more harm than good to the research enterprise. They would fall into the second category of Professor Eisenberg’s model of the ‘ordinary consumers’. J. In this context. Experimental Use as Patent Infringement: The Impropriety of a Broad Exception. the optimal balance between initial and follow-on innovation is not known to any degree of precision. 2181.’21 The arguments against an expanded experimental use exemption mirror to a large extent the general arguments against a reduced patent scope. Karp. 1 (2001). it is felt that any reduction in patent protection would lead to a reduction in innovation. L. is that the assumption that such workers are truly ‘ordinary consumers’ of the tool is called into question. the patent holder would have nowhere else to turn to collect patent royalties. 1030–31 who states that it is difficult to determine the impact of a reduction in the breadth of patents on the incentives for investment. either through the research exemption or other limitations. No Dilettante Affair: Rethinking the Experimental Use Exception to Patent Infringement for Biomedical Research Tools. then to the extent the experimental use doctrine is based on that distinction. 76 Wash. 22   See. which threatens the patentee’s potential for economic returns. for example. 23   See R. particularly in those industries that rely on patent protection’. 100 Yale L. ‘When research tool transaction costs are severe enough to impede or stop the development of new biomedical products. who concluded that: It is difficult to imagine how a broader research exemption could be formulated without effectively eviscerating the value of patents on research tools. The author contends that ‘an expansive experimental use exception. there may equally be more products developed by virtue of the broader access to those tools. would reduce inventive activity.M. When it becomes increasingly difficult for these ‘consumers’ of the tool to obtain access. pp. 21 . Technology access problems in the biopharmaceutical industry 183 downstream products. Eisenberg (1989) op.23 20   NIH Report on Research Tools (1998) op. Mueller. Rev. 40. In such cases access to the experimental use doctrine should not turn on the relatively fine distinction between experimenting on or experimenting with the patented invention. D-8. it becomes questionable. and if these consumers were exempt from patent infringement liability. The trade-off ultimately is an empirical one. Although there may be some reduction in the development of new research tools by forcing wider access. App. however. J.20 The difficulty with such a view. however. The extension of the doctrine was also considered by the NIH Working Group. Researchers are ordinary consumers of patented research tools.   J. cit. cit.P. 2169 (1991). p. p.22 As argued in Chapter 5. line drawing between “experimenting on” and “experimenting with” is no longer justified. 27 In addition.25 In such cases.30 24   J. 62. 58–64.7 (2nd edn. p. he argues that a standardised schedule of royalty fees could be drawn up.28 He contends that calculating the royalty rate may be more of a problem in theory than in practice. p. 58. Mueller (2001) op. similar to the musical works model. 25 . 29   J. 28   See 17 USC § 115 (Supp. as the effect of enforcing a patent right against research competitors might be detrimental to progress. ‘The research tool patent owner would acquire the right to a potentially commercially significant future royalty stream. Understanding Copyright Law. p.M. § 8. 65. pp. p. while the tool user would avoid the burdens of pre-use license negotiations. 81. Mueller proposes the endorsement of a development use rule which makes no distinction as to the type of use that is contemplated for the tool. cit. in addition to the exemption from infringement liability provided by the experiment exception. royalties should be paid for no longer than the total period of the effective patent life.184 The interface of competition law and patents In response. up-front payments and blocked access to the proprietary research tools’. A monthly statutory ceiling price must be paid for each record distributed under the licence.26 According to Mueller. 58. p. 30   D. IV 1998) (‘Scope of exclusive rights in non-dramatic musical works: Compulsory License for making and distributing phonorecords’).M. The author distinguishes between use and selling as the latter is not exempted from liability. a specific liability rule in respect of research use of patented inventions may be appropriate. cit. in cases where no product is developed. 1995) 4th edn (2004). See M. Gilat claims that the experimental use doctrine may not be sufficient in the area of biotechnology industry.   Ibid. rather than the sale of which products physically incorporate the patented invention. Once the owner of a copyright for a non-dramatic musical work has sold the work to the public. and it therefore appears that. Mueller (2001) op. he suggests that a reach-through royalty scheme should be applied whereby the user would be allowed to infringe the patents but then would have to pay a royalty according to the ultimate commercial value of the products developed. cit. Indeed the fact that patents are granted on biotech basic research inventions seems to require a more liberal experimental use exemption than that provided by traditional patent law. Bender.24 The only limitation would be that it must relate to the use of the patented research tool. and for this reason a liability rule might be required. any other person has a compulsory license to record and sell the phonorecords of the same work. 27   Ibid. beginning on the first date of the sale of the product developed. Leaffer.29 Similarly. Gilat (1995) op. New York. 26   Ibid. Copyright Protection of Operating Software. it is contemplated here that antitrust should work as a safety valve if the market fails to fix an imperfection and in the absence of a patent mechanism to correct it. it would seem that it is possible to use antitrust law to judge when access to such upstream innovation should be granted. & Pub. See D. 82? As a policy matter. may discourage innovation. there is no reason in principle why the courts could not treat copyright misuse by someone with market power as an antitrust violation … the courts tailor the scope of copyright protection all the time in an effort to further the underlying copyright policies. Pol’y 161 (1999). cit. antitrust may be a desirable safety net. L. ‘antitrust limitations should be desirable unless they result in a net decrease in innovation’. makes little difference in practice. and that the application of the competition law provisions remains intact. Unilateral Refusals to Sell or License IP and the Antitrust Duty to Deal. In the case of a controlling upstream innovation that impairs the progress of the downstream innovation by virtue of limited licensing practices or a refusal to deal. 7. but also in the patented market. It imposes a liability rule in certain cases. 34   Whether one chooses to interpret this as the use of antitrust to address patent regulatory failures or merely to be a co-determinant of patent scope. This is not . & Pub. In some ways. Policy 193 (1999). including refusals used to prevent competition in complementary markets.2 A Role for Art. Technology access problems in the biopharmaceutical industry 185 In this context. 32   While it is true that antitrust law presumes that the market will fix failures.31 The problem lies in the fact that there is no clear formula to decide how much innovation is due to patent law and how much can be attributed to antitrust law.32 A blanket antitrust exemption for all unilateral refusals to license IP. Karjala. in light of the market conditions. Copyright Misuse ad Antitrust. This is because it would require entry at two levels if there is no viable competition in the complementary market. who states in the context of copyright and the relation with antitrust: ‘Although the copyright courts have correctly concluded that an antitrust violation is not a predicate of copyright misuse. 9 Cornell J. namely the breadth of the exclusivity only. 9 Cornell J. the TRIPS Agreement provides that compulsory licensing (CL) may be used to remedy cases in which a practice has been determined anti-competitive in a court of law. and to compel it. In accordance with economic theory.33 As shown in Chapter 3. p. not only in the unprotected complementary markets.2. Lao (1999) op. while not requiring any change of the law. L. this was interpreted to mean that there is no justification for applying a different antitrust threshold for cases involving IPRs. 33   M. antitrust law addresses the same concerns as the patent system. 201. Lao.34 31   M.S. 29 April 2004. the good in question must really be unique. some even involving IPRs.1 Indispensability It was shown that the Court has placed particular emphasis on whether access to the product or process is indispensable to carry on business. In Chapter 6. CL was analysed in terms of four factors: indispensability. possibly in cooperation with other operators. 35   See Chapter 6.186 The interface of competition law and patents Article 82 has been used to condemn unilateral refusals to deal in several cases. 28. central to the operation on the market and without any feasible alternative.35 The test is whether there are ‘products or services which constitute alternative solutions. the elimination of competition on a downstream market. the test will focus on whether access to the former is truly indispensable/essential to conduct research on the downstream market.2. 