Irina Haracoglou
Attorney at Law, Independent Researcher/Consultant
Edward Elgar
Cheltenham, UK Northampton, MA, USA
Contents
List of abbreviations
Preface
Acknowledgements
Table of cases
xii
xiv
xv
xvi
3
3
7
7
9
12
16
21
21
36
36
vii
25
25
28
31
34
viii
Contents
3.2 The patent safety nets
3.2.1 Experimental use exemption
3.2.1.1 The experimental use exemption: a viable
and effective working solution?
3.2.1.2 The US experience: a helpful paradigm?
3.2.1.3 Conclusion on the EUE
3.2.2 The reverse doctrine of equivalents and blocking
patents
3.2.3 Patent pools
3.2.4 Compulsory licensing in the patent provisions
3.2.4.1 Introduction to compulsory licensing
(a) Definition and history
(b) Support and opposition for CL
(c) Grounds for granting a compulsory
licence
3.2.4.2 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
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
Contents
4.3.1 The link between the right to health and patent law
4.3.1.1 The effect of patent law on the right to
health
4.3.1.2 The effect of the right to health on patent
law
4.3.2 The right to property and IP: IP as a human right
4.3.2.1 Striking the balance: limitations in the
public interest
4.3.3 Patenting and the right to health
4.3.3.1 Direct effect
4.3.3.2 The indirect effect of the right to health
4.3.4 The right to health as an interpretive principle in
patent law
4.3.4.1 Effect on specific patent provisions
4.3.4.2 Case-law on public health
4.3.4.3 European cases on IP and fundamental
rights analysis
4.4 Conclusions
ix
82
82
83
84
86
87
87
88
90
91
93
94
96
101
101
103
103
107
107
107
109
112
112
114
114
116
119
121
Contents
122
122
122
123
126
128
130
133
135
138
139
141
143
145
177
177
177
179
179
181
181
185
186
187
187
Contents
xi
7.2.2.4 The absence of an objective justification
7.2.3.1 The impact of Art. 82 duty to deal with case
law on the patent system
7.2.3.2 An innovation sensitive approach:
innovation markets in Art. 82?
7.2.3.3 Conclusions on compulsory licensing as a
safety net
7.2.4 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
Abbreviations
ACIP
AIPLA
Am. Bus. L. J.
Am. J. L. and Med.
Antitr. L. J.
Berk. Tech. L. J.
Buff. Hum. Rts. L. Rev.
CAFC
CFI
Chi. Kent L. Rev.
Chi. Trib.
CL
CML Rev
Col. L. Rev.
Community
Community Courts
CPC
CPTech
DOJ
EC Treaty
ECJ
ECLR
ECR
EEA
EFD
EGE
EIPR
ELR
EMEA
EPC
EPO
ESCRC
EU
EUE
FDA
Abbreviations
xiii
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. 82 EC. In October 2005
a complaint by six phone manufacturers was reported against Qualcomm, a chip
manufacturer that owns patents over technology used in 3G handsets, alleging
that Qualcomm refused to license essential patents on fair terms, and charged
excessive royalties for its essential patents thereby acting anti-competitively.
In December 2005 the Commission published a Discussion Paper on the Application of Art. 82 to Exclusionary Abuses. In February 2007 the Commission
opened an investigation into Boehringers best selling drug last year, Spiriva, in
relation to possible misuses of the patent system to exclude competition from
the market.
These initiatives have as their backdrop two central questions, inter alia: first,
the relationship between competition law and intellectual property rights; and
secondly, the duty of dominant undertakings to deal/license/supply other
undertakings.
Against this background and in view of the increased significance these questions are likely to assume in the future, this book deals broadly with the
relationship between competition law and intellectual property rights, and more
specifically, with the interface between patent law and competition abuses by
virtue of refusal to deal in the biopharmaceutical industry. It focuses on a
paramount element for competition: access. 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. AstraZeneca abused its dominance by making misrepresentations to national patent offices with a view to obtaining supplementary
protection certificates, as well as by misusing rules and procedures of medicines agencies
to block entry of generic products or parallel traders.
N. Gohring, Qualcomm accused of anticompetitive conduct in EU, 28 October
2005, available at www.infoworld.com.
December 2005, available at http://ec.europa.eu/competition/antitrust/others/article_82_review.html.
Case COMP/B2/39246.
xiv
Acknowledgements
This book started from a series of coincidences, evolved into a test of persistence
and patience, and culminated in a series of good fortunes the most significant
of which was to see ones long-awaited aspiration realised.
It has certainly not been a smooth ride throughout as there have been many
moments of frustration, questioning and disbelief, together with many moments
of challenge, excitement and great fulfilment.
The various stages of the manuscript travelled with me across countries, 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, Prof. Ullrich,
who has provided me with great support, understanding and words of
wisdom.
I am also deeply grateful to the following people who have helped me with
their support and useful comments: Prof. Shelanski, Prof. Joerges, Prof. Lemley,
Prof. Blackburn, Prof. Barton, Prof. Lvque, Luk Peepercorn, Sandro Paollichi,
Dimitrios Giotakos, Dr Alan Riley, Dr Barry Rodger, Emanuela Lecchi, Andreas
Avgousti, Katherine Llorca and many more.
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,
the Department of Education and Skills. I would also like to thank the University
of California, Berkeley and European Commission, DG COMP who, during my
stay there, were instrumental in helping my research. I am also grateful to the
members of CLASF for listening to drafts of my papers and providing me with
comments, Charles Russell LLP as well as to the TRA (Bahrain).
I am, of course, most grateful to my publisher, Edward Elgar and the people
therein who gave me their support, particularly Luke Adams, Jo Betteridge and
Kate Pearce.
Most of all, 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; Yianni and Eleni thanks for
providing me with immeasurable entertainment; Manoli thanks for supporting
me in the finish!
xv
Cases
European Courts Decisions
Case 402/85 Basset v SACEM [1987] ECR 1747
196
Case 77/77 Benzine en Petroleum Handelsmaatschappik BV and others v Commission [1978] ECR 1513
129, 146
Case 311/84 Centre Belge dEtudes du March-Tlmarketing SA (CBEM) v
Companie Luxembourgeoise de Tldiffusion [1985] ECR 3261 127, 130,
1512, 171, 173
Case T-201/04 Competition Microsoft v Commission, Order of the President of
the CFI, 22 December 2004 (Proceedings for interim relief Art. 82 EC)
144, 169, 173, 179, 187, 188, 190
Case 78/70 Deutsche Grammophon [1974] ECR 1147
104
Case 56 and 58/64 Etablissements Consten SA and Grundig-Verkaufs-GmbH v
Commission [1966] ECR 299
104
Case T-374/94 European Night Services [1998] ECR II-3141
165
Case C 418/01, IMS, not yet reported, judgment of 29 April 2004 123, 126,
127, 1367, 139, 141, 142, 143, 144,
1659, 172, 173, 186, 187, 188, 198
Case 6/73 Istituto Chemioterapico Italiano and Commercial Solvents v Commission [1974] ECR 223
126, 127, 128, 130, 1457, 171, 173
Case C-200/96, Metronome Music v Music Camp, Judgment of the Court of 28
April 1998, ECR I-01953
95
Case 322/81 Michelin v Commission [1983] ECR 3461
148
Case C-377/98 Netherlands v Council, [2001] ECR I-07079
945
Case C-7/97 Oscar Bronner v Mediaprint [1998] ECR I-7791 103, 123, 127,
133, 136, 141, 143, 1625, 172, 173
Cases C-241/91 P and C-242/91 P, Radio Telefis Eireann (RTE) and Independent
Television Publications (ITP) v Commission (Magill), [1995] ECR I-743
103, 1056, 121, 123, 126, 127, 128,
130, 133, 141, 15961, 172, 173, 190
Case C-53/03 Synetairismos Farmakopoion Aitolias & Akarnanias (Syfait) and
Others v Glaxosmithkline AEVE, Opinion of the A-G Jacobs, reference 28
October 2004, not yet reported
124, 128, 140, 143, 170, 173
Case 88/501 Tetra Pak I (BTG license) [1988] OJ L272/27
190, 191
xvi
Cases
xvii
xviii
Cases
International Case-law
Alejandro Moreno Alvarez v Estado Colombiano, SU.819/99, Corte
Constitucional de Colombia 1999, available at http://bob.minjusticia.gov.vo/
jurisprudencia/CorteConstitucional/1999/Tutela/su819-99.htm
81
Alvarez v Caja Costarricense de Seguro Social, Exp. 5778-V-97, No. 5934-97,
Sala Constitucional de la Corte Suprema de Justicia de Costa Rica 70, 81
Ceballos v Instituto de Seguros Sociales, T-484 Corte Constitucional de Colombia 1992, available at http://bib.minjusticia.gov.co/jurisprudencia/Corte
8081
Constitucional/1992/Tutela/T-48492.htm
Glenda Lopez v Instituto Venezolano de Seguros Sociales, 487-060401 Supreme
Court of Venezuela, Constitutional Chamber 1997, available at www.tsj.gov.
ve/decisiones/scon/Abril/487-060401-001343.htm
81
Minister of Health v Treatment Action Campaign, CCT 8/02 Constitutional
Court of South Africa, July 2002, available at www.tac.org.za/Documents
80
In The Matter Between Mpho Makhathnini, Nelislwe Mthethwa, Musa Msomi,
Elijah Paul Musoke, Tom Myers, AIDS Healthcare Foundation Limited, and
GlaxoSmithKline (Pty) Ltd, Glaxo Group Limited, Case Number 34/CR/
Apr04
98, 178, 197
Odir Miranda v El Salvador Case 12.249, Report No. 29/01, Inter-Am. CHR,
Annual Report 2000, OEA/Ser./L/V/II.111, Doc. 20 Rev. 2001 available at
www.cidh.oas.org/annualrep/2000eng/ChapterIII/Admissible/
ElSalvador12.249.htm
88
Pharmaceutical Wholesalers and Glaxo Wellcome, case 68/IR/Jun00, 18 June
2003 available at www.comptrib.co.za/decidedcases/pdf/68IRJUN00kinesis.
pdf
98, 178
Protection Writ. Judgment of Fabio Moron Diaz, Magistrado Ponente, T-328/98
Corte Constitucional de Colombia 1998, available at http://bib.minjusticia.
gov.vo/jurisprudencia/CorteConstitucional/1998/Tutela/T-328-98.htm 81
Social and Economic Rights Action Center v Nigeria, Communication 155/96
(African Commission on Human and Peoples Rights, Oct. 2001), available
at www.achpr.org/DECISIONS_30th_Session-_Oct.2001_eng.pdf
80
Street Children Case (Morales v Guatemala), Joint Concurring Opinion of
Judges A.A. Cancado Trinidade and A. Abreu-Burelli, Inter-Am. Ct H.R.
(Ser. C) No. 63, available at www.corteidh.or.cr/seriecing/VotocancadoabreuSerie_c_63_ing.doc
80
Cases
xix
US case-law
Akro Agate Co. v Master Marble Co. No. 119, District Court, N.D. West Virginia, 18 F. Supp. 305; 1937 U.S. Dist. LEXIS 2087, 16 January, 1937 45
American Home Products/American Cyanamid, American Home Prods Corp.,
FTC Docket No. C-3557 (1995)
191
Amgen Inc. v Chugai Pharmaceutical Co. 927 F. 2d 1200 (Fed. Cir. 2000) 48
Aspen Highlands Skiing Corp. v Aspen Skiing Co., 738 F.2d 1509 (10th Cir.
1984) affd on other grounds, 472 US 585 (1985)
133
Baxter/Immuno, Baxter Intl, Inc., 123 FTC 904 (1997)
191
BellSouth Advertising and Publishing Corp. v Donnelly Information Publishing,
Inc., 933 F.2d 952 (11th Cir. 1991), vacated, 977 F.2d 1435 (11th Cir. 1992),
and reversed en banc on other grounds, 999 F.2d 1436 (11th Cir. 1993), cert.
denied, 114 S. Ct. 943 (1994)
133
Ciba-Geigy/Sandoz, Ciba-Geigy Ltd, 123 FTC 842 (1997)
191
Consolidated Gas Co. of Florida v City Gas Co. of Florida, 880 F.2d 297 (11th
Cir. 1989)
133
Embrex Inc. v Service Engineering Corp 99-1064, US CAFC, 216 F.3d 1343;
2000 US App. LEXIS 15036; 55 USPQ2D (BNA) 1161, 28 June, 2000 44
Fishman v Wirtz, 807 F.2d 520 (7th Cir. 1986)
133
Glaxo/Burroughs Wellcome, Glaxo Inc., 119 FTC 815 (1995)
191
Graver Tank case 339 US 605 (1950)
48
Hecht v Pro-Football No. 2815-66, US Dist. Ct. for Distr. Of Columbia, 312 F.
Supp. 472; 1970 US Dist. LEXIS 12049; 1970 Trade Cas. (CCH) P73,170,
16 April,1970
1356
Hecht v Pro-Football, Inc., 570 F.2d 982 (D.C. Cir. 1977), cert. denied, 436 US
956 (1978)
133
Hoechst/Rhone-Poulenc, Hoechst AG, FTC Docket No. C-3929 (2000) 191
Howard Hughes case 366 F. 2d 303 (2nd Cir. 1966)
92
Madey v Duke 01-1567 US CA for Fed. Circ. 307 F.3d 1351
44
MCI Communications Group and MCI Telecommunications Corp. v American
Telephone and Telegraph 708 F.2d 1-81 (7th Cir. 1983)
133, 134
Pfizer/Warner-Lambert, Pfizer Inc., FTC Docket No. C-3957 (2000)
191
Roche/Genentech, Roche Holding Ltd, 113 FTC 1086 (1990)
191
Roche Products v Bolar Pharmaceutical Company 733 F.2d 858 (CA Fed.),
cert. denied, 469 US 856 (1984)
45
Sawin v Guild 21 F.Cas 554 (C.C.D. 1813) (No. 12,391)
44
Scripps Clinic and Research Found. v Genentech, 666 F. Supp. 1379 (N.D. Cal.
1987); 927 F.2d 1565 (Fed. Cir. 1991)
11, 48
Sensormatic/Knogo, Sensormatic Elec. Corp., FTC Docket No. C-3572
(1995)
191
Texas Inst. v ITC, 6 USPQ 2d 1886 (Fed. Cir. 1988)
34
xx
Cases
Time Inc. v Bernard Geis Associates NYLR, 21 January 1994, p.5 (CD Cal. 11
June 1993)
92
Upjohn/Pharmacia, The Upjohn Co. 121 FTC 44 (1996)
191
US v General Motors Corp., No. 93-530 (D. Del. 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. Louis, 224 US 383 (1912)
133
48
Westinghouse v Boyden Power Brake Co. 170 US 537 (1898)
Whittemore v Cutter 29 F. Cas 1120 (C.C.D. 1813)
44, 45
Wilson Sporting Goods v David Geoffrey and Associations, 904 F.2d 677 (Fed.
Cir. 1991)
48
EU national case-law
Ethofumesate Case, (1991) 22 IIC 541, 546 (Germany)
40
Frearson v Loe (1878) Ch.D. 48 (UK)
40, 43
Hollow plastic profiles II BGJ GRUR 1982, 301 (Germany)
16
Inhale Therapeutic Systems Inc v Quadrant Healthcare Plc [2002] RPC 21
(UK)
43
Klinische Versuche Federal Supreme Court (BGH), 11 July 1995, GRUR 1996,
109; 1997 IIC 103 (Germany)
42
LG Berlin (Photographs of Ulrike Meinhof) [1978] GRUR 108 (Germany) 92
Lili Marleen BGH, 7 March 1985 [1987] GRUR 34 (Germany)
92
Medicopharma N.V. et al. v ICI plc, 14 Rechtspraak van de week 7989 (1993),
(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. (UK)
188
Scientology decision [2003] Mediaforum 337, note Visser; (2003) 6 AMI 217,
note Hugenholtz; (2003) 6 IER 352, note Grosheide. Appeal to the Supreme
Court pending (the Netherlands)
92
Smith Kline and French Laboratories Ltd v Evans Medical Ltd [1989] FSR 513
(UK)
43
Telegraaf case; Decision of director-general Dutch Competition Authority 10
September 1998, 1/501.o119 (Telegraaf v NOS/HMG); Trade and Industry
Appeals Tribunal 15 July 2004, www.rechtspraak.nl, LJN-nummer: AQ1727
(Netherlands)
140, 142
Zwangslizenz, Federal Supreme Court (BGH), 5 December 1995, GRUR [1996]
190; 24 IIC 397 (1993) (Germany)
423, 61
Part I
1.1 Introduction
Recent changes in the nature of research in the biopharmaceutical industry have
given rise to new concerns regarding innovation. In the US, in particular, the
industry has become fragmented into a two-tier system, in which small biotech
firms carry out all of the innovative research, which the large pharmaceutical
companies then further develop, produce, 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. Hence, research has increasingly become
dependent on access to other fundamental upstream research.
