Contents of presentation

1. The interface between intellectual property and competition law in the TRIPS agreement: what sort of convergence is desirable and possible?* • Robert D. Anderson • Counsellor, WTO Secretariat (team leader for government procurement and competition policy) • WIPO Roundtable on Intellectual Property and Competition Law • New York City • June 6 and 7, 2011 • *This presentation is made in a personal capacity. The views expressed should not be attributed to the WTO, its Secretariat, or any of its Members.

2. Contents of presentation • Some important preliminaries. • How the WTO TRIPS Agreement is relevant to the competition policy-intellectual property interface (i.e. why it matters). • The role of competition policy in the TRIPS Agreement: what is clear from the Agreement • Questions raised in the Agreement but left unanswered • The real-world context: relevant considerations • Where guidance might be found • Issues for reflection and summary answer to the questions posed.

3. Some important preliminaries (1) • Currently, no ongoing work program on competition policy in the WTO. • Furthermore, any resumption of work toward negotiations on competition policy in the WTO barred for duration of the Doha Round (2004 “July package”). • My personal view: no presumption in favor of forced harmonization in this or other substantive areas of competition (antitrust) law/policy. On the contrary, important benefits to diversity of approaches/scope for experimentation.

4. Some important preliminaries (2) • On the other hand, there appears now to be growing acceptance of the desirability of promoting international convergence of competition law norms and remedies, to the extent compatible with national sovereignty/statutory mandates and differing circumstances of countries. This is due, in part, to a realization that globalization and the proliferation of competition laws across the world entail potential for inter-jurisdictional conflicts/negative externalities particularly concerning competition law remedies (Varney 2010A). • My belief: the danger that Varney cites may be particularly real with respect to the intellectual property-competition policy interface, where differing approaches/conflicting remedies can distort IP as well as competition policy. • Nonetheless, caution warranted: efforts to promote convergence in this area should avoid inappropriate rigidity and build on/preserve the scope for economic and cross-jurisdictional learning.

5. Why the TRIPS Agreement matters • The TRIPS Agreement remains a cornerstone of the international effort, led and supported by many countries represented in this room, to enforce minimum standards of IP protection/maintain appropriate incentives for innovation/technological diffusion and prevent free riding. • Perhaps surprisingly to some, the TRIPS Agreement also contains explicit provisions on the application of competition policy vis-à-vis IP rights (to be detailed in a moment). In general, these provide broad discretion to WTO Member governments in the policies that they adopt in this area. • The TRIPS provisions on IP also leave unanswered some important questions regarding policy application in this area. This is a key consideration underpinning the need for enhanced international dialogue on the competition policy/IP interface.

6. I. Relevant provisions of the TRIPS Agreement

7. Historical recognition in the WTO of the role of competition policy in balancing the exercise of IP rights • Concerns regarding the potential for anti-competitive abuse of rights protected under the TRIPS Agreement were voiced by many countries (especially developing countries) during the negotiation of the Agreement. • Consequently, the TRIPS Agreement provides scope for the enforcement of competition law vis-à-vis anti-competitive licensing practices and conditions. • The key operative provisions are Articles 40 and 31, especially 31(k). In addition, Article 8.2 provides general recognition that appropriate measures may be needed to prevent the abuse of intellectual property rights by rights holders. • The provisions regarding anti-competitive practices (especially Article 40) generally are permissive rather than prescriptive in nature. Exception: right to consultations under Article 40.3.

8. Relevant provisions of the TRIPS Agreement: Article 40 • Recognizes that licensing practices that restrain competition may have adverse effects on trade or may impede technology transfer/diffusion (Article 40.1). • Permits Members to specify in their relevant legislation practices may, “in particular cases”, constitute abuses of IPRs that have an adverse effect on “competition in the relevant market” and to adopt measures to prevent or control such practices (Article 40.2; note the helpful (in my view) use of antitrust terminology). Such practices may include exclusive grantbacks, clauses preventing validity challenges and coercive package licensing. • Note: the list of anti-competitive practices that may be addressed in Article 40.2 is a non-exhaustive list.