28. 27. which will militate in favour or against such a finding. 7. Aoki and J. and the absence of objective justification. R. The threshold should be set high enough to ensure that the ‘resulting static gains are large enough to outweigh such dynamic losses’.39 Furthermore. 38   Ibid. 36   Case C-418/01 IMS. the introduction of a new product. legal or economic obstacles capable of making it impossible or at least unreasonably difficult for any undertaking seeking to operate in the market to create.37 In addition. as seen in Chapter 6. however. and whether there are technical. the duty to deal under Art. p. similar in some ways to land facilities. regarding early pre-commercial biopharmaceutical patents.2. para. there may be certain factors. necessarily easy but the only fundamentally new aspect suggested here is that antitrust rather than copyright supplies the hook for devising remedies’ p. Nevertheless. This is because it may not make economic sense to duplicate them and they may be of national economic significance. 39   See Chapter 6. The existence of high sunk costs and/or incentives to innovate may be two such factors.38 While indispensability ultimately is to be judged on the facts of the case. 189. . There has not yet been any case before the ECJ. Small (2004) op. p.36 In the specific case of research tools. cit. the high threshold should be preserved if the duty to deal is to remain exceptional. 82 was analysed. 37   There may be many instances in which IP products or technologies could be regarded as indispensable as traditionally judged under the essential facilities doctrine. the alternative products or services’. even if they are less advantageous. this provision may still be helpful. the Court adopted a wide interpretation: ‘it is sufficient that a potential market or even 40   IMS Case (2004) op.42 7. The reference to the intention to produce new goods or services. which would be viewed from the perspective of enabling further innovation.40 Following the broad interpretation of IMS. as clarified by the Commission in Microsoft.2.2 Preventing the emergence of a new product for which there is potential consumer demand In IMS. as distinct from their actual production. demand for that potential new product also only needs to be potential.   This rests on the assumption that more research lines may be more conducive to innovation. 552 where reference is made to ‘specific.3 Elimination of competition on a downstream or neighbouring market/two-market requirement As regards the two-market requirement.2. may be regarded as abusive only where the undertaking which requested the license does not intend to limit itself essentially to duplicating the goods or services already offered on the secondary market by the owner of the copyright. the refusal by an undertaking in a dominant position to allow access to a product protected by copyright. 42   See Commission reference to Ladbroke and the essential facilities doctrine in para.3 on the relationship between market structure and innovation. para. 41 . constant and regular potential demand’. where that is indispensable for operating on a secondary market.2. This would allow for a CL to be ordered for certain indispensable research tools while taking into account that a more extensive use would most likely lead to more products but not necessarily so.41 and indispensability. but intends to produce new goods or services not offered by the owner of the right and for which there is a potential consumer demand. where it is felt that access may be warranted in the pre-commercial stage in some cases even if the research is in its early stages and possibly even still in the pipeline. cit. Technology access problems in the biopharmaceutical industry 187 7. Hence this will provide access to research tools to be used for further research irrespective of what that later leads to.1. See section 7. 49. may hence be of particular significance to the biopharmaceutical industry.2. In addition. This effectively involves endorsing a wider definition of ‘new product’ to include potential innovation. as shown in Chapter 6. the new product requirement would easily be met in cases where access to research tools is required to research on the downstream market in an attempt to develop technology further. the liberal position adopted by the Court can be seen from the following statement: Therefore. whereby the fact that something involves IPRs does not exempt conduct from competition control. cit.2. 717 (1997).4 The absence of an objective justification In the Microsoft case. J. Similarly. In IMS. This is also consistent with the innovation markets approach.44 7. where a dominant undertaking brings action which: cannot reasonably be considered as an attempt to establish its rights and can only serve to harass the opposite party.43 Hence. cit. para. it effectively extended harm to competition to potential or hypothetical markets. This is in line with recent competition findings. In the example of research tools which require access to potentially develop some downstream product. they could not amount to an objective justification. 550. for example.2.3. 44 . a UK court judge stated that the enforcement of patent rights could constitute abusive conduct in certain cases. 45   Microsoft (2004) op. the doctrine remains applicable. 46   See. it would seem that this case can be used as a precedent that two markets in an antitrust sense are not required.188 The interface of competition law and patents hypothetical market can be identified. the recent Commission decision fining AstraZeneca (Commission press release IP/05/737) for abusing its dominance by misusing the patent system. therefore. and is conceived to eliminate competition: Sandisk Corporation v Koninklijke Phillips Electronics NV and Others [2007] EWHC 332 Ch. Therefore. AstraZeneca in this instance abused its dominance by making misrepresentations to certain national patent offices with a view to obtaining supplementary protection certificates. in the sense that the court extended its interpretation of the elimination of competition not only to existing or potential product or technology markets. 44.T. the Commission confirmed that ‘intellectual property rights are not in a different category to property rights as such’45 and.   See IMA at section 7.2. and if truly indispensable the research tools could be the object of a CL. Lang.2. the fact that research tools are protected by patents of itself would not negate the duty to deal if it arose. European Community Antitrust Law: Innovation Markets and High Technology Industries. Hence. Patent misuse is a known defence in the USA according to which a patent holder might be prevented from asserting its patent if such have been obtained by breaching antitrust laws or illegally extending the term of the patent. para. the Court stated that it is ‘determinative’ that ‘two different stages of production may be identified and that they are interconnected. Such is the case where the products or services are indispensable in order to carry on a particular activity …’. and an obligation to deal will be based on the essentiality of an input for the operation of a market. the upstream product is indispensable in as much as for supply of the downstream product’. but also to innovation markets not yet in existence. 20 Fordham International L.46 43   IMS (2004) op. See also J. as well as strategically misusing procedures to block the entry of generic products or parallel traders. they affirm that concentration may not necessarily lead to more innovation. 82 also the consideration of ensuring some advantage from access. at section 7. 82 duty to deal with case-law on the patent system Article 82 can effectively be used to grant access to an indispensable input for further research where this has been refused.47 In the same way as the patent system attempts to balance initial innovation with follow-on innovation through the patent length and breadth. the granting therefore of an unqualified exclusive right (and thereby immunising IP) may not actually be conducive to innovation. None the less.1 The impact of Art. none the less. and bases the remedy on treating IP just as any other case. It involves recognition of the importance of potential innovation. however.3. Noticeably. It is not restricted to dependent patents. one requiring a patent of significant technological advance of considerable economic interest. In this way. respectively. the risk of elimination of competition and hence also the indispensability of the product or process in question. Although the economics of cumulative innovation fail to provide a clear formula. the definition of the new product is much broader than the one in patent law.2. .2.2 on the new product requirement and the IMS definition. antitrust can be seen as interchangeable as a remedy with patent CL provisions. See also Chapter 3 on patent CL provisions. only with a difference in threshold. the 47   See also the endorsement of this view with the introduction of the innovation markets approach in the USA discussed below. Technology access problems in the biopharmaceutical industry 189 7. while adopting a broader definition of a new product and of secondary markets. The application of antitrust control would be limited to cases in which the monopoly is effectively over a variety of product lines and in which there is a series of dependent inventions. In this way. competition law may also be used to achieve this objective. it can address problems associated with the hindrance of potential technology and potentially restricted access to necessary inputs.2. as it is not limited to patented products or processes constituting a significant technological advance.2.48 It should be noted. without a real alternative in the market. the new product rule imports in Art. that market definition will preserve its centrality as it will in turn determine the availability of substitutes. but may be applied to downstream innovation as distinct from improvements. The advantage of the antitrust application of a duty to deal is that it is set against the market conditions in order to ascertain: the extent to which access to the input is indeed necessary in view of the alternatives and substitutes. and it can even relate to potential goods. and the other requiring the existence and abuse of a dominant position by virtue of a refusal to grant access to an indispensable/essential input as set against the market conditions. 