J.E. Stiglitz before the FTC Hearings on Global and Innovation-Based Competition, 12 October 1995; also quoted in D.A. Valentine, Abuse of Dominance in Relation
to Intellectual Property: US Perspectives and the Intel Cases, at the Israel International
Antitrust Law Conference, 15 November, 1999 at http://www.ftc.gov/speeches/other/
dvisraelin.htm.
J. Walsh and J. Cohen, Research Tool Patenting and Licensing and Biomedical
Innovation, in Cohen and SMerill (eds), Patents in the Knowledge-Based Society, Washington DC, National Academies Press (2003), p.285; A. Gambardella et al. Global
Competitiveness in Pharmaceutical Industry (2002).
Ibid. See OECD, The Pharmaceutical Industry, Paris (2001).
R.K. Rai, Fostering Cumulative Innovation in the Biopharmaceutical Industry:
The Role of Patents and Antitrust, 16 Berkeley Tech Law Journal 813 (2001).
Ibid. The author notes that an exception to this is where the patented drug is not
a traditional small molecule chemical, but rather, a biologic (e.g. protein or macromolecule) and the improver has come up with a method to produce the biologic that is
drastically different.
Ibid. p.813. Competition is perceived to be a driving force and to allow multiple
independent research paths that are important for creative development.
Biotechnology Industry Organization: Editors & Reporters Guide to Biotechnology (Feb. 2000), available at www.bio.org/aboutbio/guide2000/facts.html shows, for
example, that in the USA biotechnology patenting escalated from 2,000 patents issued
in 1985 to more than 9,000 patents issued in 1998. See also Report of the National Institutes of Health NIH, Working Group on Research Tools, presented to the Advisory
Committee to the Director, 4 June 1998, referring to an increasing use of the patent
system to obtain proprietary rights in research tools.
The BRCA1 gene indicates susceptibility to breast cancer. Its discovery was reported by Myriad Genetics and Utah University in 1994, and ever since the gene and its
mutations have been part of numerous patent applications. See Nuffield Council on
Bioethics, The Ethics of Patenting DNA, 2001 Case Studies, pp.3940.
This led to a Resolution from the European Parliament in October 2001 opposing
the patenting of the BRCA1 gene. Resolutions B5-0633, 0641, 0651 and 0663/2001 on
the patenting of BRCA1 and BRCA2 (breast cancer) genes OJ 2002 C 87/265. R. Dalp,
L. Bouchard, A-J. Houle, L. Bdard, Watching the race to find the breast cancer genes,
28(2) Science, Technology, and Human Values 187216 (2002); Nuffield (2001) op. cit.
pp.3940.
Biopharmaceutical R&D
ity, and the effect that such patents may have on research if they are not licensed
extensively.10
While in the 1980s upstream innovative research was mainly governmentsponsored research, with the rise in privatisation this came into the hands of
private firms who were able to exclude others from their findings. As more
stages, actors and inter-connectiveness complemented the drug development
process, patenting made commercial sense where before there was nothing to
patent.11
These two trends immediately raised fears that patents would deter innovation. In an article published in Science magazine, Heller and Eisenberg
postulated a theory that too many patents on upstream innovation could lead to
two eventualities.12
First, the granting of too many fragmented patents may lead to a situation
identified as the tragedy of the anti-commons, whereby too many people have
the right to exclude and no one has an effective right to use; 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. The creation of too
many fragmented and overlapping patent rights could lead to high transaction
costs, which, coupled with the heterogeneous interests of owners and the cognitive biases of researchers,13 could make bargaining unlikely in most cases,
leading to the creation of fewer products and to less innovation.
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.14
Heller and Eisenberg did not present scientific data to support their theory.
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 nature of the research and the extent to which it is cumulative or
10
Ibid. p.41.
While inventions were made, patents were not taken out.
12
M.A. Heller and R. Eisenberg, Can Patents Deter Innovation? Anti-commons in
Biomedical Research, 280 Science 698, 1 May 1998.
13
This refers to a situation whereby every patent holder over-estimates his position
and the value of his patents, therefore, it is difficult to reach an agreement on licences.
14
R. Eisenberg Bargaining Over the Transfer of Proprietary Research Tools, in R.
Dreyfuss et al., Expanding the Boundaries of Intellectual Property, Oxford, Oxford
University Press (2001). op. cit. See also R. Eisenberg, Technology Transfer and the
Genome Project: Problems with Patenting of Research Tools, 5 RISK 163 (1994), p.168,
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.
11
discrete, and the bargaining power of the players. However, no evidence was
given in support of these factors.
Thereafter, Walsh and Cohen15 attempted to test these hypotheses against
more scientific data. They found that while there is an increase in the patents
on inputs to the discovery of the drug, the discovery was not substantially impeded except in the case of patented genetic diagnostics.
With regard to the anti-commons, more specifically, they found that while
there may be some delays in negotiating access and that negotiations could be
costly, there was no evidence of bargaining breakdowns or of a real threat of
royalty stacking or a failure to undertake projects on this basis. However, the
approximately 33 per cent increase in the transaction costs for filing, enforcing
and contracting for patents may make a difference between entering or not entering such negotiations, depending on the size of the firm. They also found that
working solutions such as licensing, inventing around the patents, challenging
patents and relying on the goodwill and information sharing between companies,
nonetheless, constitute important tools for advancing research.16
Walsh and Cohen were less conclusive, however, on the issue of restricted
access to upstream discoveries and its effects on innovation. They found that
access to foundational discoveries can be restricted, and that patents over targets
may limit access in certain cases.17 Depending on the breadth of the interpretation and the capacity of a firm to market in a timely fashion, the lack of access
might lead to less innovation. In particular, in the case of targets, this might be
problematic depending on the breadth and degree of restriction compared to the
incentive necessary to invest in the first place. The effect of control upon such
discoveries will depend, first, on how essential it is for subsequent innovation,
and secondly, on the degree of rivalness in use of the first and subsequent products as this will, in turn, determine the motives for refusing access or not.18
Although such concerns have arisen, there is not much scientific evidence to
support one finding over another.19 Does the existence of many patents hinder
15
Biopharmaceutical R&D
20
Though focus is on the case of research tools, it may be that they are only an illustration of a more general concern also present in other cases. See Chapter 7 for
discussion of Pharmacy Benefits Management (PBM) networks.
21
NIH Report on Research Tools (1998) op. cit. and J.M. Mueller, No Dilettante
Affair: Rethinking the Experimental Use Exception to Patent Infringement for Biomedical
Research Tools, 76 Wash. L. Rev. 1 (2001), p.10.
22
NIH Report on Research Tools (1998) op. cit. p.3.
23
Ibid. See also G. Cullem, Panning for Biotechnology Gold: Reach-Through Royalty Damage Awards for Infringing Uses of Patented Molecular Sleeves, 29 IDEA 533
(1999).
24
J.M. Mueller (2001) op. cit. p.11. 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.
protection is deemed necessary for such tools to recover the high cost of their
development.25 The biotechnological research environment is complicated by
the fact that researchers need access to several research tools to conduct their
research.26
Some of the most important research tools include:27
The Cohen-Boyer Patents covering the basic method and plasmids for
gene cloning.28
l Polymerase chain reaction technology (PCR), a basic method of amplifying DNA sequences and its key reagent, the enzyme Taq DNA
polymerase.29 The PCR selectively multiplies a region of DNA so that it
can be experimented on and analysed.
l The Harvard oncomouse useful in cancer research.30
l Expressed sequence tags (ESTs) identified in decoding the human genome. These are a fragment of complementary DNA (cDNA) and are
useful in finding the full-length gene.31
25
S.A. Chambers, Comments on the Patentability of Certain Inventions Associated
with the Identification of Partical CDNA Sequences, 23 AIPLA Q.J. 53 (1995); M.A.
Flores, Taking the Profits out of Biomedical Research Tools, 17 Nature Biotechnology
819 (1999).
26
See S. Junnarkar, GeneChip Encodes DNA on Silicon, N.Y. Times, 15 March
1997, describing DNA chips that offer a myriad of potential applications for studying
genes and diagnosing genetic mutations. On these chips more than 40,000 sequences
may be attached, and if each of these is covered by a patent, licensing will prove to be
exceedingly difficult.
27
J.M. Mueller (2001) op. cit. pp.1214.
28
This research tool has been extensively licensed. See R.K. Seide and J.M. McLeod,
Response to Policy Commentary, SCIENCE at www.sciencemag.org/feature/data/980465/
seide.shl.
29
This was initially owned by the Cetus Corporation.
30
The patent was assigned by Leder-Stewart to Harvard University who exclusively
licensed it to E.I. du Pont de Nemours. See J.M. Mueller (2001) op. cit. p.13.
31
Ibid. pp.1314. See also R.S. Eisenberg and R.P. Merges, Opinion Letter as to
the Patentability of Certain Inventions Associated with the Identification of Partical
cDNA Sequences, 23 AIPLA Q.J. 1 (1995). There has been some debate on whether
ESTs are truly research tools. See R. Blackburn, Chief Patent Counsel, Chiron Corporation, remarks at the National Academies Board of Science, Technology and Economic
Policys Conference on Intellectual Property Rights: How Far Should They Be Extended?
Washington DC, 3 February (2000).
Biopharmaceutical R&D
32
10
Hence, there is a concern regarding the breadth of the patent on such tools. The
Nuffield Institute of Biotechnology concluded that the law is generous in granting patents to DNA sequences, 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. This is because the patent system provides that in the case of patents directed to novel
and inventive DNA and other chemical entities, inventors are entitled to property
rights not only over the uses of their invention that they anticipated or predicted,
but also over new uses that are developed. The case studies also reveal that some
patent offices have been willing to adopt low thresholds for inventiveness and
utility.41
In the case of diagnostic tests, 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.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.43 Another study is also quoted, 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.44
40
Biopharmaceutical R&D
11
Other patents, it is felt, are granted without being warranted. Genetic information was initially found to be patentable as it was thought that by isolating it or
producing it through a technological process, the required threshold of not existing in nature had been satisfied. This, however, 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.45
In addition, 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. Products developed through the use of the invention may
be found infringing even though they do not involve the sale of the patented
invention.46 The interpretation of the breadth of the patent as regards infringing
activity can be determinative, and can shift the balance one way or the
other.47
Hence, the broad interpretation of infringing activity by the courts may aggravate the perceived broad nature (relative to disclosure) of such patent rights.
The lax application of the patentability requirements may lead to unjustified
45
See Nuffield Report (2001) op. cit. para. 6.4. We have considered the question
of whether DNA sequences should be eligible for patenting. 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, we accept that a limited number of the early patents granted on
the basis need not now be called into question, in view of the inventiveness required to
isolate the DNA sequences. Since the early days of the pioneering experiments using
positional cloning techniques, patents have been filed on many DNA sequences which
were mass produced by a mixture of computational and cloning techniques. Even if it
can be convincingly argued that these sequences were eligible for patenting, the patents
should be examined in the light of the criteria for inventiveness and utility. We note that
as techniques have advanced, and in particular as the use of computers to identify genes
has become more widespread, the eligibility of DNA sequences for patenting should
have diminished.
46
J.M. Mueller (2001) op. cit. p.5. 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. The selling prohibition has not been violated because the research tool is not incorporated in the commercial product.
47
In the USA, in Scripps Clinic and Research Foundation v Genentech, 666 F. Supp.
1379 (N.D. Cal. 1987) the Federal Circuit found a patent infringement by virtue of the
production of the same protein by recombinant means, refusing to construe product
claims to include inherent process limitations. It found that product by process claims
are not limited to products prepared by the process set forth in the claims. The decision
reflects two antagonistic results, creating possible process-related exceptions to infringement of a product claim that on its face, makes no reference to any process parameters,
while reading process limitations out of a claim that expressly recites them. Y. Ko, An
Economic Analysis of Biotechnology Patent Protection, 102 Yale Law Journal 777
(1992).
12
grants or extensions in scope which heighten the risk of restricted research tool
access when coupled with a wide interpretation of infringement.48 Accordingly,
Art. 9 and Recital 25 of the Biotechnology Directive recognise that in determining the scope of protection of corresponding claims, there may be an overlap in
an essential part of the invention.49
1.2.3 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, however, is unclear. While the existing case studies have
not shown a recognisable problem with access to upstream research tools,50
some commentators believe that this is becoming a growing concern.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, 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. They are in effect
laying claim to a function that is not yet known or a use that does not yet exist. This may
be in current shareholders interests, but it does not always serve society well. D. Gitter,
International Conflicts over Patenting Human DNA Sequences in the US and the EU:
An Argument for Compulsory Licensing and the Fair Use Exemption, 76 NYUL Rev.
1623 (2001), p.1642.
49
Recital 25 provides: Whereas, for the purposes of interpreting rights conferred
by a patent, when sequences overlap only in parts which are not essential to the invention,
each sequence will be considered as an independent sequence in patent law terms. Biotech Directive (1998) op. cit.
See also Vossiues and Partner, The Patenting and Enforcement of Inventions Relating
to Research Tools: Chances and Problems, at www.vossiusandpartner.com/eng/publication/pub-patenting_and_enforcement.html. As regards ESTs and SNPs, they might be
considered essential as a whole. However, for partial DNA sequences it may become
relevant to distinguish between coding and non-coding sequences.
50
See, for example, the case of recombinant DNA, in which the patented research
tool was non-exclusively licensed with low fees, the case of PCR and TAQ Polymerase,
in which licensing arrangements were controversial, and the case of protein and DNA
sequencing instruments, in which strong patent protection promoted broad access, in R.
Eisenberg, Patenting Research Tools and the Law, in IPRs and Research Tools in Molecular Biology, Summary of Workshop Held at the National Academies of Sciences,
1516 February 1996.
51
See I.N. Feit, Biotechnology Research and the Experimental Use Exception to
Patent Infringement, 71 J. Pat. & Trademark Off. Socy 819 (1989) p.821, predicting
that as commercial products of biotechnology become available, the infringement of
patents covering the basic research methods that led to the product will become an increasingly difficult problem. See also L. Nelsen, The Rise of Intellectual Property
Protection in the American University, 279 Science 1460 (1998). Nelsen describes the
Biopharmaceutical R&D
13
Opinion differs in the pharmaceutical industry as to the effect of this on the discovery
of new medicines. 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. Others consider that the costs incurred are already having
a significant impact on profit markets. These differences of view most likely reflect
the extent to which individual companies own patents that assert rights over DNA
sequences. 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.52
In the least grave of cases, evidence has shown that such patents may lead to
more costly negotiations, which might make the difference for small firms between being on and off the market.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. 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.54 This situation also results in increases in
secrecy and delays in research.55
Altogether this leads to a heightened concern among scientists regarding the
high prices and burdensome licensing conditions associated with research
tools.56 Numerous upstream patents must be practised to make a new down-
14
57
R. Eisenberg (2001) op. cit. Reach-through licensing terms attempt to govern
rights to potential future inventions made by the user of the research tool. In this way,
the tool owners try to leverage their proprietary rights in early innovations in order to
have a share in the profits of future innovations. However, if there are too many pre-commitments to future products, this may cause difficulties and complicate the situation by
virtue of the licence of several research tools.
58
R.S. Eisenberg (1994) op. cit. p.168.
59
Ibid.
60
Nuffield Report (2001) op. cit. p.69; However, in genetic tests, 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.
61
J. Strauss, Genetic Inventions and Patent Law, at OECD Workshop on Genetic
Inventions, IPRs and Licensing Practices: Evidence and Policies, Paris, 2002. See also
Should Congress Liberate Gene Data? (1999) op. cit. which states that rather than risk
a lawsuit or pay fees they consider exorbitant, some researchers have stopped exploring
diseases whose genetic profiles already have been licensed.
Biopharmaceutical R&D
15
intended use. 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.62 In such cases, for example in the
case of the Cohen-Boyer patent on recombinant DNA technology,63 there has
been no problem with regard to access.
In addition, practical considerations may be used to allay the concerns raised
by research tool patenting. First, pre-issuance use of the patent between the time
of publication and the time of the granting might be possible, although damages
might be available for this purpose.64 Policing is also quite difficult, therefore it
has been suggested that, in view of the difficulty in negotiating something speculative, some firms could use the patented research tools without a licence,
assuming that they can settle the matter once, and if, they discover something
meaningful.65 In addition, 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, 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.66 As the detection of the use of a research tool may
not occur until a commercialised product has been developed, it may even be
possible to escape any liability whatsoever due to the statute of limitations.67
62
16
1.3 Conclusion
In conclusion, in view of the increasingly cumulative nature of innovation, a
concern has been raised regarding the proliferation of patents, which may impede access to essential technology and, as a result, hinder innovation.
More specifically, 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. Research tools have
been at the centre of these discussions, although the problems in this area might
simply represent an instance of what might be a more general problem.
Practical evidence confirms that patents have been extended both in subject
matter and in scope, and this may often be seen as unjustified by the research
community. As patents, by definition, involve a degree of exclusivity, their very
grant is bound to affect access to the patented technology. Where their grant is
unjustified or overbroad, lack of access is bound to be seen as unwarranted.