9. Relevant provisions of the TRIPS Agreement: Article 31 • Sets out detailed conditions for the granting of compulsory licences aimed at protecting the legitimate interests of rights holders. • Provides for the non-application of two such conditions where a compulsory license is granted to remedy “a practice determined after judicial or administrative process to be anti-competitive” (Article 31(k)). • The conditions which may thereby be rendered non-applicable include: (i) the requirement to first seek a voluntary license from the right holder (Art. 31(b)); and (ii) the requirement that use pursuant to a compulsory license be predominantly for the supply of the domestic market (Art. 31(f)). In addition, the need to correct the underlying anti-competitive practice may be taken into account in determining the level of remuneration to be received by the licensor.

10. Relevant provisions of the TRIPS Agreement: questions left unanswered in the Agreement • The set of other practices (beyond those referred to in article 40.2) which may constitute actionable abuses under Members’ competition laws. • The standards under which such practices should be reviewed (e.g. per se or “rule of reason”, though the textual reference to “particular cases” and effects in “the relevant market” could be argued to favor the latter). • What constitutes an adequate “judicial or administrative process” for purposes of Article 31(k)? • The appropriate remedies to be employed (beyond a general requirement, in Article 40.2, of consistency with other provisions of the Agreement).

11. Real-world considerations highlighting the importance of these issues (1) • The acknowledged potential for conflicts of jurisdiction, particularly with respect to remedies but also concerning basic enforcement approaches, even between countries with relatively deep experience in the antitrust field (Varney 2010A). NB: Varney also stresses the potential for countries to avoid potentially harmful conflicts through careful crafting of remedies and three types of “mindfulness”: (i) mindfulness with respect to extraterritorial effects (adherence to traditional comity principles); (ii) mindfulness regarding other agencies’ choices; and (iii) mindfulness in relation to other agencies’ options. • The enhanced potential for such conflicts resulting from the proliferation of competition laws across the world in the period of just over a decade and a half since the TRIPS Agreement came into force (more than one hundred WTO Members now have such laws).

12. Real-world considerations highlighting the importance of these issues (2) • Residual differences across jurisdictions with respect to the treatment of refusals to deal (even recognizing the degree of convergence that has occurred in underlying thinking). • Increased interest of major developing jurisdictions in this area, in part due to perceived relevance of competition policy solutions/TRIPS Articles 31(k) and/or 40 to public health concerns.

13. What way ahead? • My (personal) conclusion: some form of guidance (whether formal or informal) will eventually be needed at the multilateral level. Otherwise, a risk of under or overly strict enforcement approaches/adoption of remedies with adverse cross-jurisdictional impact. • Much valuable guidance to be found in: (i) economics; (ii) the experience of the major WTO Member jurisdictions with experience in this area; (iii) common elements of leading jurisdictions’ guidelines on these issues. • NB: the foregoing does not pre-judge the nature of guidance that would be provided (voluntary/mandatory; issue-specific or at level of broad principles). • It is mainly a call for continuing dialogue on these issues, as is already occurring in various fora (though the dialogue might need to be broadened and deepened).

14. What guidance available from economics/experience and guidelines of major jurisdictions?

15. The guidance available from economics/enforcement experience and major jurisdictions’ guidelines on these issues (1) • IP and competition law share the same underlying goals: both promote competition in the dynamic sense, by stimulating innovation and the use of new technology. • Hence, the old perception of competition law and IP as being fundamentally in conflict commands less and less support. • A better view: IP and competition law are fundamentally complementary: each needs the other for the fulfilment of its objectives. • Furthermore, in most (not necessarily all) cases, there are potential substitutes for individual IPRs. Hence, in most cases, IPRs do not create “market power” as recognized under competition law. Possible exceptions: blocking patents, patents reinforced by a standard, “killer portfolios” of potentially substitutable patents.

16. The guidance available from economics/enforcement experience (2) • Many of the IP licensing practices which we previously thought of as intrinsically restrictive (e.g. tying, field-of-use restrictions, even grantbacks) can (in the right circumstances) serve legitimate, pro-competitive purposes. • Nonetheless, generally accepted that these traditional “restrictive” practices can still be harmful in particular cases. • Hence: advisability (in most but not necessarily all instances!) of a “rule of reason” approach to carefully identify instances of these practices where competition is genuinely impeded.