48   See above at section 7.2. . unilateral restraints on innovation have been condemned on several occasions. cit.190 The interface of competition law and patents extent to which the consumers will benefit by virtue of access. 54   In conventional antitrust enforcement there is a broad consensus on the relationship between market structure and market performance. R. these structural assumptions are seen as being more dangerous. contains assumptions about the type of structure that is more conducive to market developments (whether product.49 Indeed. either by virtue of distribution or otherwise. 677 (2003). but rather it is concerned with downstream research which may or may not lead to new products which could either be seen as future product markets or. J.W. who proposes that attention should also be paid to technology lines and not only product market or technology or innovation markets.53 In brief. and the extent to which the market has proven that the patent controls not only a specific product or process but indeed a whole area of endeavour. J. in some cases.’ 50   See M. 51   Case 88/501 Tetra Pak I (BTG license) [1988] OJ I. In view of the role of technological change. Dolmans. 44 (1997). 52   Magill (1995) op. This approach effectively advocates a more explicit consideration of followon innovation in the application of antitrust analysis and this may apply not only for the application of the duty to deal provisions.272/27. Antitrust and the Suppression of Technology in the US and Europe: Is there a Remedy? Restrictions on Innovation: An EU Antitrust Approach. and potentially for mergers. 71 Ant. as new innovation markets.52 or the foreclosure of innovation by raising barriers to entry. similar to the traditional cases where access is mandated to a facility. the issue of research tools introduces a new element into the analysis of refusals to deal or to grant access. Davis. L. access is mandated for potential innovation and this. The new element centres on the fact that it is not concerned with the restriction of a downstream existing product or technology market. 65 Antitrust L.50 either because they involved the acquisition of control over potentially competitive innovations. Barton. Patents and Antitrust: A rethinking in light of patent breadth and sequential innovation. In the case of research tools. but also for investigations of cross-licences and patent pools. this is seen as more contentious in innovation market enforcement and. In contrast.H.51 the prevention of downstream innovation. 53   Microsoft decision (2004) op.54 49   See. in today’s economy conventional enforcement may even ‘require judges to predict the inherently unpredictable course of future technology’ and so the differences between the two approaches should not be exaggerated. 455 (1998). innovation markets approach in merger review and the consideration paid to potential competition. cit. for example. in the EU. technological or innovation). Innovation Markets and Merger Enforcement: Current Practice in Perspective. for this reason. however. ‘Clearly there are antitrust issues when a license or merger concentrates control over product lines or combines into one management several patents covering complementary ways of manufacturing a specific product. J. 66 Antitrust L. J. specifically in the application of the Technology Transfer Block Exemption Regulation (TTBER) and in merger analysis.D. American Home Products/American Cyanamid.C. Hoechst/ Rhone-Poulenc. Glaxo/Burroughs Wellcome. Kattan.. C-3929 (2000). See J. Antitrust Review of New Economy Acquisitions.-US L.3572 (1995). 26.. 2004 OJ L213/11. 93-530 (D. Sensormatic Elec. American Home Prods. 55   The innovation markets approach has been discussed most extensively in the USA where it was formally recognised as an enforcement tool for the first time in the IP Licensing Guidelines (1995) op. FTC Docket No. 123 FTC 842 (1997). McGowan. See.55 p. Kraus. Antitrust. J. Innovation. the innovation effects have been the key factor of the decisions in several FTC enforcement records. Knable Gotts and J.3. C-3557 (1995). US v Lockheed Martin and Northrop Grumman (D. 115 (1995). filed 23 March. reprinted in 4 Trade Reg. Technology access problems in the biopharmaceutical industry 191 7. published in the EC Competition Policy / DGIV/speech/eight/en/sp980xx. Filed 23 March 1998). Uncertainty. Roche Holding Ltd. Antitrust Considerations in Innovation-Driven Markets. A View from the European Commission. J. Since then it has been the subject of many enforcement actions of the Antitrust Division in conjunction with the conventional potential competition analysis such as US v General Motors Corp. C-3957 (2000). Fall 2000. p. Corp. Summer 1997. Antitrust. See also J. for example.2 An innovation sensitive approach: innovation markets in Art. and secondly. . In addition. the European Commission has two main concerns in the area of innovation: first. Hence. 681. This was then extended to a broader variety of competitor collaborations by the FTC/DOJ. Upjohn/Pharmacia. 113 FTC 1086 (1990). and thus slowing the innovation process itself. 729 (2001). This principle was applied in Case 88/501 Tetra Pak I (BTG license) [1988] OJ I. Commission Regulation 772/2004. C. After the IP Guidelines: Trends in Intellectual Property Antitrust Enforcement. D. especially concerning the pharmaceutical industry in view of the FDA collaboration in assessing the likely effect of each innovation effort. 1998). Del.. 21 Can. I. allows the Commission to withdraw the benefit of block exemption where the licensed products are not exposed to effective competition in the licensed territory. on the application of article 81(3) of the Treaty to categories of technology transfer agreements. 119 FTC 815 (1995). 59. Pons. 123 FTC 904 (1997). p.2. Baxter/Immuno. Rep (CCH). speech for the 50th anniversary of the Japan Trade Commission in Tokyo – 1st December 1997. J. Antitrust Guidelines for Collaborations Among Competitors (2000). Baxter Int’l. Innovation and Competition. 16 Berkeley Tech. Pfizer Inc. and the Stability in Antitrust Law. In the EU. FTC Docket No. FTC Docket No. L. Pfizer/Warner-Lambert. Inc. FTC innovation markets enforcement actions Roche/Genentech. Hoechst AG. Kattan. Glaxo Inc. Corp. cit. Ciba-Geigy Ltd. FTC Docket No.272/27 where the licensee was found to have abused its dominant position and was forced to give up the exclusive rights attached to its licence. 117. mergers between firms that are active in similar R&D projects must not become dominant actors that are capable of eliminating future competition in related markets. Sensormatic/Knogo. Ciba-Geigy/Sandoz. No. The Upjohn Co.G.htm February 1998.. p. 121 FTC 44 (1996). 82? A similar approach considering innovation and the type of structure that is more conducive to it can be seen in the application of other antitrust provisions. patents may pose considerable entry barriers to competitors on future markets. It assesses the extent to which an output in the upstream R&D market may be restrained and whether the latter may lead to adverse competitive effects on the downstream product market at a later stage. However. 71 Ant. J. 364/01. See also . 173 (2001).3. The Antitrust Source.468 MSG-Media Services OJ 1994 L.dbr. there is no firm basis in economics to support the presumption that an anti-competitive reduction in innovation would result from a reduction in the number of competitors attempting to innovate. Non-Incumbent Competition: Mergers Involving Constraining and Prospective Competitors. such as Konsortium OJ 1990 L. In all of these cases. Rev. 228/31. 52 Case W. Innovation Markets and Merger Enforcement: Current Practice in Perspective.W.F.57 as unlike traditional oligopoly theory applied to markets for existing products. 56   R. For alternative views on the approach see T.984 DuPont-ICI. 2985. 4.56 The concerns of the innovation markets approach are similar to those found in CL as it seeks to encourage multiple research paths by ensuring that essential innovation tools remain de-concentrated even if this is only to protect innovation on a research/pipeline level as distinct from commercialisable products. OJ 1997 L. M. Dahdoud and J.1. OJ 1995 L. 2985.N. a divestiture or licence remedy was imposed. when such a reduction of resources. 1996. there have been several cases where mergers have raised concerns in the field of R&D and innovation. Merger Enforcement in Innovation Markets: The Latest Chapter – Genzyme/Novazyme. 677–8 57   Criticism and more extensive analysis of the use of the approach is beyond the scope for present purposes. L.59/877. Morse. 405. 