While it is felt that this may in turn lead to the hindering of innovation, there
has been no evidence to date produced which unambiguously establishes a clear
negative effect on innovation.
The main concern relates to the increased transaction costs68 and the difficulty
in reaching licensing agreements.69 More specifically, regarding the issue of
exclusion, current practice shows broad licensing patterns in most cases. Nevertheless, there is still some concern in the industry that access to essential
of the identity of the infringer. 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, this is unlikely as it normally takes more than three years to get approval for a pharmaceutical compound. (It might, however, be possible to claim damages
in license analogy for unjustified enrichment, whose limitation period is 30 years, although the Federal Supreme Court held that, in this case, damages can only amount to
a reasonable royalty. BGH GRUR 1982, 301 Hollow plastic profiles II).
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.
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.
69
See R. Eisenberg (2001) op. cit. pp.23247. 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; (2) the heterogeneity among institutions leading to
complications in reaching agreeable terms of exchange; (3) the differences amongst
agents in institutions such as between scientists and lawyers and business people; 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.
Biopharmaceutical R&D
17
upstream technology may be refused and it is felt that this may impact negatively
on innovation.70 Whether this should be seen as a systematic failure in the patent
system, or simply as individual instances of restricted access, is not clear.
The industry also attributes the lack of evidence of a discernible impact on
innovation to the existence of working solutions, however, it is not clear what
these solutions involve or how the situation would differ in their absence.71 In
addition, as one of the working solutions is infringement, it could be questioned
whether it is sensible to have a system that relies on encouraging infringement.
Despite the ambiguous nature of the evidence on the purported lack of access
and its impact on innovation, industry participants still feel that this is a problem
that needs to be addressed. Burgeoning research and development will require
ever-greater numbers of proprietary tools, giving rise to transaction costs associated with acquiring the right to use each such tool. In some cases, the patentee
may refuse to license the research tool altogether. The sum total of the transaction costs involved with acquisition of all necessary research tools may be so
severe as to impede, postpone, or stop the development of important new
products.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. However, we take the view that
the exercise of a monopoly over what are now essentially discoveries of genetic information accessible by routine methods is, in principle, highly undesirable. We
consider that the development of a culture among those who carry out scientific research, 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, if endorsed by the patent
offices, amounts to a misapplication of the patent system. We consider, therefore, that
in general, the granting of patents which assert rights over DNA sequences as research
tools should be discouraged.
70
See NIH Report on Research Tools (1998) op. cit. which lists refusal to license
as one of the key concerns in the area of research tools. The definition of obstacles includes: refusals to license, onerous royalty obligations, restrictions on the dissemination
of materials and information restrictions on the ability to collaborate with commercial
firms, and advance commitments regarding intellectual property rights in future discoveries, p.4.
71
J. Walsh and J. Cohen (2003) op. cit. p.290.
72
J.M. Mueller (2001) op. cit. pp.67.
18
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
ABA, The Economics of Innovation: A Survey, ABA, July 2002 available at http://
www.ftc.gov/opp/intellect/0207salabasrvy.pdf; F. Machlup, An Economic Review of the
Patent System, Study No. 15 of the Subcomm. on Patents, Trademarks and Copyrights of
the Senate Comm. on the Judiciary, 85th Cong., 2nd Sess. (1958); E.W. Kitch, The Nature
and Function of the Patent System, 20 Journal of Law and Economics 265 (1977).
P.A. David, Intellectual Property Institutions and Pandas Thumb: Patents, Copyrights and Trade Secrets in Economic Theory and History, in M. Wallerstein, M. Mogee
21
22
and R. Schoen (eds), Global Dimensions of IPRs in Science and Technology, National
Research Council, Washington, National Academy Press (1993).
ABA (2002) op. cit.
Process innovations refer to changes in the production process to reduce the costs
related to producing a product, while product innovations refer to changes in the product
itself to improve quality.
D. Austin, Patents, Spillovers and Competition in Biotechnology, Discussion Paper
00-53, November 2000, at http://www.rff.org.
23
H. Grabowski, Patents and New Product Development in the Pharmaceutical and
Biotechnology Industries, in Science and Cents, April (2002), Federal Reserve Bank of
Dallas.
S. Scotchmer, Cumulative Innovation in Theory and Practice, Goldman School
of Public Policy Working Paper 240, University of California (Berkeley), February
(1999), p.1.
H. Ullrich, Legal Protection of Innovative Technologies: Property or Policy? in
O. Grandstrand, The Swedish Intellectual Property Symposium (2001), p.5; Y. Benkler,
Free as the Air to Common Use: A Political Economy of the Public Domain, in R. Dreyfuss et al. (ed.), Expanding the Boundaries of Intellectual Property, Oxford, Oxford
University Press (2001).
The issue of whether and when such a motive might be present is not addressed
here.
10
H. Ullrich (2001) op. cit. p.5; P. A. David (1993) op. cit. pp.19, 32.
11
E.W. Kitch (1977) op. cit.
24
tives for follow-on inventions.12 Adjusting patent length and breadth might give
effect to some of these considerations. The problem is, however, that it is not
clear how much incentives are necessary.13 The dilemma in the area of sequential
innovation reflects the clash between monopoly and competition theorists, the
former arguing that monopolies eliminate duplicative efforts and ensure that
invention takes place,14 and the latter arguing that innovation incentives are often
smaller in monopolistic conditions and that competition may yield different
results in the race.15
The optimal length of patents is sensitive to price elasticity of demand in the
product market, and the responsiveness of the costs of the production process
to the amount of R&D resources devoted to its invention.16 In cases where the
demand is more elastic, the patent length should be shorter. This is because if
prices are higher, the quantity will be lower and there will be more deadweight
losses.
On the other hand, a wider breadth would provide strong incentives for the
breakthrough inventions and weaken incentives for the follow-on inventors.
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, and results in additional costs in attempting to invent
around the blocking first generation patent.17 Innovation is often cumulative
so that the patent could interfere with further discovery; inhibition of progress
as opposed to discouraging inventions.18 Weak and narrow patents encourage
firms to cross-license and disseminate, however, this may discourage fundamental inventions.19
12
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.
The balancing process necessarily involves certain trade-offs. For example,
where initial innovation ought to be encouraged the patent breadth will tend to
be wider, whereas to account for follow-on innovation, the exclusivity will have
to be restricted.
Table 2.1 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, but de
facto harmonisation in
view of TRIPS, EPC
and CPC
To be determined by
Member States, but de
facto harmonisation in
view of TRIPS and CPC
European patent
EPC
To be determined by
Member States, but de
facto harmonisation in
view of TRIPS and CPC
Community patent
EPC
Community Patent
Regulation
26
as an incentive mechanism. It hence becomes important to preserve this incentive. On the other hand, consumers expect to gain access to new and effective
drugs at an affordable cost, not only in the short term but also in the long
term.
27
study undertaken in 1985 concluded that the average annual expenditure on R&D represented 810 per cent of sales, although it
was even higher for some firms.23
Basic research is an on-going process,24 but once a new substance is discovered, its development follows three stages: the
synthesis of active materials and determinations of their biological
effects; extensive biological testing on animals and then on humans
to establish its pharmacological activity and to detect adverse effects; and finally, product development.25 This process is lengthy,
costly and uncertain.
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, including highly specialised
medical, biological and biochemical skills, and the clinical costs
which have grown at a rapid rate.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. Attention is focused on treating chronic clinical
conditions requiring greater overall resources prior to commercial
European Commission, which prepares a draft decision that becomes law if it is not opposed. This procedure is mandatory for biotechnological products and optional for
high-tech medicines. The second route is based on mutual recognition, where a licence
to enter the market is given after an investigation into the efficacy and quality of the
process. Quality and quantity control is achieved by direct or indirect means on the prescribing/consumption practices, and price regulation is a national affair in the EU.
See also Directives 92/26, 92/28, 92/27, 92/23 on the rational use of medicines, OJ
1992 L113/13, which have harmonised the classification of medicines for prescription
and non-prescription products, the advertising of medicines, the information to be provided to patients and pharmaceutical wholesaling. See also Directive 98/44/EC on the
Legal Protection of Biotechnology Inventions, OJ 1998 L213/13 that provides a common
set of principles regarding the grant of patents, but only four Member States have adopted
the necessary legislation so far.
23
OECD, The Pharmaceutical Industry, Paris (1985).
24
The industry is made up of different types of firms. There are small companies
that specialise in sales of non-R&D intensive drugs which are mainly involved in the
manufacturing and commercial activities. 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. A. Gambardella et al. (2002) op. cit.
25
Ibid.
26
H. Grabowski, Patents and New Product Development in the Pharmaceutical and
Biotechnology Industries, in Science and Cents (April, 2002) (Federal Reserve Bank of
Dallas).
28
29
the industry would not exist but for the patent system.33 Innovators would be reluctant to invest as they would be unable to make a reasonable return, and in this
way there would not be any products to be copied for the generic brands.34
The market would only afford two types of benefits to innovators: de facto
exclusivity from being the first mover, and a sizeable segment of consumers
which prefers branded products over generic ones. In the less serious cases, it
is thought that without patent protection, R&D would fall by almost 60 per
cent.35 This is also consistent with Mansfield, 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.36
By comparing the four factors for appropriating the benefits from product
inventions, one study has concluded that patents are the most effective mechanism. On a scale of one to seven, seven connoting very effective, patents had a
marking of 6.53 compared to learning by doing 4.24, lead time 5.47 and sales
and services 5.59. In other industries, these variations were very different, for
example in the computer industry patents were effective in a scale of 3.43 compared to lead time that was 6.33.37 The importance of the patent system is
attributed to four main factors: the high costs of R&D; the low costs of imitation; the fact that claims may be defined precisely for new chemical molecules,
making it easier to prove infringement; and the long life-span of pharmaceutical
inventions rendering lead time less important.38
Only one out of every eight patents has a significant economic value, therefore, apart from a few cases, the market does not seem to treat patents as
winner-take-all prizes.39 In addition, 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, 26 February 2002.
34
G. Glover (2002) op. cit.
35
Snyder in FTC/DOJ Proceedings on Competition and IPRs: A. Diverse perspectives on patents. B. Business perspectives on patents. Biotechnology and pharmaceuticals,
19 March 2002. See also OECD Report, Competition and Regulation Issues in the
Pharmaceutical Industry, Paris (2001); where it is estimated that 65% of drugs would
not have been introduced without patent protection.
36
S.A. Singham, Competition Policy and the Stimulation of Innovation: TRIPS and
the Interface Between Competition and Patent Protection in the Pharmaceutical Industry,
26 Brooklyn J Intl L 363 (2000).
37
H. Grabowski (2002) op. cit.
38
F.M. Scherer, D. Harhoff, J. Kukies, Policy Implications of a World Skew-Distributed Returns on Innovation, 29 Research Policy 559 (2000); F.M. Scherer et al.
Uncertainty and Size Distribution of Returns from Technological Innovation 10 J. Evoln
Econcs 17 (2000); WTO, WTO Agreements and Public Health, A Joint Study by WHO
and the WTO Secretariat (2002); pp.923.
39
Ibid.
30
40
F. Lichtenberg, Benefits and Costs of Newer Drugs: An Update, 2002 at http://
www.nber.org/papers/w8996.
41
E.A. Snyder (2002) op. cit.
42
E. Mansfield, Unauthorized Use of IP: Effects on Investment, Technology Transfer
and Innovation, in Global Dimensions of IPRs in Science and Technology, National Research Council, edited by M. Wallerstein, M. Mogee, R. Schoen, Washington, National
Academy Press (1993).
43
Ibid.
44
Regulation 1768/92 EEC, concerning the creation of a Supplementary Protection
Certificate for medicinal products, OJ 1992 L182.
45
It is for this reason that different mechanisms to stimulate innovation in diseases
afflicting a small proportion of the population have been created, such as the Orphans
Drugs Act. Regulation 141/2000/EC, on Orphan Medicinal Product OJ 2000 L 18/1.
See D.M. Richardson, The Orphan Drug Tax Credit: An Inadequate Response to An IllDefined Problem, 6 The American Journal of Tax Policy 135 (1987). See also, P.J.
Kenney, The Orphan Drug Act Is it a Barrier to Innovation? Does it Create Unintended
Windfalls? 43 Food Drug Cosmetic Law Journal 66779 (1988). See also in the USA
the Orphan Drug Act that provides incentives to undertake orphan drug indications including tax credits, clinical research grants programme, accelerated review by the FDA,
31
towards illnesses that account for 90 per cent of the worldwide diseases. The
problem is rooted in poverty, not in industrial incentive structures.46 In addition,
WHO estimates that one-third of the worlds 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.47
2.2.1.2 Has the importance of patents been overstated?
While patenting is vital for the biopharmaceutical industry, its importance
should not be overstated.48 Many pharmaceutical patents are awarded to secondary and often trivial inventions rather than authentic ones, which attempt to use
patents strategically to extend their monopoly by restricting competition, creating large areas of exclusion around their inventions, thus preventing other
companies from exploiting their own patents and enhancing their bargaining
power in cross-licensing deals.49
For example, while the industry claims that it is a risky industry relying on
the few blockbuster drugs developed, the Public Citizen study has concluded
and guaranteed market exclusivity for seven years from the date of FDA approval. The
effects have been impressive as more than 200 drugs and biologicals for rare diseases
were developed between 1983 and 1999.
46
Oxfam, Patent Injustice: How the World Trade Rules Threaten the Health of Poor
People; at www.oxfam.org.uk p.7. In such cases supplementary mechanisms need to be
embedded in the system, in the form of push mechanisms involving financial contributions towards R&D, and pull mechanisms aimed at ensuring the existence of an attractive
level of demand in the event that successful drugs or vaccines are generated.
47
WTO (2002) op. cit. p.16. Access to essential drugs depends on four critical elements: rational selection and use, sustainable financing, reliable supply systems and
affordable prices. Access to drugs requires availability and affordability, and is conditioned on many factors including price controls, medical insurance, import duties and
tariffs, local taxes, limited competition mark-ups for wholesaling, distribution and dispensing. Cullet, Patents Bill, TRIPS and the Right to Health, XXXVI/43 Economic and
Political Weekly, 27 Oct. 2001.
48
The industry will want to lobby for the highest level of protection as it directly
affects its stock prices. 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, its share fell by almost one third, wiping out $38bn of its market capitalization. For this reason, pharmaceutical companies spend a huge amount on lobbying.
PhRMAs political influence comes at a price. Between 1997 and 1999, PhRMAs
members spent US$236m lobbying Congress and the executive branch of the government. Another US$14m was provided to political parties in 1999 alone. Approximately
two-thirds of corporate investment in political lobbying in the USA is directed towards
the Republican Party, raising doubts about corporate influence over the new Administration. Oxfam, on patents op. cit. p.7.
49
G. Dutfield, IPRs and the Life Science Industries, A 20th Century History, Aldershot, Ashgate (2003).
32
that pharmaceutical R&D is not particularly risky, as most new drugs are metoo drugs, (in other words close substitutes for successful drugs), and that the
initial R&D costs of many important drugs comes from public funds.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.51
In addition, the link between an increase in profits and an increase in R&D
in the industry is also not clear-cut, although a recent study has shown that as
profits increase, firms will compete to exploit them by increasing R&D investments.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.
The price of drugs does not always correlate with the costs of R&D and production as marketing costs, profit margins, subsidies, 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. There is
no apparent justification for allowing patent-based pricing to generate income
for advertisements.53 This is particularly evident in the case of essential drugs
that are not dependent on advertising.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.55 Therefore, it is claimed that the patent system
often rewards not only inventions which constitute a moral triumph, but also
those of predictable outcome.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.57 The evidence is ambiguous, however, as other
studies have suggested that patent protection may be the key to commercial
50
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
Finally, it should be remembered that major breakthroughs are usually made
in universities, and companies are more likely to encourage research with obvious commercial applications in the interest of increasing profits. 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), such as baldness, rather than in lifesaving drugs.
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.
For Britain and France, the product patent regime was largely ineffective, while
in Switzerland, despite the absence of chemical industry patents, the industry
has evolved rapidly. 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,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 1970.60 None the less, stronger patent
protection does not necessarily result in more innovation and less patent protection does not necessarily mean less innovation. Therefore, caution should be
exercised in introducing overly-restrictive patent protection when there are other
discernible negative effects.
The above considerations should not lead us to conclude that the patent system should be abolished, nor to undermine the importance of the patent system
in the biopharmaceutical industry. Rather, they seek to clarify the underlying
objectives of the industry in their quest for an absolute and unqualified patent
protection. Exclusivity involves a full scale of degree ranging from absolute
exclusivity to the complete lack of it.61 The level of patent protection is, therefore, a matter of degree and involves the careful balancing of competing
objectives.
58
See the case of Pliva which patented azythromycin worldwide, and then reached
a licensing agreement with Pfizer Inc. in which both companies and the public could
benefit from the commercialisation of the antibiotic. See WIPO, Azythromocin: A world
best-selling antibiotic Pliva, at www.wipo.int.