17. The guidance available from economics/enforcement experience (3) • Recent policy experience also calls attention to a new set of issues that can require competition policy intervention, e.g.: (i) patent “thickets”; (ii) anti-competitive patent settlements; (iii) “hold-ups” in the context of standard-setting processes; and (iv) more generally, the use of injunctive relief to undermine legitimate competitors (Varney 2010B). • Still another important nexus concerns the relevance of antitrust/competition law principles and concerns to patent/IP policy per se. For example, FTC 2003; Garza 2008; and the discussion in this forum this morning imply that many competition problems result from inadequate standards in the grant of patents (FTC 2003 particular highlights overly lax application of the non-obviousness requirement in US patent law). Potentially, this could be a major contribution of competition agencies to good policy-making!

18. IV. Concluding comments/issues for reflection

19. Concluding comments/issues for reflection (1) • Please recall my preliminaries: • No presumption in favor of forced harmonization in this or other substantive areas of competition (antitrust) law/policy. On the contrary, recognized benefits to diversity of approaches/scope for experimentation. • Notwithstanding this, important to recognize that globalization and the proliferation of competition laws across the world entail potential for inter-jurisdictional conflicts/negative externalities particularly concerning competition law remedies. • Possibly, this is particularly true with respect to the intellectual property-competition policy interface, where differing approaches/conflicting remedies can distort IP as well as competition policy. • Nonetheless (according to me), caution is warranted and there is no suggestion otherwise: efforts to promote convergence in this area should avoid inappropriate rigidity and build on/preserve the scope for economic and cross-jurisdictional learning.

20. Concluding comments/issues for reflection (2) • In the foregoing context, important to ask whether the relevant provisions of the TRIPS Agreement provide sufficient guidance for Members with respect to the treatment of anti-competitive practices in this area, given the importance of technology licensing and IP in the context of the “knowledge-based economy”? In particular: • Is further guidance (dialogue) desirable at the international level with respect to the evaluation of licensing practices, given the risks involved in both overly lenient and overly strict approaches? • What about the “new generation” of competition policy issues in this area – e.g., issues concerning “patent thickets”, pooling, settlements and standards?

21. My summary answer to the question posed • It may well be pre-mature/prohibitively difficult to lock in particular standards and enforcement approaches concerning he IP-competition policy interface through any kind of binding agreement at the international level. • Nonetheless, there is a genuine need for international guidance/dialogue in this area. Otherwise, real risks of under or overly strict enforcement approaches by countries with limited experience in this area and adoption of remedies with adverse cross-jurisdictional impact. • Much valuable guidance to be found in: (i) economics; (ii) the experience of the major WTO Member jurisdictions with experience in this area; (iii) common elements of leading jurisdictions’ guidelines on these issues. These insights and lessons need to be shared with a wider audience. • Discussions such as today’s Roundtable a very important contribution to the necessary dialogue.

22. References/other sources • Anderson, Robert D. (2008). “Competition Policy and Intellectual Property in the WTO: More Guidance Needed?” in Josef Drexl, ed. Handbook on Intellectual Property and Competition Policy (Edward Elgar: 2008). • Federal Trade Commission (2003). To Promote Innovation: the Proper Balance of Competition and Patent Law (Washington, D.C.). • Garza, Deborah A. (2008). “The Increasing Role of Antitrust Principles in Defining Patent Rights” (Remarks to the US Intellectual Property Owners Association). • Varney, Christine A. (2010A). “Coordinated Remedies: Convergence, Cooperation and the Role of Transparency” (Remarks to the Institute of Competition Law New Frontiers of Antitrust Conference, Paris, France, February 15, 2010). • Varney, Christine A. (2010B). “Promoting Innovation Through Patent and Antitrust Law and Policy” (Remarks to a Join Workshop of the US Patent and Trademark Office, the Federal Trade Commission and the Department of Justice).