332/49. On a debate between the optimal market structure for innovation see section 7.L. Ciba-GeigySandoz OJ 1996 C. Feinstein.H. Davis. The Limits of Innovation Markets. M. Commission Decisions Shell-Montedison. 64 Antitrust L. or in the elimination of one or more parallel research tracks. Mongoven. L.192 The interface of competition law and patents In the context of mergers. The Shape of Things to Come: Innovation Market Analysis in Merger Cases. that the doctrine of potential competition does not suffice to address the adverse competitive effects of many agreements and transactions that reduce competition in innovation. or elimination of a line of research. OJ 1994 L. M. L. Wald and D.555 Glaxo-Wellcome and others. and second. M. 677 (2003) pp. E. J. M. the innovation markets approach aims to assess the effects of a merger on the incentive for R&D and innovation. Res. the Commission has also allowed collaborations where the agreements contained some efficiencies. 58   D. Crown Cork OJ 1995 L 75/39. This approach is contentious. is likely to have an adverse effect on price or non-price competition in a product market at some time in the future (whether or not the product market in question exists or does not exist at the time when enforcement action is taken).58 Similarly. The approach is based on two factors: First that antitrust ought to be concerned about agreements and transactions that are likely to result in a reduction in resources devoted to research and development in definable lines of research.102/737. at www. above. July 2004. p. Kwoka.com.877 Boeing-McDonnell-Douglas OJ 1997 C. ‘neither theory nor empirical work provides any general justification for an antitrust merger policy aimed at preserving competition in R&D markets’.L. Hay.60 For example.htm. 19 (1995).C. Inc. who concludes that there is only anecdotal evidence to support the view that competition enhances R&D efforts.W. R. cit. In theory. For an analysis.61 However. Antitrust and Strategic Behaviour. J. See also R. J. 7 (1995).ftc. Statement of Chairman T. this may occur if the parties in the merger are among the few or only likely potential entrants into a product market that does not exist at the time of the merger. The Use of Innovation Markets: A Reply to Hay. p. Jaffe and J. W8976. Gilbert. Sher. Inc.gov/opa/2004/01/genzyme. Lerner. see also R. Tom. Vol. For further examples. Mc Gowan. p. Davis (2003) op. May 2002. in the Matter of Genzyme Corporation/Novazyme Pharmaceuticals. P.pdf. 64 Antitrust L. Uncertainty.ftc. at www. 83.htm. (2001). National Bureau of Economic Research. Intellectual Property.ftc. MIT Press (2003).gov/os/2004/01/thompsongenzymestmt. Balto and S.ftc.pdf. University of Chicago. 3. FTC Closes its Investigation of Genzyme Corporation’s 2001 Acquisition of Novazyme Pharmaceuticals. Gilbert and S. 567 (1995). July 2004. 63 Antitrust L. 59   See FTC 13 January 2004 closing the investigation of Genzyme Corporation’s acquisition of Novazyme Pharmaceuticals in 2001. Rapp and Hoerner. ftc.ftc. 16 Berkeley Tech. J. FTC Press Release. See also D. Genzyme Corporation’s Acquisition of Novazyme Pharmaceuticals. Innovation. FTC Press Release.. Merger Enforcement in Innovation Markets: The Latest chapter – Genzyme/Novazyme.gov/opp/global/gilbert1. G. 61   This corresponds to the case of Genzyme/Novazyme. Innovations in Antitrust Enforcement. Inc.J. The Antitrust Source. FTC Closes its Investigation of Genzyme Corporation’s 2001 Acquisition of Novazyme Pharmaceuticals.gov/ os/2004/01/murisgenzymestmt. as confirmed in the recent Genzyme/Novazyme59 merger. Gilbert and S. at www. 43 (2001).J. Wald and D. Sunshine. Muris. L. 2004. Thompson. 64 Antitrust L. Gilbert and W.W. Sunshine. Working Paper No. L.C. Gertner. 10 . Is Innovation King at the Antitrust Agencies? The Intellectual Property Guidelines Five Years Later. J.htm. Dissenting Statement of Commissioner M. Should Antitrust Enforcers Rely on Potential Analysis or the Concept of Innovation Markets? at www.. Incorporating Dynamic Efficiency Concerns in Merger Analysis: The Use of Innovation Markets. Innovation Policy and the Economy. p.A. Feinstein.pdf. see D. it is possible that a merger may not injure actual or potential competition in any relevant product market but nevertheless it harms consumers by reducing competition in innovation. 75 (1994). who argue that the lack of clarity regarding the link between market structure and innovation is not as important as Rapp contends.J. Rapp.. reprinted in A. at www. 28. 69 Antitrust L. . Refining the Innovation Focus: The FTC’s Genzyme Decision.gov/os/2004/01/harbourgenzymestmt.J. and Stability in Antitrust Law. lies in the fact that there may be an antitrust violation despite the absence of an ‘existing’ goods market and the lack of clarity on the link between market structure and innovation. Technology access problems in the biopharmaceutical industry 193 The novelty of the approach. The Misapplication of the Innovation Market Approach to Merger Analysis. R. Antitrust magazine.gov/opa/2004/01/genzyme. Carlton and R. D. Commissioner P. 60   R. the innovation markets approach should be subject to a strict factual analysis to establish whether innovation is likely to be adversely affected or R. 64 Antitrust L. J. Harbour Statement available at www. 729. at www. J. this approach is particularly appealing in biopharmaceutical industry in view of the tight regulatory requirements. In making this determination. attention should be paid to ‘the nature. cit. their access to intellectual property. For example in the USA the cooperation between the FDA and the FTC provides extensive information on ‘the status.3 These may also be the relative considerations in determining indispensability under Art. or other specialized assets. Antitrust law aims to promote not only price competition and output maximisation of existing products. skilled personnel.65 Therefore. and their ability. it may be more feasible to determine on a factual basis which research tools are truly ‘indispensable’. 82 duty to deal case-law could be used to ensure that R&D is not suppressed by the control of essential inputs in the R&D process by a few dominant firms with the discretion and possible motive to deny or reduce access to such inputs. .194 The interface of competition law and patents enhanced by consolidation. Anticipating the 21st Century: Competition Policy in the New High-Tech Global Marketplace.63 As in the case of mergers. either in the application of Arts 81 and 82 or in merger analysis. A corollary of this is that unilateral practices with the same effect will also be reviewed under Art. 82. approach and likely effect of each innovation effort … that might have been difficult to obtain otherwise’. either acting alone or through others. scope and magnitude of their R&D efforts. to forecast the effects of exclusion or consolidation. therefore.htm. and remedies such as divestiture and CL are used to achieve this result.62 Merger control. 82. is used as means to ensure that R&D is not overly concentrated so that downstream potential markets may develop. These permit competition authorities in cooperation with the regulatory authorities. 62   FTC/DOJ Guidelines for Collaboration Among Competitors (2000) op. Office of Policy Planning. practices which limit such progress pose problems for antitrust.fov/opp/hitech/ global. 682. p... similarly a refusal to deal may lead to the elimination of all competition as prohibited in certain cases by Art. In a similar way.64 In addition. 63   R. which exempts certain types of agreements between competitors under Art. the use of innovation markets analysis assesses the likelihood of delay in or elimination or reduction in quality or diversity of innovation as a result of decreased levels of competition in innovation. 1996. This involves recognising that collaborations are often pro-competitive and that it is paramount in determining whether independent R&D efforts are close substitutes. 81. available at www. cit. § 4. Davis (2003) op. cit.ftc. their timing.W. but also ‘industrial progress’. 82 may also be seen as the other side of the TTBER (2004) op. 64   In the same way that a merger may lead to increased consolidation. Art. This application of Art. 82. 65   FTC. to successfully commercialize innovations’. in this case. their access to financial support. He also refers to Klemperer’s model (P. the importance of CL as a means of addressing follow-on innovation considerations should not be underestimated. p. Lao (1999) op. cit.3 Conclusions on compulsory licensing as a safety net While it would seem that much uncertainty surrounds fundamental questions in this area. Arora. as the courts are 66   ‘…There is no definitive test for dividing the optimal level of protection for IP. See A. Logically the law should not place antitrust constraints on a monopolist’s right to refuse to license if such constraints would undermine the IP laws. cit. one should also look to policy concerns in determining whether a unilateral refusal to license should ever be considered an antirust violation. cit.’ 68   An alternative may be a patent compulsory licensing provision in the case of necessary inputs for follow-on or downstream innovation. 