59
F.M Scherer and S. Weisburst, Economic Effects of Strengthening Pharmaceutical
Patent Protection in Italy, 26 IIC 1009 (1995), p.1023. G. Dutfield (2003) op. cit.
p.241.
60
R. Garg et al., Four Opportunities in Indias Pharmaceutical Market, 4 MCKINSEY Q. 132 (1996); S. A. Singham (2000) op. cit.
61
This depends, amongst other things, on how one determines an infringement, how
extensively compulsory licensing is used and how moral considerations affect the patent
grant or its invalidation.
34
2.3 Conclusion
Despite the significance of patent protection for the biopharmaceutical industry
and the centrality of the right to exclude in this respect, one should view with
caution requests for unlimited patent protection, as a balance is envisaged within
the system itself. Patent protection has various objectives to address and exclusivity therefore is a matter of degree.
The continuous progress of innovation and production of improvements is a
central part of the patent balance, particularly in the biopharmaceutical industry.
To this end, it aims to encourage not only pioneer inventions,62 involving a distinct step in the progress of the art, but also technological improvements
resulting from independent discoveries or intentional efforts to design around
and therefore avoid infringing the patent.63
The patent system aims to achieve a balance between competing interests and
the incremental nature of innovation. As a result, patent rights may interact and
overlap in different ways, with different consequences in each case. In cases of
technological improvements, patents may block each other. In cases where different inventors patent different components of a larger invention independently,
patents are complementary and thus ineffective without a licence to each of the
patented products. In other cases, patents may be substitutes or inventions
around other patents and so may compete. Yet the categorisation amongst such
different types of patents and relations is not perfect and so, for example, complementary patents may also compete.64
The patents system attempts to distinguish and cater for such competing and
often conflicting interests through limitations, exemptions from scope or other
provisions. For example, in the case of improvements, the patent system treats
them differently according to their significance and value in relation to the pioneer invention.65
62
A pioneer invention is defined as a distinct step in the progress of art, distinguished from a mere improvement or perfection of what had gone before. Texas Inst. v
ITC, 6 USPQ 2d 1886 (Fed. Cir. 1988).
63
M. J. Conigliaro, A.C. Greenberg and M.A. Lemley, Foreseeability in Patent Law,
16 Berkeley Tech L.J. 1045 (2001).
64
S.C. Carlson, Patent Pools and the Antitrust Dilemma, 6 Yale J. on Reg. 369
(1999).
65
M.A. Lemley (1997) op. cit. This is also consistent with the inventive step determination in case of pharmaceuticals. The greater the structural distance and the better
the technical effect of the invention as compared with the state of the art, the greater the
likelihood that inventive step will be found. See B. Domeij, Pharmaceutical Patents in
Europe, Deventer, Kluwer Law International (2000).
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.
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.
The law, however, does not make allowance for an infringement of the pioneer invention.
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. 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), from using their improvement.
This often leads to the case of blocking patents which, according to the transactional
view of IPRs, is conducive to levelling the playing field and to minimising the chances
of a bargaining breakdown. In the EU, there is also a provision for compulsory licensing
in cases where the improvement patent involves an important technological advance of
considerable economic interest Art. 53 EPC 1973 (Convention for the grant of European
Patents, which came into force in 1977, also known as the Munich Convention).
At the top of the scale there are radical improvements that depart from prior patents
and are afforded independent protection. In such cases, they may be found to depart from
prior patents even though they fall within the literal language of the claim. This is done
in the USA through the reverse doctrine of equivalence. As will be seen, where efficient
licensing will not occur, the law allows the improver to use the pioneer idea without that
being infringement, avoiding the hold up problem. This is done, as will be shown, by
interpreting the improvement as being sufficiently radical to escape the scope of the pioneer patent.
The distinction has been highlighted by J.M. Mueller (2001) op. cit. p.14 as it
does not trigger infringement liability for selling or offering to sell the patented products,
but rather only for use.
See Chapter 2.
J.M. Mueller (2001) op. cit.
Article 53 EPC provides for certain exceptions from patentability for ordre public,
under which research tools could arguably fall. 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
37
The patent working solutions will be examined with reference to the research
tool experience, though their application may be equally applicable (or nonapplicable) in other cases involving similar issues. It should be stressed,
however, 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).
38
Table 3.1 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. 52
Art. 7, 8,
9, 10, 11,
12
Industrial
application
Novelty
Inventive step
Community
Patent
Regulation
(CPR)
Infringement
direct use
indirect use
Art. 53
Art. 57
Art. 54
Art. 56
Art. 21
39
The experimental use exemption at its current state is viewed as only useful in
exceptional cases. See M. Kern, Recent Federal Supreme Court Decision on Experimental Use and Compulsory Licensing, 3(2) CASRIP Newsletter 2, Summer (1996).
See IPR Helpdesk, at http://www.ipr-helpdesk.org/ on Patenting and the Research
Exemption.
A similar provisions was also found in Art. 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, Revised Proposal for Council Regulation on the Community Patent, 8
March 2004, COM(2004) 7119).
All EU states except for Austria have introduced such a general exception.
See W.R. Cornish, Experimental Use of Patented Inventions in European Community States, 29(7) IIC 736 (1998).
See French Patent Law Including Modifications of 1978, Art. 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 patentees rights. German Patent Act of 16 December 1980, 11.2 effects of the patent shall not extend to
acts done for experimental purposes relating to the subject matter of the patented invention. 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.
10
D. Gilat, Experimental Use and Patents, 16 IIC 1 (1995).
40
11
See ibid. and British case Frearson v Loe (1878) Ch.D. 48, 66, 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, or with the view of seeing whether an improvement can be made or not, that is not an invasion of the exclusive rights granted by
the patent. Patents were never granted to prevent persons of ingenuity exercising their
talents in a fair way.
12
Ibid.
13
Drug Price Competition and Patent Term Restoration Act 1984, Public Law
98-417.
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. Directive 2004/27/EC of the
European Parliament and of the Council amending Directive 2001/83/EC, on the Community code relating to medicinal products for human use O.J 2004 L 36/34.
15
D. Gilat (1995) op. cit. p.9.
16
Ethofumesate Case 22 IIC 541 (1991), p.546. 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.
A similar distinction can be found in the British Case Frearson v Loe (1878) 9 Ch.D.
48, and in the Dutch case Medicopharma N.V. et al. v ICI plc, 14 Rechtspraak van de
week 7989 (1993).
41
The application of the EUE remains a highly contentious matter with different
authors arguing for different applications.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.18
The EUE is linked, to a large extent, to the problem of high transaction costs
which hinder the carrying out of experiments. From a policy perspective, it is
desirable that competitors should be able to experiment and improve on an invention, especially in fields such as the biopharmaceutical industry where
therapeutic advances are of great significance.
It is unlikely that a licence would be negotiated as the parties usually have
different views on the value, validity and scope of protection of the patent and
the experiment, and therefore the transaction costs for such negotiations are
likely to be significant. In addition, if a product patent is framed in a way that
includes all therapeutic indications and the exemption cannot be invoked, 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. This situation would impede competition and innovation within the scope
of the patents already granted. If research can result in a product with added
value, the experimental use exception should probably be applicable, as it is not
likely that this research would happen without it. The transaction costs would
prevent the negotiation of a license.19 In such cases, experiments using the invention as an object and not as a tool are exempt.
Therefore, if a competitor seeks to use the invention, as there is a danger that
the inventors profits will decrease when the experimenter commercially exploits
his results, it is unlikely that a licensing arrangement will be made. If the experimenter seeks to invent around the patent, denying the exemption might result
in the paralysation of progress, whereas invoking it would undermine incen-
17
See R.D. Hantman, Experimental Use as an Exception to Patent Infringement,
67 JPTOS 617 (1985) basing the distinction on monetary profit or lack of it and distinguishing experimenting on and for experimental purposes. See also N.A. Israelsen,
Making, Using and Selling Without Infringement: An Examination of 35 U.S.C.Sec.271(e)
and the Experimental Use Exception to Patent Infringement, 16 AIPLA Q.J. 457
(198889); R.S. Eisenberg, Patents and the Progress of Science: Exclusive Rights and
Experimental Use, 56 Univ. Chi. Law Rev. 1017 (1989); L.T. Welch, The Experimental
Use Exception to Patent Infringement in the USA, 19 Patent & Licensing 17 (1989); D.E.
Tuffery, Experimental Use as a Defense to Infringement in New Zealand, Patent World,
Oct. (1992), p.22.
18
D. Gilat (1995) op. cit. pp.19 and 29 According to the thesis suggested in this
study, 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.
19
B. Domeij (2000) op. cit.
42
tives to invent. The conclusion was that the patent policy of encouraging
inventing around should prevail over the incentives policy.20
Hence, a distinction was drawn between experimenting on and experimenting with the patented invention. The former refers to use in order to study its
underlying technology and to invent around the patent which is considered
exempted, while the latter refers to use in order to study something else that
is not covered by the exemption. Hence, for example, a research tool that is
used for conducting work will require permission from the patent holder,
whereas people that study the research tools themselves will be considered
exempted.21
As regards the interpretation of the provision in the different European countries, it appears that Germany is the most liberal in its interpretation. German
courts generally find that the use of the patented invention to obtain further information about the product falls within the exception.22 During the mid-1990s,
the German Supreme Court in two cases known as Clinical Trials I and II,23
ruled that experiments or trials on a patented substance such as pharmaceutical
products were permitted, both in order to test the claimed properties and for
new indications, as long as they were directed on the substance itself. The
Constitutional Court of Germany affirmed these decisions in the interest of the
development of the state of the art and the public interest.24
20
See D. Gilat (1995) op. cit. p.53 referring to a distinction as to mere improvement
and delineation of substitute and alternative.
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. None the less, 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. Hence, this only represents a small loss of revenue to the patentee as
his main market resides in their non-experimental uses. The fact that such research may
lead to improvements or new competing products that are patentable does not change
the analysis. On the other hand, 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, hence this is not exempted.
See P. Ducor, Research Tool Patents and the Experimental Use Exemption A no-win
situation? 17 Nature Biotechnology 1027 (1999).
22
C. Laherty and Y. Shibata, Harmonization of Patent Term Extension and Experimental Use Laws Related to Drug Development and Testing, Comparative Patent law
Seminar, Spring 2001 at http://www.law.washington.edu/casrip/Harmonization/PDF/ExperimentalUse.pdf.
23
Klinische Versuche I (BGH, 11 July 1995); Klinische Versuche (BGH, 17 April
1997); 1997 IIC 103
24
See Cases Federal Supreme Court (BGH) 11 July 1995, GRUG 1996, 109 Klinische Verusche and 5 December 1995 GRUG 1996, 190 Zwanglizenz concerning the
protein, interferon. The Dsseldorf Court of Appeals held that experiments undertaken
that neither establish the characteristics of the substance nor the feasibility of its produc-
43
On the other hand, the exception has been construed more narrowly in the
UK.25 For example, in the case Smith Kline & French Laboratories Ltd v Evans
Medical Ltd [1989] FSR 513, 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.26
tion fall outside the scope of s.11(2) as otherwise it would be inconsistent with the
principle of product patents extending to all possible uses of its subject matter. The Court
stressed that what was important was not the activity itself but the purpose of the activity,
but that experiment was limited to those directed to the subject matter of the patented
invention.
25
See Frearson v Loe [1878] 9 Ch.D. 48, 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.
See also Monsanto v Stauffer [1985] RPC 515 CA, 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. 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, or in order to amass information to satisfy a third party, whether a customer or body that the product works as its maker claims are not to be regarded as acts
done for experimental purposes. Of course the recent European Directive referred to
above has to some extent changed and harmonised the position as regards regulatory
bodies.
See also Smith Kline & French Laboratories Ltd v Evans Medical Ltd [1989] FSR
513, 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.
In Inhale Therapeutic Systems Inc v Quadrant Healthcare Plc [2002] RPC 21, the
Patents County Court observed it is said that there is a defence of experimental use.
This fails on the facts. None of the exploitation of the products or technology complained
of was conducted by Quadrant for its own experimental purposes. In all cases Quadrant
was trying to exploit and sell its technology to third parties. This is not experimental
use. 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.
26
See M. Fysh, Supplementary Certificate Legal Issues in Exploiting Drug Patents
in Europe, LES-Italy Conference, Milan, 2002, I believe that the exception may therefore have a very narrow effect under UK/Irish law. 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), assessment of validity, and in-house experiment for the purpose of improvement and modification etc. 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.
44
27
45
irrespective of the purpose of the use, under patent law, the exemption imports
a subjective evaluation into the motives underlying the use. The extent to which
this is sound is contentious. 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, there is an unspoken assumption that these activities are motivated by a commercial intent. Hence, a distinction was initially
made in the case of universities, where it was thought that there was no commercial intent. This assumption, however, has been called into question in
recent times with the increasing commercialisation of activities on the part of
universities, especially in the USA.32 However, 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.
Hence, the practical utility of such an exemption can be questioned. 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, and while
the exemption may exist in theory, it is hard to sustain it in practice. 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.33
With regard to the specific case of pharmaceuticals, in the USA, 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, with a view
to commercialisation immediately after the expiration of the patent. It was held
that the defence is truly narrow and cannot permit experiments conducted with
a view to commercial exploitation.
The US Congress has, however, reconsidered the effects of this ruling as it
was felt it, in fact, extended the term of effective patent protection to include
32
46
35
47
and experimenting with would not provide access in cases of downstream research, as it would be inapplicable. The problem is that researchers are ordinary
consumers of patented research tools, and that if these consumers were exempt
from infringement liability, the patent holder would have nowhere else to turn
to collect patent royalties.40
In light of the increasing difficulties in reaching an agreement or securing a
licence, however, this assumption may be called into question. 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.41 This is only reasonable, however, 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. The
growing incidence of high transaction costs associated with accessing multiple
patented research tools contravenes the ordinary consumer assumption, however.
When research tool transaction costs are severe enough to impede or stop the
development of new biomedical products, line-drawing between experimenting
on and experimenting with may no longer be justified.42
In addition, there may be further complications with maintaining this distinction, 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, with its tendency
towards broad patents research using knowledge of the structure of a gene, directed towards identifying treatment for disease associated with abnormal forms
of the gene may be regarded as research with the gene. Research intended to identify
variation within the gene may be regarded as research on the invention. However,
clinical diagnostic testing, which can be regarded as technology subject to commercial application, could in principle be thought of as research on the invention.
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. The distinction
between research genetic testing and clinical diagnosis is also clouded by the fact
that, although the objectives may differ, the processes generally remain identical.
This problem seems inherent in the patenting of inventions which are also a form
of discovery.43
40
48
44
L.A. Handley, Refining the Graver Tank Analysis with Hypothetical Claims: A
Biotechnology Exemplar, 5 Harvard J. Law & Tech 31 (1991).
45
See Westinghouse v Boyden Power Brake Co. 170 US 537 (1898), and Graver
Tank case 339 US 605 (1950).
46
Wilson Sporting Goods v David Geoffrey & Associations, 904 F.2d 677 (Fed. Cir.
1991). See also Amgen Inc. v Chugai Pharmaceutical Co. 927 F.2d 1200 (Fed. Cir. 2000),
and Scripps Clinic and Research Foundation v Genetech Inc. 927 F.2d 1565 (Fed. Cir.
1991), where the Federal Circuit limited the scope of the inventors claims of purified
natural products and applied the reverse doctrine of equivalents.
47
B. Domeij (2000) op. cit.
48
R. Merges, IPRs and Bargaining Breakdown: The Case of Blocking Patents, 62
Tenn. L. Rev. 75, (1994).
49
Ibid.
49
In such cases, the reverse doctrine of equivalents promotes the voluntary licensing between parties by creating a threat to the pioneer patentee, encouraging
them to reach a socially productive agreement without recourse to statutory
compulsory licensing. In the USA, it allows the radical improver to use the pioneer inventors idea in certain cases in which the latter would otherwise have
held the radical improver hostage.50 In such cases, it is not necessary to have
recourse to compulsory licensing as the improvement falls outside the scope of
protection. The radical improver is exempt from liability regardless of whether
it lies within the literal scope of the claim, so as to encourage its creation and
ensure it reaches the market.51
According to this, the improvement is treated as a function of its value and
significance in relation to the original invention. A minor improvement is not
eligible for a patent and in order to reach an agreement with the patent holder,
it must overcome Arrows paradox of information.52 The latter refers to the situation in which the improver is unable to protect the information once it has been
disclosed, yet needs to disclose it in some way in order to reach an agreement
with the patentee. The improver cannot stop the pioneer from using the improvement and it is unlikely that an agreement will be reached. The minor improver
is also likely to infringe, whether literally or by virtue of the doctrine of
equivalents.
In the case of a significant improvement, however, a property right is given
to the improver in the form of a patent, 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.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. Under
European patent law, 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.54 Hence, while there is no provision for
compulsory licensing (CL) of dependent patents in US law, as it exists in the
EU, the blocking patents doctrine attempts to have the same effect by maximising the situations in which licensing can occur. 55
50
50
cess paradox of compelling access in cases where the incentive for the pioneer work is
most significant. This is because the improvements value is measured relative to the
original patent. Practical evidence, however, is equivocal on the role of commercially
added value as the most significant factor in determining the scope of patent protection.
