Tagged: Abuse of a dominant position

Are Remedies for Breaching Standard Essential Patents Prohibited by Article 102 TFEU?

By Sam Abboud

In Case C-170/13 Huawei Technologies Co. Ltd v ZTE Corp & ZTE Deutschland GmbH, (Judgment of the 5th Chamber, CJEU, 16 July 2015)the CJEU was asked to rule for the first time on whether seeking an injunction and other associated remedies by the owner of a Standard Essential Patent (SEP) against a company in breach of the patent (but one willing to become a licensee) can amount to an abuse of a dominant position in breach of EU competition law (Article 102 TFEU). It concluded that an injunction or an action to recall products can amount to an abuse of dominance in certain circumstances.

 In this post, I first provide a primer on Standards and Standard Essential Patents (‘SEPs’) before summarizing the Court’s reasoning and setting out some initial observations on the judgment’s significance.

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The EFIM-case: no dominant position of printer manufacturers on ink cartridge aftermarket

Ink in cartridges for printers is often called ‘black gold’, or qualified as the ‘most expensive liquid in the world’. Manufacturers of printers sell their ink cartridges at (relatively) high prices, whereas they offer their printers for (relatively) low prices. The ‘cheap-appliance-expensive-consumable’-business model is used widely: coffee machines and pods, consoles and games, cars and spare-parts, etc. As a consequence of the relatively high prices on the aftermarket, independent suppliers try to enter such a lucrative aftermarket by offering generic products which are compatible with the machinery offered on the up-stream market. Not surprisingly, this leads to conflicts between those independents and manufacturers of appliances,  because of  the intellectual property rights over the machinery and consumables (e.g. generic producers offering coffee pads compatible with Nespresso[1]– and Senseo[2]-coffee machines and contesting the IP-rights in question, or – in the alternative – claiming that the refusal to license the IP-right is an abuse of a dominant position[3]) and associated litigation (e.g. the Toshiba/Katun-case over advertisement of generic consumables which referred to the brand of the machinery).

In the EFIM-case, producers of generic ink cartridges (independent suppliers) – associated in the European Federation of Ink and Ink Cartridge Manufacturers (EFIM) – complained to the Commission, mainly because they were denied access to the intellectual property rights by the four, so-called ‘original equipment manufacturers’ (OEMs) of printers: Hewlett‑Packard, Lexmark, Canon and Epson. Without access to those intellectual property rights, producers of generic ink cartridges argued that they could not effectively compete with the OEMs on the (after)market for ink cartridges. EFIM considered that behaviour to foreclose the market for ink cartridges and therefore an abuse of a dominant position, which is prohibited under Art. 102 TFEU.

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EU-Competition Law in the Overseas: some recent French precedents

Parts of the territory of some EU-Member States are situated overseas. Does EU-Competition law apply there? Some recent French precedents answer this question. According to Art. 52 TEU the EU-treaties apply to the 27 Member States mentioned therefore. EU-law applies, in principle, to the whole territory of those Member States including the overseas parts of their territory. In Art. 355 TFEU, the territorial scope of the EU-treaties is further specified. There are more or less three ‘categories’ or ‘degrees’ of territorial scope with regard to the overseas (for a more extensive and general description see Kochenov’s article).

  1. First, the Outermost Regions, where EU-law applies, with the possibility for temporary exceptions to the acquis of the EU; although the term ‘temporary’ is perhaps not the right word, since the derogations are constantly extended. The Outermost Regions consist of the French départements d’outre-mer, the Spanish Canary Islands and the Portuguese Azores and Madeira.
  2. Secondly, the Overseas Countries and Territories (OCT) , where EU-law applies, with the possibility for more permanent exceptions to the acquis of the Union. On the OCTs a special regime of EU-law is applicable: the association regime (of Part IV of the TFEU). The OCTs are listed in Annex II to the TFEU and consist of Danish Greenland, the French territoires and collectivités d’outre-mer, the Caribbean part of the Netherlands and most of 12 British Overseas Territories.
  3. And thirdly, custom made regimes for specific parts of some Member States, such as the Channel Islands and Åland Islands. In addition some custom made regimes can be found in the accessions treaties, such as Gibraltar and the Spanish territories Ceuta and Mellila, which are situated on the African continent.

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Post Danmark: does the ECJ take the effects based approach further than a mere price/cost-test and does it oblige the national judge to apply that effects based approach ex nunc?

In a grand chamber judgment in case C‑209/10, Post Danmark, the European Court of Justice (ECJ) handed down a preliminary ruling on the interpretation of abuse of a dominant position (Art. 102 TFEU). The case was referred to the ECJ by a Danish judge in a dispute between Post Danmark and Konkurrencerådet, the Danish competition authority.

I have three remarks concerning this judgment:

  • first, it seems to me that the ECJ does not embrace the average incremental costs instead of average variable costs as the relevant economic parameter for analysing a per se abuse;
  • secondly, the ECJ requires the Danish judge to apply the as-efficient-competitor-test and seems to take it further than a mere price/cost-test to decide on the question whether the pricing practices of Post Danmark were anti-competitive in effect; he must take into account all relevant circumstances;
  • lastly, when the Danish judge takes into account all those circumstances, it seems that the ECJ prescribes an ex nunc appreciation, which might be a restriction of procedural autonomy.

In the Danish market for the distribution of unaddressed mail (direct mail of brochures, guides, newspapers, etc.) the two largest players are Post Danmark and Forbruger-Kontakt (FK). This market is fully liberalised. Next to that, Post Danmark is the universal postal service provider. It uses its distribution network for both the universal postal service and the distribution of unaddressed mail. In 2003, in the Danish market for the distribution of unaddressed mail Post Danmark had a market share of 44 % which increased to 55 % in 2004. According to the Danish competition authority Post Danmark held a dominant position in that market because of such high market shares and because it could maintain its distribution network covering the whole country because of it being the universal postal service provider, regardless of its activities on the market for unaddressed mail.
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