2002. . Competition and IP Law and Policy in the Knowledge-Based Society: Is there a Cause for Concern about Unilateral Refusals to Deal? 1 May. While competition law is not the only instrument to improve the balance. Springman. the assumption that the IP right to exclude is complete may prove to be incorrect. Bailey (2001) op. A similar argument is levelled with regard to the commensurability and proportionality of the incentive to innovate and the benefit form immunity. Hence. the law should not give IP holders the carte blanche to refuse to license if that would result in frustrating the very objectives that IP laws seek to achieve. it does provide a means of enhancing the innovation/access balance. it would seem that this is more problematic in theory. See also C. See also T.’66 As it is questionable whether innovation incentives are sensitive to the narrow refusal to deal liability. None the less. rather than in practice. the benefits may far outweigh the cost.3. DOJ/FTC Hearings on IP and Competition Law. 12 ‘Pointing to the fact that compulsory licensing will lead to a less-than-maximum level of research and development is not dispositive because the social cost of providing those additional units of research may outweigh their social utility. Klemperer. Econ’cs 113 (1990)) that suggests that a small reduction in the patent holder’s right to profit may reduce deadweight loss even more.’ M.68 A major disadvantage of this approach is the fact that it relies on courts to determine what constitutes a ‘reasonable royalty’. How Broad Should the Scope of Patent Protection Be? 21 Rand J.C. Conversely. 210.J. The author questions whether innovation incentives are sensitive to narrow refusal to deal liability.2.67 The recognition of the existence of CL under antitrust law to remedy a situation of blocked follow-on innovation as a last resort safety net (whether this is seen as remedying a perceived patent failure or simply balancing the system as initially contemplated) would seem to be a more feasible and indeed more desirable option. ‘To the extent that neither statutory nor case law establishes clearly the legal scope of an IP grant. and D. leading to a significant reduction in incentives across industries. … There is no reason to assume that the present level of research activity is in fact the socially optimal level. Technology access problems in the biopharmaceutical industry 195 7. p. Gerber (1988) op. 67   See Chapter 5 on alleged harm to incentives to innovate. DOJ/FTC Hearings on IP and Competition Law. Competition and IP Law and Policy in the Knowledge-Based Society: Is there a Cause for Concern about Unilateral refusals to Deal? 1 May 2002. See J. in South Africa. in considering which rates are discriminatory consideration is paid to.229. None the less. particularly in the case of information goods. Small (2004) op. Aoki and J.69 In general.75 If this proves to be the case in practice. H. Love. 75   See. 70 . and instead diverts research to other areas.70 A reasonable royalty fee covers costs as well as a reasonable profit taking the market value of the innovation into account amongst other things. WT/DS160/R.196 The interface of competition law and patents used to determining infringement damages on a regular basis. WHO Meeting in Harare. the Advocate-General indicated that the cost/price analysis would not be appropriate in the context of copyright licensing as the cost of creating a work ‘of the imagination’ is impossible to determine. US – Section 110(5) of the US Copyright Act. 82(c) prohibiting dissimilar conditions for equivalent transactions. Implementing TRIPS Safeguards with Particular Attention to Administrative Models for Compulsory Licensing of Patents. p. then the alternative of enacting a specific patent provision for research tools should be considered.4 Conclusion: A Human Rights Approach to Competition Law? In conclusion. 28. para. amongst other things. 21 August 2001.2. cit. for example.76 7. cit. however.74 The shortcoming of such an approach may be that the enforcement costs are so high and the procedure so lengthy that it effectively discourages parties from pursuing a compulsory licensing action. 6. in a case involving whether the level of royalties charged for an IP licence were excessive. the royalty may not be at discriminatory rates that would violate Art. lost profits. Love (2001) op. that the right to health not only affects patent law but may also increasingly affect the interpretation and application of competition law. failing this. the ECJ simply compared the rates with those charged by other copyright management societies in other Member States. 73   WTO. Panel Report of 15 June 2000. 76   An alternative to this may be the endorsement of a rebuttable presumption in favour of compulsory licensing.73 So. in J. other business relations. for example. the royalty fee may be set by an expert.   See Check List for Fast Track Compulsory Licensing. the differences in the costs of licensing. in the USA where it is estimated that parties spend more than $1 million to litigate a patent dispute. 74   Case 402/85 Basset v SACEM [1987] ECR 1747. it should be noted.71 It is believed that royalty payments. cit. Zimbabwe. Barton (1997) op. it is left up to the parties to reach an agreement within a specific period. and different end-uses. ‘allow greater choice [than fixed fees] among profits and consumer welfare in the final good market’72 and permit flexibility so as to prevent as far as possible ‘the potential to cause unreasonable loss of income to the copyright owner’. 71   However. For example. the Competition Commission found 69   J. 72   R. 8(c)). The South African case shows that competition law may be interpreted in line with the human rights obligations and. Musa Msomi.cptech. refusing access to essential facilities (s.co. 16 October 2003. 10 December 2003.html and Competition Commission concludes an agreement with pharmaceutical firms. private companies may be found to be in violation of the competition provisions. Case Number 34/CR/Apr04. more specifically. cptech/ip/health/cl/recent-examples. (4) where the licensee does not have manufacturing capability in South Africa. See also South African Competition Tribunal’s decision and order in Pharmaceutical Wholesalers and Glaxo Wellcome. the abuse also consisted of refusal to grant licences to generic manufacturers in return for a reasonable royalty. lamivudine. (2) grant up to three more voluntary licences on terms no less favourable than those granted to Aspen Pharmacare. available at http://www. with the goal of striving ‘towards the highest attainable standard of health’. 18 June 2003 at www.78 Hence. Technology access problems in the biopharmaceutical industry 197 GlaxoSmithKline and Boehringer Ingelheim to have abused their dominant position by virtue of excessive pricing in respect of ritonavir. the parties were found to have violated the provisions of the Competition Act of 1998 which prohibit excessive pricing (s. Elijah Paul Musoke. GSK will permit the importation of the drugs for distribution in South Africa. 78   Ibid. 8(b)) and exclusionary acts that have an anti-competitive effect that outweighs technological efficiency or other procompetitive gains (s. .html. and GlaxoSmithKline (Pty) Ltd. 8(a)). It was found that this would have been feasible and also beneficial to consumers as it would lead to lower prices. See Competition Commission finds pharmaceutical firms in contravention of the Competition Act. amongst other things.comptrib. If access to drugs is disproportionately restricted due to pricing measures.79 77   In The Matter Between Mpho Makhathnini. The terms of the settlement included: (1) extend the voluntary licence granted to Aspen Pharmacare in October 2001 in respect of the public sector to include the private sector.cptech. in which the South African courts found GlaxoSmithKlyne to have abused its dominant position by virtue of the excessive pricing of drugs. case 68/IR/Jun00. (3) permit the licensees to export the relevant antiretroviral drugs to subSaharan African countries. available at http://www. AIDS Healthcare Foundation Limited.77 More specifically.pdf.org/ip/health/sa/ cc10162003.za/decidedcases/pdf/68IRJUN00kinesis. ritonavir+lamivudine and neviparine. Excessive pricing and anti-competitive refusals to deal. Glaxo Group Limited.html. at www. and (6) charge royalties of no more than 5 per cent of the net sales of the relevant ARVs 79   See Statement by Consumer Project on Technology Concerning an alleged prohibited practice in terms of section 49B(2)(a) of the Competition Act 89 of 1998. Nelislwe Mthethwa. Tom Myers.org/ip/health/sa/ cc12102003. should therefore be examined within the context of the health implications at stake. (5) permit licensees to combine the relevant ARV with other antiretroviral medicines. based on reasonable criteria which include registration with the Medicines Control Council and the meeting of safety and efficacy obligations. 