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. See the authors
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, and that the doctrine of equivalents be seen as an economic test not a
technical one. 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.
56
In fact, 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 pioneers scope. To that end see the experimental use exemption
analysed next.
51
57
For an explanation of the term patent thicket, see C. Shapiro, Navigating the
Patent Thicket: Cross Licenses, Patent Pools and Standard-Setting, UCLA Department
of Economics in its series Levines Working Paper Archive no. 122247000000000539,
2004.
58
J. Clark, J. Piccolo, B. Stanton, K. Tyson, Patent Pools: A Solution to the Problem
of Access in Biotechnology Patents? US PTO, 5 December (2000) at http://www.uspto.
gov/web/offices/pac/dapp/opla/patentpool.pdf.
59
See R.P. Merges, Institutions for Intellectual Property Transactions: The Case
of Patent Pools, in R. Dreyfuss et al., Expanding the Boundaries of Intellectual Property,
Oxford, Oxford University Press (2001).
60
J. Kubalski, Comments on Patent Pools and Standards, for the FTC Hearings on
IP and Antitrust, January 2002.
61
ACIP (2004) op. cit.
52
62
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), shield invalid patents and encourage collusion and price fixing.68
The latter, however, would seem to be amenable to control if an independent
expert were charged with evaluating the patents, and if a field of application
could be defined and the essential patents identified. In this case, the patent
pools may be deemed worthy of consideration.
Empirical evidence has shown that some patent pools have been created in
the biotech industry such as the SNP Consortium and the Genebank pool.69
These have been viewed as particularly effective pools. On the other hand, 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.70 Furthermore, in some cases, pools have been found
to be inefficient. For example, the patent pool between VISX and Summit
Technology, of the only two FDA-approved manufacturers of lasers used in
photo refractive keratoctomy, was condemned as it was perceived to act as a
tool for fixing prices and eliminating horizontal competition between the companies, in view of the ability of both companies to enter the market
independently.71 The careful examination of the true complementarity and dependency therefore seems to be paramount.72
In conclusion, while patent pools may prove particularly advantageous in
certain cases, it would seem that they have been directed more towards the
problem of the proliferation of patent rights and the creation of patent thickets,
than to the problem of access to a single essential upstream technology as in
the case of research tools.73 In order for patent pools to function, a symmetrical
structure is required in which everyone owns patents. This is not usually the
case for upstream biotechnological research and downstream pharmaceutical
developments. Patent pools are also usually dependent on the voluntary decision
to pool the patents, which is not likely to arise in the absence of interdependence
in cases of access to essential inputs.
68
54
74
J. Reichman, C. Hasenzahl, Non-Voluntary Licensing of Patenting Inventions:
Historical Perspective, Legal Framework under TRIPS, and an Overview of the Practice
in Canada and the USA, UNCTAD (2002), p.5.
75
See survey of patent laws in Table 3.2.
76
See Art. 5 of the Paris Convention for the Protection of Industrial Property of 20
March 1883 as revised at Brussels on 14 December 1900, at Washington on 2 June 1911,
at the Hague on 6 November 1925, at London on 2 June 1934, at Lisbon on 31 October
1958, and at Stockholm on 14 July 1967, and as amended on 2 October, 1979.
77
See also ACIP (2004) op. cit. p.58 confirming the perception of the compulsory
licensing as desirable as a tool in certain cases.
55
choice and lower prices. There is a risk, however, of eliminating the monopoly
position of the intellectual property (IP) holder, although this may be justified
to assure a more complete utilization and commercialization of innovative
products.78
Compulsory licences may also be desirable in certain cases as they may facilitate further innovations, especially the case of improvements or patents
building upon previous ones. Proponents of this view also argue that IP rights
can reinforce market power in the areas of network industries. CL may also be
desirable for products which are vital to the public, such as those relating to
public health, welfare and national defence.79
CL is also supported under patent law by virtue of deadweight loss concerns.
According to the deadweight loss argument, wasteful levels of research activity
can be invested in the race to be the first to innovate and reap the first-mover
profits. 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 Therefore, in line with this argument, there may be some benefits in weakening IP
protection through CL as it results in a reduction in wasteful activity.
Indeed, in certain cases, 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.
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. 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.81
78
C.M. Fauver, Compulsory Patent Licensing in the US: An Idea Whose Time Has
Come, 8 J Intl. L Bus. 666 (1988).
79
Ibid.
80
T.C. Bailey, Innovation and Access: The Role of Compulsory Licensing in the
Development and Distribution of the HIV Drug, U. Ill. J. L. Tech. & Poly 193, 2001.
The author refers to the work of P. Tandon. 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, as it may contribute to the firms individual utility
by increasing the likelihood that it will invent first and reap the profits. In a dynamic
model, relaxation of patent protection may lead a firm to refrain from competition, and
although that may reduce research activity at an absolute level, the level may be socially
optimal avoiding wasteful activity. 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, assuming there are no barriers to entry. Hence, in such industries, weakening patent protection may not actually decrease innovation, or at least
may reduce it to an optimal level. P. Tandon, Optimal Patents with Compulsory Licensing
90(3) J. of Politl Econy 47086 (1982).
81
Ibid.
56
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. This is the deadweight loss associated with monopoly
pricing.82
CL has also been severely criticised, however, as it is feared that it reduces
incentives for the original innovation.83 This rests on the assumption that a reduction in incentives would dramatically reduce the level of investment. 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. Empirical evidence is ambiguous on this matter. For example,
an analysis of patenting activity from 1954 to 1956 has shown that patent owners
subject to CL significantly reduced their patenting activity.84 By contrast, a 1975
study did not find any evidence that CL adversely affected corporate R&D expenditure.85 It would seem, therefore, that the effect of CL is also dependent on
other factors, such as first-mover advantages and royalty rates.86
82
Ibid. Hence, the concept of deadweight loss considers the consumers who are
not able to afford the monopoly product, and the wasteful levels of research activity in
the race to reap the first-mover profits.
It should be noted, however, that this is part of a general problem and used as an argument on behalf of those advocating a liability system. See, for example, C.T. Taylor and
Z.A. Silberston, The Economic Impact of the Patent System, Cambridge, Cambridge
University Press (1973), pp.1989.
83
V. Korah, Compulsory Licenses and Incentives to Invest in Innovation and Compulsory Licenses, OECD (1998).
84
F.M. Scherer, The Economic Effects of Compulsory Patent Licensing, New York,
New York University Monograph Series in Finance and Economics (1977), pp.4350.
See also C.T. Taylor and Z.A. Silberston (1973) op. cit. pp.1989 which shows that
British pharmaceutical executives believed that some forms of licensing could harm
innovation.
85
H. Hovenkamp, J. Mark, M. Lemley, Intellectual Property and Antitrust: An
Analysis of Antitrust Principles Applied to Intellectual Property law, New York: Aspen
Law & Business, c. 2002, 2003 Supplement. See also F.M. Scherer (1977) op. cit.
pp.4350. He concludes that the licensing had no long-term negative impact on licensors
innovation, even for industries like pharmaceuticals. Indeed, companies subjected to
compulsory licensing actually spent more, on average, on R&D than similar firms in
their industry that had not been subjected to compulsory licensing. A study of Canadas
compulsory licensing programmes found similar results, i.e. that there was no negative
impact on pharmaceutical innovation. D.G. McFetridge, Intellectual Property, Technology Diffusion, and Growth in the Canadian Economy, in Competition Policy and
Intellectual Property Rights in the Knowledge Based Economy, R.D. Anderson and N.T.
Gallini (eds) (1998), p.65.
86
See, for example, C.V. Chien, Cheap Drugs at What Price to Innovation: Does
the Compulsory Licensing of Pharmaceuticals Hurt Innovation? 18 Berkeley Technology
Law Journal 853 (2003), pp.212 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
57
the non-use of a patent for three years from its grant or four years from
its application;
l when necessary to use a second otherwise infringing patent that constitutes an important technical advance of considerable economic
significance; and
l in cases of extreme urgency, crisis, or to remedy anti-competitive
behaviour.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. They stipulate that governments should consider the cases on their individual merits, that prior to the
authorisation of third party use there should be an effort to negotiate a voluntary licence on reasonable commercial terms, and that the government
provides adequate remuneration taking into account the economic value of
significant factors, namely, market significance and predictability. Market significance
refers to the extent to which a licensee actually threatens the patentees market, while
predictability refers to the extent to which a licensor anticipates a compulsory licence.
Unpredictable licenses that cover only existing technologies are more limited in scope
than those that are predictable and cover future inventions. Although unanticipated loss
of exclusivity that accompanies an unpredictable compulsory license may influence a
companys decisions about investing in follow-on innovation, development and commercialization, the licensing event may come at a point that is too late for the company
to change course. This is not the case with an order that requires licensing of future patents. The licensor may choose to redirect R&D investment, put off inventive activity
until the license has expired, or choose trade secret over patent protection. See also
Chapter 5 at 5.3.2.4 on harm to incentives.
87
The survey shows that some states merely refer to a broad notion of public interest
that could potentially include these more specific considerations, whereas others refer
more particularly to these three grounds. See survey of patent laws in Table 3.2. See also
G. Julian-Arnold, International Compulsory Licensing: The Rationales and the Reality,
1993 IDEA 349.
88
TRIPS Agreement (1994) op. cit.
58
the authorisation.89 Article 32(f) of TRIPS also requires that use should be
authorised predominantly for the supply of the domestic market.90
3.2.4.2 Analysis of the role of CL
(a) The Role of CL in Balancing Commensurability
As was shown above, it would seem that neither the EUE nor the patent pools
solutions are adequate in addressing the potential blocking of access to upstream
innovation. In such a technological environment, it would seem that the CL
provisions could serve many functions. On the one hand, it might work as a
factor to induce voluntary licensing, and on the other hand, it could be used as
a safety net to address substantive concerns.91
The usefulness of the CL provisions in the context of research tools depends
on both the substantive and the practical aspect. Substantively most countries
contemplate licences where the public interest so dictates. This diverts the question to the interpretation of public interest. Other countries refer more
specifically to the specific cases of non-use, dependent patents and emergency
or anti-competitive situations.92
(i) CL as a mechanism to induce broad licensing CL may be used as a means
to encourage and induce broad licensing techniques. Evidence has shown that
89
It should also be noted that some of these requirements may be waived in cases
of national emergency.
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. This issue is particularly relevant to developing countries, as the
South Africa and Brazilian experiences have shown. However, this issue is not addressed
in the present paper. In such cases, however, CL works to reduce the adverse effects that
patents may have on prices and availability. For developing countries, the issue which
needs to be resolved centres on how to overcome limitations on prospective importing
states as to the sources of the products, and of exporting states in their capacity to establish economies of scale. See F. Abbott, Compulsory Licensing for Pubic Health Needs:
The TRIPS Agenda and the WTO after the Doha Declaration on Public Health, Quaker
UN Office, February 2002, p.16. 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, COM/2004/0737 COD 2004/0258.
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, under s.57(1) of the Kingdom Act on Patents
of 1995 available at www.cptech.org/ip/health/cl/netherlands-export-rules.html.
91
With regard to the latter, see H. Hovenkamp, J. Mark, M. Lemley (2003) op. cit.
para. 6-53, who state that: compulsory licensing should be used as a last resort.
92
See survey of patent laws in Table 3.2.
59
even the threat of CL is effective in exerting power on firms to reach a consensual agreement on licensing. Hence in cases where the upstream patentee would
have otherwise refused to deal with a downstream competitor, the possibility of
a compulsory licence might be effective in obtaining a voluntary licence.
The Brazilian experience is illuminating in this respect.93 The government of
Brazil threatened to produce pegylated interferon locally, which is a medicine
used to cure Hepatitis C, unless the branded producers reduced their price. This
led to an agreement between the government and the patent-holder, Roche, 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. The practical value of
CL, therefore, is not only its use, but also that the threat of it usually induces
the grant of contractual licences on reasonable terms, and thus the objective of
actually working the invention is accomplished.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.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.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. The research tool
problem is grounded on lack of access rather than a lack of any kind of working
of the patented invention.
(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, and which
represents an important technological improvement of considerable economic
significance.97
93
60
Doc. 7119/04 PI 18, Revised Proposal for Council Regulation on the Community Patent,
8 March 2004.
See also UK section 48 Patents Act 1977; France Art. L 613.15 Industrial Property
Code 1992; Netherlands, section 57 Patent Act 1995. For example, in the UK
s.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. This is
subject to the condition that the compulsory licensee is prepared to cross-license its
own dependent patent on reasonable terms. (section 48(7) PA 1977). None the less,
this case of compulsory licensing has not been the subject of litigation in the UK. See
M. Kern (1996) op. cit.
98
See G. Julian-Arnold (1993) op. cit p.349.
99
Ibid. See survey in Table 3.2.
100
Biotech Directive (1998) op. 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.
101
Ibid.
102
M. Kern (1996) op. cit.
61
applied by the German Federal Patent Court on 7 June 1991, in favour of the
granting of a CL.103 In this case, Bioferon owned a patent for a pharmaceutical
product, polyferon, for the treatment of chronic polyarthritis and it also held
dependent patents on specific uses of human immune interferon. The Court
found that there was a public interest in the medical use of polyferon which was
dependent on the dominant substance patent, however, in December 1995, 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. On the
facts, it found that the substantially improved therapeutic properties had not
been established.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,
and that the Federal Court in Switzerland had not dealt with such a case since
the law had come into force in 1956.105
In cases involving a significant technological advance impeded by another
patent and raising public health concerns, one could potentially envisage the
use of CL under this provision to remedy the blocking effect, however, the usefulness of this approach has not been tested thus far.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. The wording of the Community Patent Regulation only provides
for a second infringing patent, therefore it, prima facie, covers both cases.
However, it seems that this provision would be inadequate to deal with cases
raising similar issues such as research tools, as use is required prior to any potential patent. Hence, it would seem that this provision could not be used in
cases of blocked access to an upstream innovation for downstream research, as
opposed to patents that have already been granted.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), 5 December 1995, GRUR 1996,
190; 24 IIC 397 (1993). See also Grounds for Granting Compulsory Licensing, at www.
southecentre.org.
104
See Grounds for Granting Compulsory Licensing, at www.southecentre.org, p.4.
For a critique of the strict interpretation of the notion of public interest by the Court,
see M. Kern (1996) op. cit.
105
W.G. Walter, Compulsory Licenses and Dependent Patents, 21 IIC 532 (1990).
106
See IPR Helpdesk, Some Basic Issues Surrounding Improvements Made to Patented Invention and to Dependent Patents, at http://www.ipr-helpdesk.org/.
107
As it was shown earlier, downstream research to potentially obtain a second patent
would not be exempted under the experimental use exemption, as it would constitute
commercial use and experimenting with as opposed to on the invention.
62
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, that person shall be
given authority to exploit the invention if permission is indispensable in the public
interest.
See also Art. L.613-16 of the French Code on Intellectual Property which provides
for compulsory licensing of patents if required in the interest of public health. According to WHOs publication, Globalization and Access to Drugs, Implications of the
WTO/TRIPS Agreement, WHO, November 1997, this law authorised this procedure when
patented drugs are only made available to the public in insufficient quantity or at abnormally high prices.
See also according to G. Julian-Arnold (1993) op. cit. p.349 who states that in Greece
for imperative reasons of public health, if the invention has been insufficiently exploited
to satisfy local needs a license may be granted.
On health emergencies, 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, COM (2004) 737.
109
See Doha Declaration, 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, or other circumstances of extreme urgency.
110
Public Health Emergencies Act HR 3235, 6 November 2001.
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.
However, as the quantity was greater than Bayer was able to produce in a timely manner,
Thomson was asked to issue compulsory licences to generic manufacturers on 16 October. For more information see www.cptech.org/ip/health/cl/recent-example.html.
112
Affordable Prescription Drugs Act HR 1708, 27 April 2001.
63
down the cost of the prescription drugs. If the patent privilege is misused at the
expense of consumers, generic competition is seen as having an important role
in ensuring broader access and reasonable prices. HR 2927 also provides for
the CL of certain patented medical inventions.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, lamivudine, ritonavir+lamivudine and
nevirapine.114 Therefore, this may provide another avenue to give effect to the
predominance of health concerns.
(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.115
In this context, 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, thereby impeding innovation on downstream research or
follow-on 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. In this respect, it may be broader and more effective than the dependency
provision. On the other hand, 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 implications of this type of CL are not dependent
on the internal patent provisions but rather on the external anti-trust
determination.
(b) Conclusions on CL
CL is envisaged to take many different forms in order to cater for the potential
problems relating to research tools. The outcome largely depends on the interpretation and the recourse made of the provisions relating to public interest/health
emergency, dependent patents and anti-competitive practices.