198 The interface of competition law and patents In this way. for example.80 rather than in cases such as research tools where the effects on health are more indirect and can only be speculated. R&D into new therapeutic compounds and wholesale distribution of medicines. at http://www. Maskus. however. Drug markets usually correspond to the therapeutic classes. In the case of research tools however. the Commission has distinguished between the markets for the production and sale of approved products. Chlordiazepoxide and Diazepam (H. Adopting a more innovation sensitive approach to competition law and the particularities of certain innovation-based industries such as biopharmaceuticals could in this sense also be seen as in line with the obligation of states to strive ‘towards the highest attainable standard of health’. In the IMS case. in 1973 when the Monopolies Commission in the UK required Roche to lower the price of its patented Librium and Valium to the NHS. Competition Policy and the Stimulation of Innovation: TRIPS and the Interface Between Competition and Patent Protection in the Pharmaceutical Industry.A. is more likely in cases involving dissemination concerns where the effect on health would be apparent. with prices differing according to the pricing policies of each Member State.org/about-ip/en/studies/pdf/ssa_maskus_pi. 81   As explained above. Gatti. they may affect the compulsory licensing provisions in the sense of lowering the indispensability threshold and may lead more easily to a finding that access to certain research tools should be mandated. have rather been concerned with products which were present on the market.C. Report to WIPO 2001.int. in the Discussion Paper on the application of Art. the crucial element in the case of research tools is the indispensability of the input for downstream innovation. Inte’l L 363. Consistent with the above. Singham. In this context. the novel element of the analysis is the future potential innovation element. eu. Classical antitrust cases in the biopharmaceutical industry. The Monopolies and Mergers Commission was the forerunner of the present Competition Commission. This interpretation of competition law. and the interpretation of a market as including a ‘potential or even hypothetical market’ could be seen as a step in this direction. although reimbursement policies are also relevant. Joint Ventures and the Pharmaceutical Industry. Mergers. pdf. 1973). 26 Brooklyn J. See J. Parallel Important in Pharmaceuticals: Implications for Competition and Prices in Developing Countries. however. the interpretation of the new product requirement as extending to ‘intention to produce new goods’.wipo. 2000. unlike traditional antitrust cases where markets are still quite fragmented along national lines in this industry.81 None the less. Mergers. . 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F. 101.M. duty to deal technology access problems and 185–6 Aoki. M.Index AAAS (American Academy of Arts and Sciences) 85 ABA (American Bar Association) 21. 88 agreement see MTA. 179 anti-commons property rights and 109–10 research fragmentation and 5. 196 239 . 156–7 refusal of access to essential services and 154–6. to. 193 Banks. 163. 28 Balto. 55. 169 refusal to supply and 147–9. 64 abuse of dominance compulsory licensing and 150. P. TRIPS Aguilera. A. 151–4 requirements for 152. 54 Adcock. 153–4. 129. 134. K. 157. K. 149. J. 180. 117. transition from separate to unified fields 115 law see competition law. 160. R. 180 Attwood. D. IPRs and competition law 116–19 recent recognition of. 162–5 refusal to license and 150–51. 177. 126. 58. 158. 9 ancillary activity reservation of. 32. refusal of 154–6. 9 Barton. 52. 165 Treaty of Rome and 103 vertical integration and 145–7. P. 26. 181 Abbott. 153–4. 159–61 essential facilities doctrine and 167–8 proportionality and 147–8. M. 151 acceptability right to health and 78 access essential services.H. 190. 166 Austin. 186. 53. 156. 116. 49.C.J. I. 162–5 see also technology access accessibility right to health and 78 ACIP (Advisory Council on Intellectual Property) 47. 135 Arora. 196 Areeda.C. 195 Arrow. M. 104 Barinaga. M. 117. S. T. 51. 106. 32. 135. 8. 23. J. 17 Cohen. 65 Belgium duty to deal 154.A. 94 blocking patents doctrine patent protection and 37. 90. 81 Carlson.C. J. G. 78. 171–3 denial of access 154–6. P. 195–6 two-market requirement and 188 see also licensing Clark.G. C. 108 Brazil compulsory licensing 59 right to health 94 Britain see UK Britz. J. 87.A. M.R. R. W. 118 Cho. M. 71 Blackburn. 161–2. 91 Chetley. essential facilities doctrine. M. 158. A. S. 51. N. 151–2. 52. 34 Carlton. 177 Bloche. 131.240 Index Battcock. 180 Cohen-Boyer Patents research tool. 184 right to health and 70. 59 Biotechnology Industry Organization 4 Birdsall. 159–61 antitrust as interchangeable remedy with 189 blocking patents doctrine and 49 incentives to innovate and 118 new product for which potential consumer demand and. 126. 159–61 see also courts. 182 Campbell. 161–2 see also EU Bendekgey. 83. 8 Chapman. dependence cases. 180 Boyle. leverage cases Chambers.V. technology access problems and 177. preventing emergence of 187 patent protection and 37. 6. 165–9 refusal to provide interoperating information 169 refusal to share spare parts with independent provider of aftermarket support 153–4 refusal to supply input to preserve power in market B 145–7. D. 53 Cohen. J. 3 Cohen. 10 CL (compulsory licensing) abuse of dominance and 150. refusal to deal and 123–6 . 181 Bergman. 85.W. 193 case law essential facilities doctrine cases. 91–3. A. 164 Bhatnager. 162–5 no effect on trade 150 refusal to continue joint venture with competitor 156–7 refusal to fully meet supply requests to prevent parallel imports 170 refusal to license 150–51. technology access problems impact on 189–90 public health 93–4 refusal to deal under Art 82 EC 147–9. competition law and potential harm to. Y. 63–5 definition and history 54 EU Member State provisions for 66–9 grounds for 57–8 role of 58–63 support and opposition for 54–6 public health case law and 94 research tools and. E. 123. duty to deal 122 intellectual property 94–6 patent system. 56–7. C.M. 6 Carl. 90 Calabresi. as. R. 124. L. 10 Benkler. 49 see also patent Boone. access through patent law 182. 73 Chien.G. J. 96–7 safety net. S. as 8 Colombia right to health 80 commensurability compulsory licensing role in balancing 58 competition IPRs and see IPRs.K. indispensability requirement and 133–41 new product innovation 141–2 leverage cases. potential harm to 123–6 state of law on 126–8 dependence cases 128–30 essential facilities doctrine (EFD) cases. 94–5 241 Community Code Relating to Medicinal Products for Human Use. 109. 34. 73. 9 Ducor. 88. 81 Dutfield. 180 Drlica. 111 Davis. 88 Dreyfuss. Patent and Trademark Office (USA) 182 dependence cases characterization unhelpful 157 duty to deal 122. 42 Dupuy.-J. 21–2. 97 Cornish. K. 48 Drahos. R.A. 41. demand Denmark compulsory licensing and experimental use exemption provisions 66 see also EU Department of Commerce. 192 Dalpé. B. 190 Domeij.N.J. P. ‘reservation of ancillary activity’ 130–33 technology access problems and 185–6 impact on patent system case-law 189–90 indispensability 186 innovation markets in 191–4 new product for which potential consumer demand. competition law and Conigliaro. 107. 126. B. P. C. 14 see also genetic diagnostics Dolmans. 180 direct effect patenting and right to health 87–8 Directives Biotechnology 12. patent Dahdoud. legislation DNA sequences biomedical research tools and 9–12 patent trends effect on patent balance for 13. R. 24. under 79 duty to deal (Art 82 EC) refusal to deal under 122–3. Index Competition Commission (South Africa) 63. 196–7 competition law human rights approach to. S. G. G. 31. refusal to deal under Art 82 EC competition and. 76. 79. R. 143–4 cases see case law. preventing emergence of 187 . M. 34 Connor. P. 180 deadweight loss compulsory licensing desirability and 55–6 property rights and 111 demand see product. 181 Cullem. 192.C. 60. B.X. W. 39 Correa.W. R. 37.R. 190. S. 4 David. 108. IPRs and competition law 103–6 see also case law Cringely. 7 Cullet. 32 courts practice. M. 93 cumulative innovation biopharmaceutical see R&D patent breadth and 24 see also invention. 194 De Santi. P. 33 duties right to health. R. IPRs. 72 Cornish. technology access problems and 196–9 see also duty to deal. T. amending 40 Database 119 In-Vitro Diagnostic Medical Devices 37 Legal Protection of Biotechnology Inventions 27 Legal Protection of Computer Programs 119 Rational Use of Medicines 27 Rental and Lending Rights 95 see also EU.S. 128–30 see also case law Depoorter. 157 existence/exercise distinction and 104 experimental use exemption and 181 innovation markets and 191 IPRs and competition law and 103. 94. 15 technology access problems and 16.N. 12 Finland compulsory licensing and experimental use exemption provisions 66 duty to deal 150–51 see also EU Fitzgerald. D. 103. R. 166 exclusivity patronage. interpretation of 181 research tools and. access through patent law 181–3. 13. 55 Feinstein.L. 86 Supplementary Protection Certificate 30 see also individually named Member States EUE (experimental use exemption) patent protection and 37. S. 182 EU (European Union) competition law 101. 193 Feit. 87 exceptional circumstances essential facilities doctrine and 166 exclusive rights exercise and. 180 ESCRC (Committee on Economic Social and Cultural Rights) 73 ESTs (expressed sequence tags) research tool. procurement and property and. 89 EMEA (European Medicines Evaluation Agency) 26–7 EPO (European Patent Office) 36–7 Epstein. 119. R. 181–2. 121 technology access problems and 198–9 European Group on Ethics in Science and New Technologies 37. status in law 71–4 right to property and IP 84. 47 research fragmentation and 5–6 research tools and 8. 184 European Commission antitrust and IP and 115 antitrust control recognition and 120 duty to deal and 144. interpretation 160–61. 39–43. 121 compulsory licensing 60. as 8. 192. absence of 188 two-market requirement 187–8 EC Treaty see Treaty of Rome EFD (essential facilities doctrine) abuse of dominance and 167–8 access refused to essential services and 154. 49 right to health 74–5. 46. C. experimental use exemption and 45. I. 14. IPRs and competition law 109–12 existence/exercise distinction antitrust and competition and 115 IPRs and competition law and 103–6 Fauver.M. 66–9 experimental use exemption provisions 66–9 intellectual property cases 94–6 patent protection provisions 38 patent systems and sources 25 reverse doctrine of equivalents 48. 49 compulsory licensing see CL .242 Index objective justification. 183 El Salvador right to health 88 Elliott. D. 97 right to health as human right. 162 follow-on innovation compulsory licensing desirability and 55 patent protection and 36–7 blocking patents doctrine 37.A. 70. duty to deal 122 exceptional circumstances and 166 indispensability requirement and 133–5 indispensability 135–7 objective justification 139–41 two-market requirement 138–9 refusal to license and 165–9 Eisenberg. 46–7 EU Member State provisions for 66–9 US experience 44–6 ‘relating to’ in. 158 antitrust and competition and 115 cases. 178. R. 26 Hamlet-Cox. right to health healthcare implications. 78 Grabowski. 10 Handley. L. J. 56. patent France compulsory licensing and experimental use exemption provisions 66 patents’ importance. patent trends effect on patent balance for 14 see also EU Gertner. 194 Antitrust Guidelines for the Licensing of Intellectual Property 119. 120 Hearings on IP and Competition Law 195 Proceedings on Competition and IPRs 29. 27 Gwrg.C. 193 Gitter. 157 Hahn. R. D. 132. 46. 24. D. Index experimental use exemption see EUE patent pools 37. R.J. 27.H. 28. D. 116 Gerber. R. D. 135.A. 5 Hogerzeil. R. H. A. 58 Hull. 150–51. 97 Gostin. 43 Gambardella. 193 Gilat. 54. 67 duty to deal 129. M.S. 146. 29 Goldman.V. 51–3 reverse doctrine of equivalents 37. D. 34 Grosvenor. 50 see also invention.J. 135 health emergencies. 12 Glenken. 26. compulsory licensing role in addressing 61–3 see also public health. 134 Goldstein. 26. H. H. P. 24 Greenberg. 39. 67 patent pools 53 research tools. S. 23. A. 64–5. 29 Greece compulsory licensing and experimental use exemption provisions 67 duty to deal 170 see also EU Green.W. 113 Gorner. 26 genetic diagnostics biopharmaceutical R&D and cumulative innovation 4–5. 59 Hawker. 48–9. 118 Proceedings on the Pharmaceutical Industry 29 Fuenzalida-Puelma. 198 Gelijns. J. 29 Harvard ‘oncomouse’ research tool. 48 Hantman. as 8 Harz. G. 138 Germany compulsory licensing 61.L. 28. J. D. 134 Hasenzahl.G. 194 FTC/DOJ Antitrust Guidelines for Collaboration Among Competitors 191. M. 33 Gatti. 138 horizontal dilemma patent balance and 23 Hovenkamp.A. 97 Holzapfel. 193. 41 Hardin. 41. 129 Glover. 42. 6 research tools and 8. C. J. 40. H.A. R. 184 243 Gilbert. biopharmaceutical R&D and 4–5 Heller. E. A. A. 6 Hooks. J.C.D. J. 72 Fysh. 110 Harhoff. 165–9 experimental use exemption 40.A. 15 goods see information goods. 131 Gerber D. technology access problems and 196–9 . R. L. overstating 33 see also EU FTC (Federal Trade Commission) (USA) 32. 166 human rights approach to competition law. 9 patent pools and 52 see also DNA sequences Genevaz. H. public goods Gordon. 42. M. N. duty to deal 141–2 patenting and 28–31 see also cumulative innovation. procurement and property and 109–12 transition from separate to unified fields 114–16 see also rights Ireland duty to deal 156–7. as patent system rationale 21–2 orderly cumulative development of. 41 Italy compulsory licensing and experimental use exemption provisions 67 see also EU . 103. as. 85 see also legislation incentive reduction compulsory licensing desirability and 56 India generic products and drug prices 82 indirect effect patenting and right to health 88–9 indispensability duty to deal and technology access problems and 186 essential facilities doctrine and 133–7 objective justification 139–41 two-market requirement 138–9 information access see technology access goods. right to property and 84–6 system. 159–61 see also EU Israelsen.A. 121 antitrust control 116–21 competition embedded in IP system 114 courts’ practice 103–6 EC Treaty provisions 102 exclusivity. public interest limitations 86 right to health elements and 78 right to health sources and 75–6 right to health strengthening and 81 right to property and IP as human right and 84. as patent system rationale 22–3 dissemination patent system goals and 23–4 patent system rationale. procurement and property and 109–12 IPRs like other property rights for purposes of competition 112–13 public goods market failure and 107–9 patronage. patent innovation incentives antitrust control effect on 116–19 compulsory licensing and 118 innovation markets duty to deal and technology access problems and 191–4 optimal structure 179–81 see also market invention commercialization. follow-on innovation. fundamental rights analysis and 94–6 human right. as patent system rationale 23 see also patent IP (intellectual property) European cases on. N. Social and Cultural Rights) property rights and. patronage. competition embedded in 114 see also property IPRs (intellectual property rights) competition law and 101. as 22 motivation. IPRs and competition law 109–12 see also knowledge innovation nature of biopharmaceutical 26–8 new product. procurement and property and 109–12 information goods. patronage.244 Index right to life 80 see also right to health. right to property IACHR (Inter-American Commission on Human Rights) 80 ICESCR (International Covenant on Economic. 39. 197 Convention on the Elimination of All Forms of Discrimination Against Women 72. 86 European Patent Convention (EPC) 15. H. 192 Ladas. 72 Kenney. 191 knowledge public good. 134 Killick. 76 Intellectual Property Code (France) 62 Drug Price Competition and Patent Term Restoration Act (USA) 40. 148–9. 86 Civil Code (Netherlands) 92 Community Patent Convention (CPC) 39 Community Patent Regulation (CPR) 38. 6 Leaffer. D. 158–9 Karjala. 191 Kelley. M. 60. 119 Patents and Plant Variety Rights (Compulsory Licensing) Regulations 60 Public Health Emergencies Act (USA) 62 San Salvador Protocol 88 . 38. 195 Lawson. V. E. 36. 84.W. M. 138 legislation Act Against Restraint of Competition (Germany) 129 Affordable Prescription Drugs Act (USA) 62–3 African Charter on Human and People’s Rights (Banjul Charter) 72 Index 245 Berne Convention for the Protection of Literary and Artistic Works 119 Charter of Fundamental Rights of the European Union 74–5.P. J. 24 Klemperer. 59. as 107–8 see also information Ko. 61 Competition Act (South Africa) 63. 87 Kenya generic products and drug prices 82 Kern. 29 Kwoka. I. 92–3 Jensen. V. 139 Kind. L. 87 Paris Convention for the Protection of Industrial Property 54 Patent Act (Germany) 15–16. 60. 159 Lao. 26. A. J. C. M. E. 62 Patent Law (Switzerland) 60 Patent Law Including Modifications (France) 39 Patents Act (UK) 39. J. 28 Julian-Arnold. 39.J.T. P. 21.R. 24. 39. J.J. 191 Kubalski. E. G. S. 60. 195 Knable Gotts. 11 Korah. J. 46 European Charter of Patients’ Rights 75 European Convention on Human Rights (ECHR) 84.P.L. P. 185. 184 Leary. 134. C.S.G. 162 Kraus. J. S. D. Y. 71 Japan compulsory licensing 61 Jehoram. 23. 73 Leddy. 76 Convention on the Rights of the Child 72. 57. J. 185–6 Karp. 181 Kitchm E. 72. 42 Lang. 76 International Covenant on Civil and Political Rights (ICCPR) 74. 35. 51 Kukies. 86 Medicines and Related Substances Control Amendment Act (South Africa) 93 Orphan Drugs Act (EU) 30 Orphan Drug Act (USA) 30–31. J. 64 Junnarker.A. 64–5 Kezsborn.C. 56. M. J. 62. James. 77 Kattan. 8 Kallaugher. 117. 39 European Social Charter 72 General Agreement on Trade and Services 91 International Convention on the Elimination of All Forms of Racial Discrimination 72. 59 Laherty. 183 Kass. K. 8 Melamed. 183. M. 53 research tools and 8 Merkin. 181 McFetridge.M. EPC.A. J. 29. 58 market failure. 64.G. 137 Luxembourg duty to deal 151–2 see also EU Machlup. 24 Love. public goods and. 8. 125.F. technology access problems and 179–81 see also innovation markets. optimal for innovation.E. 85–6.K. 135 Llewelyn. Treaty of Rome. 10 Miller. 95 Mwalimu. J. J. F.B. 104 Mark.A. 77. 130–33 see also case law Levin. 111 patent balance and 24 patent protection and 48. 111 Netherlands compulsory licensing and experimental use exemption provisions 69 see also EU . 196 Lunney.R. D. 104. 52. 90 Lipsky. 192 Montgomery. 95 Mann. U. L. 88 Loury. 105 Nacke. R. 180 Levy. 84. 30 Marenco. 191. 12–13 Nelson. IPRs and competition law and 110.C. D. M. T. M. 47 research tools and 7. 169 essential facilities doctrine and 165–9 refusal to deal.M. 101 Metz. 51. 11. 24. 193 McLeod. 192 MTA (material transfer agreement) research tools and 7 Mueller. S. 9. T. 178 license stacking patent trends effect on patent balance for research tools and 13–14 technology access and innovation and 5–6 licensing broad.246 Index Technology Transfer Block Exemption Regulation (TTBER) 191 Universal Declaration of Human Rights (UDHR) 73–4. R. J. G. 34. M. 110. 30 Lie. 183 Nelson. J. 124. 198 Maurer. 114 Mackie-Mason. 13. 49. 82 Myrick. R. J. 83. 126 MacLaren. 21. J. 163. 17 Mully. R. 56. J. E. 129–30. M. 75. 46. 180 leverage cases duty to deal 122.G. 134. as 124 Lichtenberg. 49–50. 79 Morse. F. T. G.C. 153–4. K.H. P. 138 Marshall. E. R. twomarket requirement market-oriented experiments experimental use exception and 40 Marquandt. 13 Maskus. 78 Mansfield. 105–6 Mongoven. J. 85 Vienna Convention on the Law of Treaties 89 see also Directives. 56 McGowan. 24 Mackaay. 58 Lerner. 73 Lipinski. ICESCR. J. A. 157 National Institutes of Health (NIH) (USA) 13. compulsory licensing as mechanism to induce 58–9 compulsory see CL refusal abuse of dominance and 150–51. 182 Merges. E.F. 184 patent protection and 36. D. IPRs and competition law 107–9 structure. TRIPS Lemley. R. G. duty to deal and technology access problems and 181. 56. C. 24.A. 51–3 reverse doctrine of equivalents 37. 24 ordre public right to health and 70. 48–9. overstating 31–3 Index 247 length. J. 13. 9–10. 52. patent protection and 37. patent system goals and 24 dependent 49. 39–43. 177. 49 compulsory licensing (CL) 37. as 34–5 biopharmaceutical innovation nature of 26–8 patenting and 28–31 patent balance 21.N. 46 patent blocking. 