In view of the uncertainty of pharmaceutical patent protection regarding its
effect on prices, profitability and innovation, it is difficult to evaluate the desir-
113
64
116
See F.M Scherer, The Patent System and Innovation in Pharmaceuticals, Cambridge, Harvard University Press (1998), pp.1078; Grounds for Granting Compulsory
Licensing, www.southcentre.org, p.6. 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, that are essential and do not require advertising. See F. Abbott (2001) op. cit. p.41.
117
See, for example, 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. This claim was rejected.
See ACIP (2004) op. cit.
118
G. Julian-Arnold (1993) op. cit.
119
J. Love, Implementing TRIPS safeguards with particular attention to administrative models for compulsory licensing of patents, WHO meeting in Harare, Zimbabwe,
21 August 2001.
120
See M. Kern (1996) op. cit. p.2.
65
was founded in 1961, shows that until the end of 1991 there had been only 12
cases in which parties had instituted proceedings for compulsory licences.121
In practice, compulsory licensing is not greatly used. Between 1991 and 1993, the
Patent Office did not receive any applications for compulsory licenses, although between 1988 and 1990 it received eight. As Jeremy Phillips has pointed out however,
these figures do not necessarily tell the whole story. The licensing provisions also act
as a form of deterrent against abuse or to look at it another way, of encouragement
to grant licenses voluntarily. Actual applications under s. 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.122
Despite this, some governments might even be unwilling to impose a compulsory licence in cases of national emergency due to the uncertainty over the
potential compensation. It has been suggested that the reluctance of the Bush
administration to act in a way that would override the patent, could be attributed to the concern over what the Treasury might thereafter charge for lost
revenues. As a consequence of concerns about uncontrolled or unpredictable
costs, public health officials will act conservatively and expose the public to
higher risks.123
In conclusion, while CL might be associated with different contexts, the most
relevant patent law situation relates to dependent patents. The interpretation and
practical use of this provision has thus far been quite limited, therefore in its
current form it is doubtful whether it would be helpful in the context of research
tools. Apart from internal licensing, there are only two other instances that might
be helpful in the research tool context, which include cases of extreme urgency
including public health and CL as a remedy to anti-competitive conduct. However, as these involve licences outside the patent system, they need to be
analysed externally, in line with their own system. 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. In this regard, 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.
121
Ibid.
R. Battcock, IPRs, software copyright and competition law: restricting the rights
of intellectual property owners in the wider public interest, available at www.cptech.
org/ip/health/cl/cl-eu.html.
123
CPTech comments on H.R. 3235, the Public Health Emergency Medicines Act,
7 November 2001, http://lists.essential.org, p.1.
122
66
Table 3.2 European national provisions for compulsory licensing and on the
experimental use exemption
Country
Applicable statute
Compulsory licensing
provisions
Patent infringement
limitationsexperimental use
exemption
Austria
36. CL for
non working
dependent patents
where of
considerable
commercial or
industrial
significance
public interest
Denmark
The Consolidate
Patents Act
Patents Act No. 479
1967 as last amended
by Act No. 733,
27 Nov. 1989
CL for
non working (s.45)
dependent patents if
reasonable in view
of its importance
(s.46)
if required by
important public
interests (s.47)
Finland
CL for
non working (s.45)
dependent patents if
reasonable (s.23)
where considerable
public interest
(s.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. 92-597 (as
last amended by Law
No. 96-1106 1996)
CL for non-working
and for dependent
patents
Art. L 613-16 in the
interests of public
health, patents granted
for medicines
See also Use of
Inventions for Service
of State Section 78 (for
the maintenance of
supplies essential to
life, for promoting
productivity)
L. 613-6 acts
performed on an
experimental basis and
which relate to the
object of the patented
invention
67
Applicable statute
Compulsory licensing
provisions
Patent infringement
limitationsexperimental use
exemption
Germany
Greece
Technology Transfer,
Inventions and
Technological
Innovation Law
1733/1987 as last
amended by Law No.
17/39 1987 and
Presidential Decrees
No. 54/1992
13, 14 CL for
non-working
dependent patents if
significant progress
in comparison with
invention of prior
patent,
imperative reasons
of public health or
national defence
(Art. 14)
Italy
54 CL for non
working, dependent
patents important
technological
improvement
Netherlands
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
68
Applicable statute
Compulsory licensing
provisions
Patent infringement
limitationsexperimental use
exemption
Norway
4350 CL for
non-working
dependent patent
important
technological
advance of
considerable
economic
significance,
important public
interests
Art. 3 excuses
experiments outside
professional activities
or experiments relating
to the subject-matter of
the invention
Portugal
Industrial Property
Code Decree Law No.
16/95 1995
CL for
non-working (art.
103)
dependency when
considerable
technological
advance (art. 107)
public interest incl.
public health or
national defence
(Art. 102)
Art. 98 on experimental
purposes
Spain
Spanish Law on
Patents No. 11 (20
March 1986) as last
amended by Law 50,
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.
69
Applicable statute
Compulsory licensing
provisions
Patent infringement
limitationsexperimental use
exemption
Sweden
CL when
non working (s.45)
dependent patents
where reasonable
(s.46)
required by public
interests of extreme
importance (s.47)
Switzerland
CL for
Art. 40(1) public
interest
Non-working Art.
37
dependent patents
Art. 36 when
important
technological
advance of
significant
importance
UK
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 5557 on
Crown Use for public
interest
European
Communities
Directive 98/44/EC on
legal protection of
biotechnological
inventions
Art. 12 significant
technical progress of
considerable economic
interest
4.1 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.
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 implications that the right to health might have on the patent balance
cannot therefore be overlooked. 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, whether directly or indirectly.
As shown in the previous chapter, patent law does not contain specific provisions for cases where the right to health might be in issue, however, it does
envisage the possibility of granting a compulsory licence in the interest of
public health. It also allows for exceptions and exclusions to be created in
the interest of ordre public, which may include health concerns in certain
cases.
See Chapter 3 and Art. 8 of the TRIPS Agreement, Principles. The reference to
public health does not directly incorporate the right to health, although one might assume that the latter is included in it.
In the EU, the European Group on Ethics in Science and Technology is an independent pluralist multidisciplinary body, 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.
70
71
C.A. Toebes, The Right to Health as A Human Right In International Law, Oxford,
Intersentia- Hart 1999, pp.1517; P. Farmer, Pathologies of Power. Health, human rights
and the new war on the poor, Berkeley, University of California Press (2003); N. Birdsall
and E. James, Health, government and the poor: The case for the private sector, in J.N.
Gribble and S.H. Preston (eds), The Epidemiological Transition Policy and Planning
Implications for Developing Countries, Washington DC, National Academy Press (1993),
pp.22951.
Article 1 of the WHO Constitution, 1945 available at http://www.who.int/rarebooks/official_records/constitution.pdf.
72
in the obligation to create some basic conditions to protect and enhance public
health; however, this does not extend to an obligation to guarantee the well-being of every individual.
In view of its paramount importance in society, health has been recognised
as a human right in several international, regional or national human rights
treaties. There is much controversy surrounding the existence of this right, even
in the use of the term.
73
The right to health is used in the international human rights context, first, to
refer to the more lengthy detailed provisions relating to health in the WHO
Constitution and in legally binding human rights treaties, and secondly, to
emphasise the social and ethical aspects of health care and status. The concept
of a right to health implies that fundamental human rights principles such as
dignity, non-discrimination, participation and justice are relevant to issues of
health care and health status. 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; the prescription of standards aimed
at meeting the health needs of specific groups of persons; and the prescription
of ways and means for implementing the right to health.
Conceptualising health issues as a right emphasises their exceptional importance as social or public goals and not merely as medical, technical or economic
problems.10 It focuses on the dignity of persons as recognised in the Preamble
to the Universal Declaration of Human Rights (UDHR),11 which provides for
The right to health, however, is probably the most desirable term as it recognises a
right not only to health care, but also to underlying preconditions for health such as occupational health and environmental health. C.A. Toebes (1999) op. cit. p.17.
See also R.K. Lie, Health, human rights and mobilization of resources for health, 4
BMC International Health and Human Rights 4 (2004).
See The Committee on Economic Social and Cultural Rights which monitors
compliance with the International Covenant on Economic, Social and Cultural Rights,
G.A. Res. 2200 (XXI), UN GAOR, Supp. (No. 16) 49, UN Doc. A(6316) 1966. This
Committee held a Day of General Discussion on the Right to Health on 6 Dec. 1993
(the right to the enjoyment of the highest attainable standard of physical and mental
health) UN Information Service, Press Release HR/3604, 6 December 1993; R.J. Cook,
Human Rights in Relation to Womens Health, The Promotion and Protection of Womens
Health through International Human Rights Law, WHO/DGH/93.l; Fuenzalida-Puelma
and Connor (1989) op. cit.
V.A. Leary (1994) op. cit. p.2.
T.C. Van Boven, The Right to Health, pp.5472, in R-J. Dupuy (ed.), The Right
to Health as a Human Right, Workshop, The Hague Academy of International Law and
the United Nations University, Sijthoff & Noordhoff, Alphen aan den Rijn, The Netherlands (1979), pp.5455.
10
V.A. Leary (1994) op. cit. p.8. A. Chetley, A Healthy Business? World Health and
the Pharmaceutical Industry, London, Zed Books (1990), p.206; R-J Dupuy (1979) The
Right to Health and Human Rights, Alphen aan den Rijn, The Netherlands: Sijthoff &
Noordhoff, 1979.
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, justice and peace in the
world. UDHR, GA Res. 217 A(III), UN Doc. A/810 (1948) Preamble. In the health
context, this stresses that the dignity of each person must be central in all aspects of
health, including health care, experiments etc. The focus is on the good of the individual
not the collective good.
74
12
See Art. 2 of the Universal Declaration on Human Rights GA Res. 217 A(III), UN
Doc. 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, without distinction of any kind such as race, colour, sex, language, religion,
political or other opinion, national or social origin.
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. Declaration of Alma-Ata, adopted at the International
Conference on Primary Health Care, 12th September 1978, World Health Organization,
Geneva.
14
This means that governments have a duty to provide for individuals, not just to
society in general.
15
According to the International Covenant on Civil and Political Right, UNGA
Resolution 2200A [XX1], 16 December 1966, limitations are permitted on the rights to
liberty of movement, freedom of religion, freedom of expression and the right to freedom
of association, in the interest of protecting public health (e.g. Art. 18(3)).
16
B.C.A. Toebes (1999) op. cit.
17
Other national, regional or international relevant provisions were mentioned above.
op. cit.
18
Charter of Fundamental Rights of the European Union OJ 2000 C 364/01.
19
Ibid. Preamble.
75
health, but rather, a right to conditions that may lead to it. The extent and level
of protection is left to the discretion of individual states, although it stipulates
that a high level of human health protection should be ensured.20
The right to health has been recognised on several occasions at the international level, the most important of which include: first, the Universal Declaration
of Human Rights,21 which affirms in Art. 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, including food, clothing, housing and medical care and necessary
social services, and the right to security in the event of unemployment, sickness,
disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.
In addition, the International Covenant on Economic, Social and Cultural
Rights contains the following provisions:22 Art. 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, and therefore,
they are not building on individual pharmaceutical companies (Art. 51). Limitations on
such rights may be provided for by law if they respect the essence of these rights and
freedoms and are proportional, 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. 52). Hence, it would seem that the Charter seeks to balance potentially competing
interests in particular through the proportionality and necessity principle.
Important safeguards and provisions regarding the right to health can also be found
in the European Charter of Patients Rights. The latter is directed to active citizenship
organisations working on patients rights at the national level, yet it also addresses health
care professionals, managers, governments, legislatures and administrative bodies. The
dissemination and application of the contents of the Charter is carried out on many levels,
particularly at European, national and local levels. The supremacy of the rights of patients
over financial constraints is underlined, and an attempt is made to harmonise respect for
the patients rights throughout the Union. It complements the Charter of Fundamental
Rights in affirming the inalienable and universal nature of these individual rights. It explains that the protection of the right to health as provided for in Art. 35 is both an
individual and a social good. The Charter proposes 14 patients rights which would be
concrete, applicable and appropriate to the transitory nature of the health services. The
latter includes: the right to preventive measures, access, information, consent, free choice,
privacy and confidentiality, respect of patients time, observance of quality standards,
safety, innovation, avoidance of unnecessary suffering and pain and personalised treatment, and the right to complain and to receive compensation. The Charter effectively
stresses the need to ensure that the criteria of economic sustainability do not prevail
over the right to health care. Article 12 Active Citizenship Network. European Charter
of Patients Rights, 2002, available at http://www.activecitizenship.net/health/european_charter.pdf.
21
GA Res. 217 A(III), UN Doc. A/810 (1948).
22
GA Res. 2200, UN GAOR, Supp. No. 16, UN Doc. A/6316 (1966), 999 UNTS
171 (entered into force 23 March, 1976).
76
standard of living for himself and his family, including adequate food, clothing
and housing and to the continuous improvement of living conditions. According
to Art. 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. 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;
(b) The improvement of all aspects of environmental and industrial hygiene;
(c) The prevention, treatment and control of epidemic, occupational and other
diseases;
(d) The creation of conditions which would assure to all medical service and medical attention in the event of sickness.
The latter is the most comprehensive provision on the right to health in international human rights law.23 General Comment 14 of 2000 analyses the
implications of Art. 12 and its recognition of the right to the highest attainable
standard of health.24
4.2.3 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, life, non-discrimination, equality and privacy. Within the preamble to the Constitution of
WHO, health is defined as a state of complete physical, mental and social wellbeing and not merely the absence of disease or infirmity.25 However, as the
General Comment highlights, 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, and extend to other aspects such as food,
nutrition, housing and a healthy environment.26
23
Other international provisions affirming the right to health can be found in: Art.
5(e)(iv) of the International Convention on the Elimination of All Forms of Racial Discrimination, 1965; Arts 11.1(f) and 12 of the Convention on the Elimination of All forms
of Discrimination against Women, 1979; and Art. 24 of the Convention of the Rights of
the Child, 1989 op. cit.
24
E/C.12/2000/4, The Right to the Highest Attainable Standard of Health, CESCR
General Comment 14, 11 August 2000.
25
WHO Constitution (1945) op. cit.
26
See General Comment No. 14 (2000) op. cit. See also R-J Dupuy (1979) op. cit.;
International Institute for Human Rights Studies. Le mdecin face aux droits de l homme.
77
Health care is therefore simply a part of the right to health, which encompasses broader factors as shown above. Access to medication is a critical
component of the right to health, both for epidemic and endemic diseases.27 The
right to health does not, however, guarantee the right to be healthy, as health is
a very subjective matter:
Health is a state of being, not something that can be given, and only in indirect ways
something that can be taken away or undermined by other human beings. It no more
makes sense to claim a right to health than a right to wisdom or courage. These excellences of soul and of body require natural gift, attention, effort, and discipline on the
part of each person who desires them. To make my health someone elses duty is not
only unfair; it is to impose a duty impossible to fulfil.28
Padova: CEDAM, 1990. p.1485; J. Montgomery, Rights to Health and Health Care, in
A. Coote (ed.), The Welfare of Citizens, Developing New Social Rights, London, Institute
for Public Policy Research/Rivers Oram Press (1992).
27
See Art. 12(2)(c) and (d) ICESCR. See A.E. Yamin, Not Just A Tragedy: Access
to Medications as a Right under International Law, 21 Boston University International
Law Journal 178 (2003).
28
L.R. Kass, Regarding the End of Medicine and the Pursuit of Health, 40 The
Public Interest 11 (1975). The right to health does not signify a right to be healthy, but
instead it contains freedoms such as the right to control ones health and body, 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. The latter refers
not only to the individuals biological and socio-economic conditions, but also to the
states available resources and so is bound to vary. The state may not ensure good health
services, therefore the right to health must be understood as a right to the enjoyment of
a variety of facilities, goods, services and conditions necessary for the realisation of the
highest attainable standard of health. Hence, the right to health includes not only appropriate health care but also the determinants of health, and the right of individual
participation in health-related decision-making at all levels including national, community and international levels.
29
While there are several elements which impact on health, 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, as in the case of torture and protection against compulsory
medical treatment or experimentation. M. Whitehead, The Concepts and Principles of
Equity and Health. WHO Regional Office for Europe: Copenhagen, 1990. World Health
Organization. Indicators to Measure the Realization of the Right to Health, Background
Paper for Seminar on Appropriate Indicators to Measure Achievements in the Progressive
78
The core content of the right to health is comprised of the following aspects:
maternal and child health care; immunisation against major infectious diseases;
appropriate treatment of common diseases and injuries; the provision of essential drugs; and an adequate supply of safe water and basic sanitation and freedom
from serious environmental health threats.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. These include:
1. Availability: public health, health-care facilities, goods and services should
be made available in a sufficient quantity at the national level.
2. Accessibility: health facilities, goods and services should be accessible to
all without discrimination. This involves non-discrimination, physical
accessibility (within safe physical reach), economic accessibility (affordability), and information accessibility (the right to seek, receive and impart
information and ideas concerning health issues though also preserving
confidentiality of personal health data). Accessibility requires that the vulnerable and marginalised groups are not prejudiced in any way.