14. 17. 115 Nicol. 50 impeding information access and 14–15 patent system balancing system. 65 importance. 13. patent protection and 37. 23–5 . 5. 27. L. 180 Pate. patent system goals and 24 pools. 26. patent trends effect on 12–15 right to health implications see right to health patent law right to health and effect of patent law on right to health 82–3 effect of right to health on patent law 83 interpretive principle. 29. new product innovation. technology access problems and 177. 49 breadth. invention patent balance patent system as balancing system and 21. 87. 11. duty to deal 141–2 potential consumer demand existing. 6 Nigeria right to health 80 NIH (National Institutes of Health) (USA) 4. F. 27 Oxfam 31 Pammoli. 134 Ordover.A. 6 Nielsen. duty to deal and technology access problems and 187 see also product Newberg. 90–93. 17 objective justification absence of. preventing emergence of. 26. 23–5 research tools. 126. 63–5 definition and history 54 EU Member State provisions for 66–9 grounds for 57–8 role of 58–63 support and opposition for 54–6 experimental use exemption (EUE) 37. 27 Parisi. 177–8 see also innovation. as 70–71. 51–3 pre-commercial stage 4. J. for. 195–6 European law provisions for 38 follow-on innovation and 36–7 blocking patents doctrine 37. 96 Orsengo. 46–7 EU Member State provisions for 66–9 US experience 44–6 patent pools 37. J. 96–8 public-health case-law 93–4 technology access problems and 181–5 patent protection compulsory licensing as. 7. F. G. duty to deal and technology access problems 188 abuse of dominance and 148 essential facilities doctrine and indispensability requirement and 139–41 parallel trade restrictions and 170 refusal to supply and 149 obligations see duties OECD (Organisation for Economic Cooperation and Development) 3. D. 183 non-use compulsory licensing role for 59 Norway compulsory licensing and experimental use exemption provisions 67 Nuffield Institute of Biotechnology 4. doctrine. IPRs and competition law 109–12 public health case law. J. 4 Rapp. 90 Perrine. compulsory licensing desirable where 54–5 see also new product property public goods. biopharmaceutical R&D and 5–7 . compulsory licensing and antitrust 189 research fragmentation. patent law and right to health 93–4 compulsory licensing and 70 see also health public interest IP as human right and right to property 84. 138 Pons. compulsory licensing as 63. technology access problems impact on 189–90 EU existing 25 importance of. J. factors in 29–30 main rationales 21–3 research tools and.248 Index patents’ importance.K. IPRs and competition law 109–12 see also IP. for. J. technology access problems 177–81 safety nets see patent protection patenting biopharmaceutical innovation and 28–31 increase in. 138 PBM (Pharmacy Benefits Management) networks refusal to deal and 178 PCR (polymerase chain reaction) technology biomedical research tools and 9 research tool. R. 139 Reichman. R. right to property property rights specific subject matter doctrine and 115 see also IPRs. IPRs and competition law 109–12 product demand not met. 54. overstating 31–3 biopharmaceutical industry and 25–6 case-law. R. 86 quality right to health and 78 R&D (research and development) cumulative innovation and 3–7. 191 Portugal compulsory licensing and experimental use exemption provisions 68 see also EU privatization biopharmaceutical R&D and 5 procurement public goods. IPRs and competition law 109–12 Patterson. 185 interchangeable. 110 Pitofsky. 16–18 biomedical research tools 9–12 defining research tools 7–8 patent trends effect on patent balance for research tools 12–15 see also research Rabinow. 193 Ratner. IPRs and competition law 107–9 patronage. J. as 8 see also technology Pekari. D. 9 Rai. 156–7 public goods market failure and. healthcare implications 4–5 privatization and 5 right to health and 87–9 patronage public goods. exclusivity and information goods and. P. exclusivity and information goods and.C. procurement and property and. exclusivity and information goods and. J. 59 remedy anti-competitive conduct. 166 Perritt. rights proportionality abuse of dominance and 147–8. H. 108. 14. 3 Stothers. C. K. technology access problems 177–81 patent trends effect on patent balance for. Y. cumulative innovation and R&D and 9–12 compulsory licensing usefulness and 58 defining. J. S. S. 151–4 . protect and fulfil 79 strengthening. J. P. 90–94.G.and medium-sized enterprises) independence. 53 Subbiotto. 165 Robinson. 105–6 property rights and 115 see also access Stiglitz. 196 SMEs (small.A. 186. as. 64 Schoff. 87 right to heath elements 77–8 human right. 118 Scherer. 24. 46–7 patent pools and 53 patent system and. technology access problems and 181–5 experimental use exemption and 40. J. 151 Sunshine.A. international efforts for 80 sources 74–6 IP 84–6. J.M. F. C. S. 195 SSM (specific subject matter) doctrine existence/exercise distinction and 104. S. 150 Smith. 135 Siebrasse. 134 Ross. 180. 33 patent protection and 56. 90 Schumpeter.M. recent changes in 3 see also R&D research tools biomedical. J. R.K.A. 48–9. Z. 42 Sidak. E. 8 Semerano. 94–6 patent law and 70–71. 23. 249 duty to deal and technology access problems and 181 IPRs and competition law and 116.M. status in European law and 71–4 implications 76–7 obligation to respect. 33 Small. D. 164–5 Strauss. 118 patent balance and 24. 52. Index nature of. 26. 129 Shavell. 193 Shibata. 82–3. 51. D. 180 Scotchmer. C. 98 technology access problems 196–7 Spain compulsory licensing and experimental use exemption provisions 68 see also EU Springman. 112 Silberston. 50 Rey.C. 108–9. 24 Seelen. A. S. 30 South Africa compulsory licensing 63 right to health 93–4. cumulative innovation and R&D and 12–15 reverse doctrine of equivalents and 50 reverse doctrine of equivalents patent protection and 37. C. S. abuse of dominance and 148–9. 135 Seide. S. C. 32. 81 Shapiro. 56 Sing. 166 see also IPRs. 193 supply refusal to 147–9. 118 Shah. 24. N. 104–5 Snyder. R. 29. property rights Robertson.E. 52 Singham. 96–8 patenting and 87–9 right to property IP as human right and 84–6 rights exclusive. cumulative innovation and R&D and 7–8 essential. S. L.O. exercise of and exceptional circumstances interpretation 160–61. 134. 111 Sher. 132 Richardson. 49 right to health 94 . D. 185 property rights and. 134. overstating 33 see also EU Ullrich. C.T. 69 patents’ importance. public interest limitations 86 right to health as interpretive principle in patent law and 90. 41 UK (United Kingdom) compulsory licensing provisions 69 duty to deal 150.K. P. 106 IPRs and competition law and. 134 experimental use exemption 44–6 innovation markets and 191 research tools. C. human rights approach to 196–9 compulsory licensing as safety net 177. 9 significant advances. 182 Tandon. nature of 28 Bolar exception 40 compulsory licensing 62–3. optimal market structure for 179–81 patent law 181–5 patent system gap 179 research tool particularity 177–8 see also access Thailand generic products and drug prices 82 Toebes. 58. patent protection and 14–15 innovation and 16–17 license stacking and 5–6 research tools and patent system. 64. 74 Tom. 113. 73. 65 essential facilities doctrine 133.A.E. E. 69 experimental use exemption provisions 69 patents’ importance. technology access problems and impeded. 23. 56 technology PCR 8. 89. 96 see also legislation Troy. 55 Taq (Thermus aquaticus YTI DNA polymerase) research tool. patent trends effect on patent balance for 15 reverse doctrine of equivalents 35. 159–61 experimental use exemption 43. 193 Treaty of Rome (EC Treaty) abuse by dominant undertaking and 103 Art 82 see duty to deal existence/exercise distinction and 104. 94 right to health indirect effect and 88–9.E. 135. 114–15 UN (United Nations) 80. 71. 105. 90 UNDP (United Nations Development Programme) 82 USA (United States of America) antitrust control 119 biopharmaceutical innovation in. 48. overstating 33 Talley. D. 120 blocking patents doctrine and 49 compulsory licensing and 57. conclusions antitrust law see duty to deal innovation. 112. H. as 9 Taylor. CL role in 59–61 technology access competition law. 153–4. 93. relevant provisions 102 see also legislation TRIPS (Trade-Related Aspects of Intellectual Property Rights) Agreement antitrust control and 119. 139 two-market requirement duty to deal and technology access problems and 187–8 essential facilities doctrine and indispensability requirement and 138–9 refusal to license and 169 see also market Tuffery. 195–6 duty to deal (Art 82 EC) and see duty to deal. 115. 61.250 Index Sweden compulsory licensing and experimental use exemption provisions 68 see also EU Switzerland compulsory licensing 60. W. T. 6. 33 Welch. J. 96 Yamin.E. 149. 88–9. 90. M. 94.G. non-use Van Boven. 83. S. technology access problems 194 two-tier R&D system. 79. 73. 88 Yi. J. S. 164 Whitehead. T. 79. 89. T. 106 Voissiues and Partner 12 Walsh. W. 151 leverage cases and 131–2 Vinje. 3. L. 133 Zanon di Valgiurate. 149–50 . 41 Index 251 Whish. 87 WIPO (World Intellectual Property Organization) 33 WTO (World Trade Organization) 31–2. 158–9 vertical dilemma patent system goals and 23 vertical integration abuse of dominance and 145–7.S. 104. cumulative innovation and 3 use see EUE. 73 Venit. A. L. 88 Whitener. 76 Declaration of Alma-Ata on Primary Health Care 74 innovation and patenting and 31 right to health and 77–8. M. 180 Yoo. 78. 134. 77. 17 Walter. 61 Weissbrod. 77. C. 82. 126.C. 90 Weisburst. R. 81. 131 WHO (World Health Organization) compulsory licensing and health emergencies and 62 Constitution 71. D.S.