3. Acceptability: this refers to the fact that facilities, goods and services must
respect medical ethics and should be sensitive to cultural needs.
4. Quality: facilities, goods and services must be of the appropriate standards
and quality.
While the right to the highest attainable standard of health is a progressively
realisable right due to resource limitations, some obligations are immediate,
such as those relating to non-discrimination and the provision of deliberate,
concrete and targeted steps.
Realization of Economic, Cultural and Social Rights. Geneva, 2529 January 1993,
HR/Geneva/1993/Sem/BP.
30
In addition, it is believed that the services should be geographically, culturally
and functionally within easy reach of the whole community. It has also been suggested
that additional health services should be available, subject to equal access, give extra
protection to vulnerable groups and that the quality of those services should be taken
into account. Toebes (1999) op. cit., pp 2878. See also A.E. Yamin (2003) op. cit.; P.
Carl, et al., AIDS and Human Rights in the European Communities, Utrecht, Netherlands
Institute of Human Rights (1991); L. Gostin and J. Mann, Towards the Development of
a Human Rights Impact Assessment for the Formulation and Evaluation of Health Policies, 1(6) Health and Human Rights: An International Journal 58 (1994).
79
31
A.E. Yamin (2003) op. cit.; WHO, Indicators to Measure the Realization of the
Right to Health, (1993) op. cit.; J. Montgomery (1992) op. cit.; R-J. Dupuy (1979) op.
cit.
32
Failure to take action to restrict the harmful conduct of pharmaceutical companies
might potentially be such a breach of obligations.
33
Despite the above core and scope obligations, however, it cannot be concluded
that the right to health is justiciable as such at the international level. The term recognise
in contrast with to ensure or guarantee, reflects its non-binding character. None the
less, some elements of the Article are justiciable such as the obligation of non-discrimination and the obligation to realise the core content.
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. When
translated into the core obligations, the obligation to respect the right to health means
that states have to respect the equal access to basic health services, and refrain from acts
that seriously encroach upon peoples health. 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, and to take legislative and/or other
measures to protect people from serious health infringements by third parties. Finally,
the obligation to fulfil requires states to adopt a national health policy and devote a sufficient amount of their budget to health, and to provide the basic health services or create
conditions under which individuals have adequate and sufficient access to health
services.
34
See also E/CN.4/Sub.2/2002/9, Economic, Social and Cultural Rights, Liberalization of trade in services and human rights, Report of the High Commissioner, 25 June
2002.
80
35
Attempts have been made at the international level to make the right to health
more concrete. In 2002, the main UN policy-making body on human rights, the Commission on Human Rights, 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. Press release WHO/61 24 July
2002, New WHO publication explores important links between health and human rights
an area drawing increased attention. A new mechanism to create a means for individuals
to petition their governments at the international level for failure to respect, protect, or
fulfil human rights obligations is also being examined.
See also, for example, the right to life, 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, 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, moral, and spiritual
existence. IACHR, Status of Human Rights in Several Countries: Nicaragua, Annual
report of the Inter-American Commission on Human Rights 1993, OEA/Ser.L/V/II.85,
Doc. 9 Rev. (1994) at 465, available at www.cidh.org/annualrep/93span/cap.IVe.htm
(quoting The Right of Everyone to Own Property Alone as well as in Association with
Others, UN Commission on Human Rights, 49th Sess., Provisional Agenda Item 7, at
25, UN Doc. E/CN.4/1993/15).
36
Social and Economic Rights Action Center v Nigeria, Communication 155/96
(African Commission on Human and Peoples Rights, Oct. 2001), available at www.
achpr.org/DECISIONS_30th_Session-_Oct.2001_eng.pdf.
37
See Street Children Case (Morales v Guatemala), Joint Concurring Opinion of
Judges A.A. Cancado Trinidade and A. Abreu-Burelli, Inter-Am. Ct H.R. (Ser. C) No.
63, 24, available at www.corteidh.or.cr/seriecing/VotocancadoabreuSerie_c_63_ing.
doc.
38
Costa Rica, India, Venezuela, Colombia, 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. See Minister of Health v
Treatment Action Campaign, CCT 8/02 Constitutional Court of South Africa, July 2002,
at www.tac.org.za/Documents; Ceballos v Instituto de Seguros Sociales, T-484 Corte
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.
The health issues must implicate fundamental rights such as life, work or education. There must be a grave and imminent threat to human life or health
presented by the failure of the state to provide services. The claimant must be
in extreme financial and physical need of the services and there must be a possibility of providing the service.39 In this way, the right to health has been
increasingly found to be justiciable,40 and this may have implications for patented products which impact upon access to essential drugs.
In addition, with regard to private entities, the ESCR Committee clarified that
the obligation of states to protect includes, inter alia, ensuring that privatization
of the health sector does not constitute a threat to the availability, accessibility,
acceptability and quality of health services; controlling the marketing of medical
equipment and medicines by third parties; and States ensuring that third parties
do not limit peoples access to health-related information and services.41
82
42
Generic products may have an impact on drug prices, for example, as shown in
the case of HIV drugs. The UNDP Human Development Report 2000 notes that generic
production of the HIV treatment fluconazole, a treatment for AIDS-related meningitis
in India has remained at $55 for 150 mg compared to $697 in Malaysia, $703 in Indonesia and $817 in the Philippines. According to Medecins Sans Frontires, generic drugs
are approximately 7090% cheaper than branded drugs. In some cases, they can be
200300% cheaper than the branded equivalent made in the West. In Thailand, fluconazole, which treats cryptococcal meningitisan infection affecting one in five of AIDS
suffererswas supplied exclusively by US company, Pfizer, until 1998. Since local alternatives have become available, the cost of a daily dosage of 400mg has fallen from
US$14 to 5% of the price. Thus, it costs only US$0.30 a day in Thailand. However, this
same drug costs US$18.00 a day in Kenya where it is patent protected. U. Ally Mwalimu,
Implications of WTO/TRIPS in East Africa-With Special Emphasis on Pharmaceutical
Patents, Economics and Social Research Foundation, Workshop on Globalization and
East Africa, 1516 April 2002.
None the less, access to drugs is conditioned by many factors including price controls,
medical insurance, import duties and tariffs, local taxes, limited competition mark-up
for wholesale, distribution and dispensing, and hence, not solely on prices and the availability of generics. See WHO, 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, Hosbjor, Norway, 811
April 2001, p.9.
83
countability, not only with regard to the organisation of the health system, but
also, inter alia, in competition, pricing, licensing and other laws.43 Hence, the
right to health provisions may work as an external enforcement mechanism
imposing concrete obligations, and also have an internal impact, guiding the
interpretation and application of other laws in order to ensure consistency with
its provisions.44
4.3.1.2 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).
The relationship between fundamental rights and IP, in general, can be viewed
in two simplistic ways.45 On the one hand, IP could be seen as a human right
and the property character of IPRs could be overemphasised at the expense of
other fundamental rights. Accordingly, the appropriate balance should be created
by the legislator and, therefore, any interference would not only hinder the dynamics of the system, but would also be undemocratic. At the other extreme
there can be the view that IP is merely an institution which infringes on fundamental rights. The reality, it is argued, lies somewhere in between these polarised
views.
Therefore, in order to establish the potential impact of health concerns and
the right to health on patent law, either externally or internally, the following
elements need to be established:
1. Is IP a human right and would this make a difference?
2. Is there an inherent conflict between IP and human rights, or more specifically, the right to health (since IP may also be a human right)?
3. How can patent laws be interpreted to fulfil the spirit of the right to health?
Does this obligation exist?
43
Therefore, the enforcement of competition rules in cases where patent holders
refuse to grant licences and charge excessive prices for their products, or issue a compulsory licence in the interest of public health should be considered to support the right
to health objectives. See A.E. Yamin (2003) op. cit.
44
M.G. Bloche, WTO Deference to National Health Policy: Toward an Interpretive
Principle, 5(4) Journal of International Economic Law 825 (2002).
See also T. Mully, Intellectual Property, Fundamental Rights (and Competition Law):
Do They Interoperate? International Conference, Intellectual Property Beyond Rights,
2526 October 2004, Hanasaari Cultural Centre, Finland. Mully argues that fundamental
rights have the greatest impact through interpretation and systematisation.
45
T. Mully (2004) op. cit.
84
In line with the above provisions, Art. 17 of the European Charter on Fundamental Rights47 provides for the right to property, however, this is subject to the
limitations, deprivations and regulation as required in the public interest and
conditions provided for in law, the general interest and subject to fair
compensation.
At the international level, the UDHR48 recognises the right of authors to the
moral and material interests resulting from their scientific, literary and artistic
productions.49 Similarly, Art. 15 of the International Covenant on Economic,
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;
to enjoy the benefits of scientific progress and its applications; to benefit from
the protection of the moral and material interests resulting from any scientific,
literary or artistic production of which he is the author.
This provision implies the recognition of the legitimate interest of the public
in intellectual productions. IPRs should contribute to the scientific, cultural and
economic enrichment of society, however, as an author, the individual also has
a right to benefit from these works.
While the provisions require states to protect the interests of authors and inventors, they are in vague and general terms in order to leave a broad margin of
discretion to states regarding implementation. Therefore, exclusive property
46
85
rights are not the only possible means of protection, nor is the instrument itself
transformed into a human right, although the interest itself may constitute a
fundamental right. 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, 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.51
In addition, there is no minimum level of protection required, therefore, 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. Against this background of IP protection, the UDHR and
ICESCR are of little significance as protective provisions have already been put
in place.
It is problematic to consider IPRs exclusively as human rights if one considers
the nature of human rights.
Human rights are inalienable and universal claims belonging to individuals, and in
some situations to communities but never to corporations. Human rights are understood to exist independently of recognition or implementation while IPRs are granted
by the State according to criteria by national legislation. In contrast with human rights
which establish permanent and irrevocable entitlements, IPRs are temporary; they
exist for a limited period and can be revoked, licensed or assigned to someone
else.52
In addition, 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.53 In
both cases, it was supported mainly because it is instrumental in the realisation
of other rights of a stronger moral basis.
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, namely a fundamental right in itself not to
be interfered with even by the legislator, less to the extent required by other funda-
51
86
54
87
59
There are several other factors which affect access to drugs such as rational selection and the use of drugs, sustainable financing and reliable health and supply
systems. Similarly, the price of drugs is affected by factors other than just patents, such
as import duties, taxes and local market approval costs. See WHO (2001a) op. cit.
p.9.
60
See, for example, the Orphan Drug Act created to stimulate research into diseases
that affect a small number of people, for which pharmaceutical companies would otherwise not invest a significant amount of resources. The US Orphan Drug Regulations (57
FR 62076) 29 Dec. 1992 and CFR Part 316 et seq. In the EU Orphan Medicinal Product
Regulation (2000) op. cit. See D.M. Richardson (1987) op. cit.. See also P.J. Kenney
(1988) op. cit. S. Boseley, EU loophole sends drug prices soaring, Guardian Weekly, 24
June 2002. See also http://www.cptech.org/ip/health/orphan/.
61
See Chapter 2.
62
op. cit. As already noted, 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. 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. The Group gives its advisory opinion on ethical aspects of patenting inventions involving, for example, elements of human origin, cloning
techniques, health care in the information society and gene therapy. So, for example, in
the EU we have a Directive 98/44/EC on the Legal Protection of Biotechnology Inventions OJ 1998 L213/13, excluding the patenting of inventions which would be contrary
to public order or morality, and a Directive 98/79/EC, on In-Vitro Diagnostic Medical
Devices 1998 OJ No. L 331/1 referring to the protection of the integrity of human persons. See also Chapter 3.
88
63
A.E. Yamin (2003) op. cit. p.207; P. Drahos, Biotechnology Patents, Markets and
Morality, 21(9) EIPR 441 (1999); B. Cornish, M. Llewelyn, M. Adcock, Intellectual
Property Rights and Genetics. A study into the impact and management of intellectual
property rights within the healthcare sector, 2003 at http://www.phgu.org.uk/about_
phgu/resources/word/s-ipr1.doc; C. Pekari, Intellectual Property and Human Rights:
Where to after the first WSIS? at http://www.eumap.org/journal/features/2004/infohr1/
infohr/ipandhr/.
64
A.E. Yamin (2003) op. cit.; H. Hogerzeil, Access to Essential Medicines as a Human Right, 33 Essential Drugs Monitor 25, 2003 at http://www.who.int/medicines/
library/monitor/33/EDM33_25-26_Access_e.pdf; R-J Dupuy (1979) op. cit; M. Whitehead, The Concepts and Principles of Equity and Health, Copenhagen, WHO Regional
Office for Europe (1990).
65
Odir Miranda v El Salvador Case 12.249, Report No. 29/01, Inter-Am. CHR,
Annual Report 2000, OEA/Ser./L/V/II.111, Doc. 20 Rev. 2001 available at www.cidh.
oas.org/annualrep/2000eng/ChapterIII/Admissible/ElSalvador12.249.htm.
66
Ibid. 36.
89
health.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.
Furthermore, in 2000 the Sub-Commission on Human Rights affirmed the
primacy of human rights obligations over economic policies and agreements.68
Therefore, international human rights law addresses the need to ensure that the
TRIPS Agreement, and hence, the Community IP provisions which are consistent with the former, should not be implemented in a way that negatively impacts
on the enjoyment of human rights as provided for in international human rights
instruments.69 States parties must take action that is conducive to realising the
right to health, and as recognised in Doha, the TRIPS Agreement can and
should be interpreted in a manner that supports their obligations with regard
to the right to health.
67
In the main Doha Declaration, it was stated that: We recognize that under WTO
rules no country should be prevented from taking measures for the protection of human,
animal or plant life or health, or of the environment at the levels it considers appropriate,
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, or a disguised restriction on international trade, and are otherwise in accordance with the provisions of the WTO Agreements (para 6) Doha
Declaration (2001) op. cit.
See also R. Elliott, Realizing the right to health: access to HIV/AIDS-related medication, 3 April 2002 at http://www.aidslaw.ca/Maincontent/issues/cts/righttohealth.doc.
As clarified by the Doha Declaration, 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, which requires that the interpretation of a Treaty must take subsequent agreements on the interpretation of the Treaty, subsequent practice, and any
relevant rules of international law into account. As the Doha Declaration is an example
of a subsequent agreement, 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. Hence, the TRIPS Agreement must be interpreted in this way
in order to be consistent with the obligation to protect, respect and fulfil human rights,
including the right to health.
68
E/CN.4/SUB.2/RES.2000/7, United Nations High Commissioner for Human
Rights, Intellectual Property and Human Rights, Sub-Commission on Human Rights.
This was reiterated in the UN Resolution of the Sub-Commission on Human Rights
2001/21. See also E/C.12/2001/15, Human Rights and Intellectual Property Issues,
Statement by the Committee on Economic, Social and Cultural Rights, 26 November
2001, Intellectual Property and Human Rights (Geneva: World Intellectual Property
Organization and the Office of the United Nations High Commissioner for Human
Rights, 1999), WIPO Publication No. 762(E).
69
Ibid.
90
70
E/CN.4/Sub.2/2001/27, The Impact of the Agreement on Trade-Related Aspects
of Intellectual Property Rights on Human Rights, Report of the High Commissioner, 27
June 2001.
71
Vienna Declaration and Program of Action, World Conference on Human rights,
25 June 1993.
The TRIPS agreement envisages human rights as exceptions to the rule rather than as
an explicit guiding principle.
72
A.R. Chapman, The Human Rights Implications of Intellectual Property Protection, in 5 Journal of International Economic Law 861 (2002). See also D. Weissbrod and
K. Schoff, Human Rights Approach to Intellectual Property Protection: The Genesis and
Application of Sub-Commission Resolution 2000/7, 5(1) Minnesota Intellectual Property
Review 1-46 (2003); T.A. Lipinski and J.C. Pekari, J Britz, Rethinking the ownership of
information in the twenty first century: Ethical implications, 2 Ethics and Information
Technology 4971 (2000).
73
E/CN.4/Sub.2/2002/9, Report of the High Commissioner, Economic, Social and
Cultural Rights, Liberalization of trade in services and human rights, 25 June 2002.
91
and interpreting the scope of GATS and in assessing the limitations of trade
practices.
In addition to this interpretive requirement, GATS also includes general exceptions to protect public morals as well as human, animal and plant life and
the protection of certain aspects of individual privacy.74 The report lists some
types of action to promote a human rights approach to the liberalisation of trade
in services, including: the guarantee of equal access for basic services; the
preservation of states parties right and duty to regulate; encouraging compatibility with human rights in the interpretation of GATS; undertaking human rights
assessments of trade policies; the provision of international cooperation and
assistance and increasing dialogue between human rights and trade.
4.3.4.1 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, and that health issues should be considered
in the application of standards relating to patentability.75 This would require a
more explicit consideration of the publics interests to the detriment of the economic interests of individual right holders.76 A human rights (or at least a right
to health) approach would differ from the approach of IP law, as it would place
greater emphasis on the interests of the public in the short term, as well as in
the long term.
For example, if the application of a law could potentially impact on the right
to health, a right to health standard should be applied as a guiding principle.
This could be seen in the case of patent law, subverting issues such as compulsory licensing to address health concerns and exceptions to patentability to the
right to health body of law. In this way, patent law could incorporate the right
to health standards in its decision-making process.
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, would be judged from a human rights perspective, but
74
Ibid.
See, for example, 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. cit.
76
See, for example, A.R. Chapman (2002) op. cit. who contends that many factors
indicate that IP rights are inconsistent with the human rights approach, and perhaps even
human rights law in general. These include: the fact that IP does not necessarily protect
the rights of the inventors, especially in the case of employment; the lack of democratic
control and participation; and the often inadequate protection of the human interest or
ethical concerns.
75
92
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
93
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
80
See WTO, WTO Agreements and Public Health, A Joint Study by WHO and the
WTO Secretariat, 2002, pp.1046.
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.
95
83
Ibid. para. 7980. 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
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
97
92
See also the attempt of families of children afflicted with Canavan disease, a rare
genetic disorder of the brain, to sue the research scientists who had patented the gene in
an effort to ensure broader and improved licensing terms. P. Gorner, Parents Suing Over
Patenting of Genetic Test, Chi. Trib., 19 November 2000, p.1.
93
See Chapter 7.
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,
goods and services in contemplation of the ESCR Committees General Comment No.
14. 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, Feb. 2003 at
http://www.cptech.org/ip/health/cl-cases/rsa-tac/cptech-statement-3feb2003.doc, p.12.
95
H. Hogerzeil (2003) op. cit.; B. Cornish et al. (2003) op. cit.
98
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.96
96
In The Matter Between Mpho Makhathnini, Nelislwe Mthethwa, Musa Msomi,
Elijah Paul Musoke, Tom Myers, AIDS Healthcare Foundation Limited, and GlaxoSmithKline (Pty) Ltd, Glaxo Group Limited, Case Number 34/CR/Apr04, in which the South
African courts found GlaxoSmithKlyne to have abused its dominant position by virtue
of the excessive price of drugs. See also the South African Competition Tribunals decision and order in Pharmaceutical Wholesalers and Glaxo Wellcome, Case 68/IR/Jun00,
18 June 2003 at www.comptrib.co.za/decidedcases/pdf/68IRJUN00kinesis.pdf, and Case
No. 15/CAC/Feb02. See Chapter 7.
PART III
Allocative efficiency presupposes that the price mechanism will ensure that producers produce what the consumers want, and productive efficiency presupposes that
competition from other producers will produce at near optimum costs. See S. Anderman,
EC Competition Law and IPRs: The Regulation of Innovation, Oxford University Press
(1998), p.17.
R. Merkin, The Interface between Antitrust and Intellectual Property [1985] ECLR
377.
101
102
Art. 28
Art. 29
Art. 30
Art. 82
Art. 295
103
Whilst it has been repeatedly recognised that the grant and scope of IPRs is
a matter for national law, in the absence of harmonisation, the ECJ and the
Commission have also repeatedly confirmed that the exercise of IPRs can be
subject to competition control and, in certain cases, the unilateral refusal of an
IP holder may even be found to constitute an abuse.
This chapter examines the relationship between the two bodies of law as applied to unilateral conduct. The approach of the European Courts is examined
against the economic theory and the conclusions are drawn in the final section.
104
the existence and exercise of IPRs. According to this doctrine, the existence of
an IPR would be unaffected by competition law, while competition law could
control the way these rights were exercised in certain cases.
The origin of this distinction can be found in the competition law case of
Consten and Grundig, in which the Court stated that the Commissions decision
did not affect the grant of the rights but only limited their exercise in order to
avoid a presumed violation of Art. 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).
Following this judgment, the doctrine was criticised as being incoherent and
unnecessary. The existence/exercise distinction appears to have arisen from a
hasty response by the Court to Constens and Grundigs argument regarding
Art. 222 (now Art. 295). Marenco and Banks note that the Court could have
given a wholly different answer by pointing out that Art. 222 (now Art. 295) is
not a guarantee of property (as is Art. 36) (now Art. 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.
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. 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, the
doctrine was used to justify a de facto harmonisation of IPRs.
In an attempt to distinguish between the existence and exercise of IPRs in line
with the principle of free movement, the court then developed the specific subject
matter concept (SSM),10 referred to elsewhere also as the essential function.11
The exercise of IPRs in a manner inconsistent with Art. 30 is only permitted
under Art. 36 if such exercise is in the course of protecting the SSM. 12
Case 56 and 58/64 Etablissements Consten SA and Grundig-Verkaufs-GmbH v
Commission [1966] ECR 299.
T.C. Vinje, Magill: Its Impact on the IT industry [1992] EIPR 397.
Marenco and Bancs, IP and the Community Rules on Free Movement: Discrimination Unearthed, 15 ELR 224 (1990).
When IPRs are reviewed under Art. 36, the Court strikes out one part of national
IP law. IPRs are interpreted and applied in order to ensure compatibility with Community law. See Myrick, Will IP on Technology still be Viable in a Unitary Market [1992]
EIPR 9.
10
Case 78/70 Deutsche Grammophon [1974] ECR 1147.
11
See Commission Decision DSD and others, OJ 2001 L 319/1, in which it was
stated that the crucial question concerns the essential function.
12
S. Smith, The Changing Approach of the European Court to Intellectual Property,
at www.solent.ac.uk/law/ssmith2.html, p 8. See also M. Van Der Wal, Art 86: The Limits
105
106
related to the provisions of Art. 82 and it was the objectives that were subject
to control, rather than an exercise beyond the SSM.
Since the Magill case, the ECJ has not made reference to the existence/exercise doctrine and it is hoped that it is silently pronouncing its death.19 Instead,
the circumstance-based approach was upheld as a means of determining
whether a particular conduct constitutes an abuse. While the circumstance
approach represents a positive step as it is not reliant on an all-encompassing
rule, and allows each case to be judged according to the circumstances, it is believed that the ECJ should have provided more details on what constitutes
exceptional circumstances, and IP differs from other cases.20 Economic theory
supports the view that there is no reason to treat IP differently from other property rights.
distinction between the exercise of IPRs and the abusive exercise of market dominance
as the source of the confusion. He draws the distinction between the copyright itself, and
the ancillary freedoms stemming from this right. He explains that abuses are exercises
of ancillary freedoms and not of copyright, which are possible because of its dominance.
It is thus unnecessary to identify the core rights as they are already set out in legislation.
Further, he argues that abuses of dominance involving IPRs are committed without the
exercise of an IPR. The author makes an analogy with real property: an undertaking
that has become dominant, in part because it has built up the largest, or one of the few
largest, and most efficient manufacturing facilities in Europe. Any exercise of its rights
of property ownership over the land, buildings and machinery, to prevent competitors
coming on to his property to use his facility to compete, could prevent or restrict competition. However, such an exercise can never be an abuse of market dominance. It is
plainly and simply and obviously an exercise of property rights conferred by law. This
is not an exercise of market power in order to prevent others competing. The SSM and
essential function of such rights are simply not an issue.
19
However, see also the Commission Decision in DSD (2001) op. cit. in which it is
stated that the crucial question concerns the essential function. Some have argued that
this does not mean that IPRs have no special status, as they do not constitute per se an
abuse or require exceptional circumstances. S. Anderman, The Aftermath of Magill [1996]
Yearbook of Media and Entertainment Law 235. However, do the other refusal to license
cases constitute an abuse per se? The response would appear to be negative according
to the latest trends. And as to exceptional circumstances, it is also not clear if this alludes
to a different threshold than the general situations of a duty to deal.
20
T. Vinje, The final word on Magill [1995] EIPR 297.
107
21
P.A. David, IP Institutions and Pandas Thumb: Patents, Copyrights, and Trade
Secrets in Economic Theory and History, in Global Dimensions of IPRs in Science and
Technology, Washington, National Academy Press (1993), pp.2445.
22
However, 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. It
works similar to the case of information about a shortcut to a place, that is not crowded
with cars. This might be very valuable information to a taxi driver, but if too many people
know about it then its value would be diminished.
108
high, the cost of transmitting knowledge is negligible in most cases. Hence, had
it not been for the incentives to create it, it should in most cases have been left
free.23
Due to these characteristics, information resembles traditional public goods
like a lighthouse, in that it can be used to the benefit of many without any depletion in use, and it is non-excludable in nature. Its utility is based on its exchange
and propagation. However, contrary to other public goods, knowledge has two
additional characteristics. First, the attributes, characteristics and value of the
commodity are not known beforehand, therefore there is some asymmetry in
the distribution of information. The complete contents of information are not
known beforehand, often even by the interested parties. This renders the conclusion of contracts for the production and use of new information particularly
difficult.24 Secondly, knowledge is cumulative, therefore it builds on prior
knowledge, interacts with other knowledge and involves a recombinant
process.
The problem with public goods is that because they are indivisible, not easilyappropriable and non-rival by nature, the competitive market fails to give
sufficient incentives to induce the optimal amount of innovation. 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. Every consumer is
a potential producer, supplying only at the cost of copying. This implies that in
order to protect oneself against imitation, whether by means of secrecy or otherwise, the inventor will have to incur high transaction costs, thus rendering the
production and sale of the products inefficient.25 In addition, a single unit may
satisfy an infinite number of users at zero or almost zero marginal cost.26 Hence,
without intervention, as in the case of other public goods, a market failure would
result, as witnessed in the form of under-investment in information goods.27
23
For a more extensive discussion of public goods, see H. Perritt, Property and Innovation in the Global Information Infrastructure, 1996 U. Chi. Legal Forum 261; P.A.
David (1993) op. cit. pp.2445; J. Boyle, Law and Economic of IPRs: Cruel, Mean, or
Lavish? Economic Analysis, Price Discrimination and Digital Intellectual Property, 53
Vand. L. Rev. 2007, 2000; Europe Economics, Global Public Goods in Health, May
2001, at www.europe-economics.com/. The costs are not only high for production, but
also to ensure that information is assimilated that learning takes place.
24
P.A. David (1993) op. cit. pp.2445, 28.
25
H. Perritt (1996) op. cit.
26
J. Boyle (2000) op. cit.
27
This proposition, however, is subject to the qualification that it may be time-consuming or impossible to copy information in certain cases, therefore, property rights may
not be required to overcome under-investment. 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. See S. Shavell, Economic Analysis of Property Law, Harvard Law and
109
While the fact that there will otherwise be a market failure does not precipitate
the creation of private rights, due to certain characteristics of information, that
are analysed below, it would seem that it is the most desirable.
5.3.1.2 Patronage, procurement and property
There are three solutions traditionally associated with the problem of public
goods: patronage/subsidies, procurement/direct government production and
property/regulated monopoly.28 The first solution, patronage, refers to publicly
financed subsidies, while the second, procurement, refers to state taxes to finance
contracting with private parties.
Both schemes involve the supply of information without charge, although
patronage is more conducive to the speedy disclosure of information based on
reputation.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, due to the problem of asymmetry. Hence, there would be very high transaction costs coupled with a huge
administrative burden, which would only lead to imperfect agreements.30
The third option, property, refers to a publicly regulated private monopoly,
which operates for a normal rate of profit, however this is not guaranteed. This
consists of granting exclusive property rights which allow for the formation of
a market, which will, in turn, provide an opportunity for the right holder to
benefit from the profits. 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 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.31
Property rights are devised to allow for the efficient exploitation of scarce
resources. Right holders must choose the most efficient type of conduct, avoiding problems relating to the overuse of common property, also known as the
Economics Discussion Paper No. 399, Dec. 2002, chapter 12. Indeed, without some form
of protection for information, there would be some degree of creation, reflected also in
the fact that some highly industrialised countries, such as Switzerland, did not adopt
patent legislation until recently, however, it is thought the level of creation would fall
short of the optimal.
28
P.A. David (1993) op. cit. pp.2445, 29.
29
Ibid. pp.2931.
30
See, however, S. Shavell (2002) op. cit. chapter 12, who discusses the reward
system and concludes that For a variety of reasons, apparently more political than based
on consensus about the intellectual appeal of the patent system, the latter system won
out. p.20.
31
It is clear that not all individuals will be able to make choices to respond to the
market, as many will be excluded.
110
tragedy of the commons.32 With regard to information, while not scarce of itself, its specialisation is, in the sense that its creation requires special incentives
to ensure that the creator devotes time to this task. The exclusive right turns a
public good into a private one. As a means of managing scarcity, property rights
assign the responsibility of working with the scarce resource to one individual,
as well as the benefits and losses of that decision. If property rights are transferable, a market may operate and a price can be set. However, the viability of
these rights rests on the need to ensure a sufficient level of exclusivity.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. Lead time, costly copying, less than perfect copies, 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, that the public goods justification is obviated.34 The intellectual property
system has to strike a balance between the free knowledge, the knowledge that
is appropriable but not transferable, and the transferable exclusive rights namely the cases where protection is granted.35 Hence, the two basic questions that
IP protection faces are, first, when information deserves protection under property rights, and secondly, the length and breadth of those rights.
Like in all systems, trade-offs are involved in the production of knowledge
and in the grant of property rights. The priority system, for example, on which
the patent system is built, allows for the speedy disclosure of inventions. This
reflects the objective of constant innovation, and rapid development. However,
32
R. Hardin, Valuing Intellectual Property, 68 Chi. Kent L. Rev. 659 (1993); M.A.
Heller, The Tragedy of the Anti-commons: Property in the Transition from Marx to
Markets, 111 Harv. L. Rev. 621 (1998).
33
E. Mackaay, Economic View of Information Law in E.J. Dommering, P.B. Hugenholtz, J.J. Kabel, Information Law towards the 21st century, Deventer/Boston: Kluwer
Law and Taxation Publishers (1992).
See also H. Perritt (1996) op. cit. 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. Every consumer is a potential source of supply at only the cost
of copying and that increases transaction costs. Property rights mitigate free riding by
increasing the pirates costs so that he not only incurs the marginal cost of copying, but
also the legal costs of expected liability. As with all property rights, they are limited in
some way by the needs of the public. See also R. Merges, IPRs and Bargaining Breakdown: The Case of Blocking Patents, 62 Tenn. L. Rev. 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.
34
H. Perritt (1996) op. cit. p.269.
35
This is also reflected in the different forms of protection for information according
to its perceived merit. Some information may be protected by trade secret law and tort
and contract law, while other might warrant strong property rights.
111
36
112
40
N. Siebrasse, A Property Rights Theory and the Limits of Copyright, 51 U. of Toronto L. J. 1 (2001).
41
H. Ullrich, Intellectual Property, Access to Information and Antitrust: Harmony,
Disharmony and International Harmonization, in Expanding the Boundaries of Intellectual Property: Innovation Policy for the Knowledge Society, Oxford University Press
(2001); H. Ullrich, Legal Protection of Innovative Technologies: Property or Policy?
(2001) in O. Grandstrand, The Swedish Intellectual Property Symposium.
42
Ibid.
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, because there is no assurance that they
will be there for him tomorrow if they are left behind today.43 Efficient exploitation is therefore attained by privatisation.
Hence, IPRs are not exemptions from the competition provisions, but rather,
the IP system depends on the proper functioning of competition, and has only
been devised to allow for the response to the opportunities and conditions of
the market.44 Hence, the IP system is not conceived as protection from competition, but rather protection for competition in the market of intangible products,
whose tangible embodiments are set against and valued according to the competitive market conditions which competition protects. IP does not guarantee a
reward, and as with any other property right, it merely grants the opportunity
for a reward on the market. Therefore, IP can only require equal treatment by
virtue of the competition provisions. In a similar way to other property rights,
the exclusivity allows for the autonomous determination of conduct and does
not modify antitrust rules.45
IP sets out the regulatory framework, under which it provides for the grant
of individual property. The exclusivity of rights turns the public good into an
economic good, for which competition alone can determine the value, providing
incentives and rewards in line with demand.46 In such cases, it depends on the
proper functioning of competition within the market. As a piece of individual
property, however, it provides for the autonomy of decision-making and freedom
of contracting, as with any other property, which must conform with competition
rules.47 In this case, IP does not constitute a justification for the infringement
of competition, nor does it grant the right to restrain or impair residual competition. The exclusivity is granted to allow to respond to the opportunities in the
market not to control it.48 It is the competition provisions which determine
when it controls the market, whether an IP or any other case is concerned, in
the same way. Therefore, there is no economic justification for treating IP
differently.
43
H.S. Gordon, The Economic Theory of a Common-Property Research: The Fishery, 62 Journal of Political Economy 124 (1954).
44
The IP system, indeed, is a constitutive element of the market.
45
H. Ullrich, Legal Protection of Innovative Technologies: Property or Policy? in
O. Grandstand, The Swedish Intellectual Property Symposium (2001).
46
As the price is set by the market, this was the basic reason underlying the preference of property rights over the other schemes.
47
Related to this issue is the question of whether IPRs are a right to do something
suboptimal but useful, or merely a basic right to optimise that can be overridden. The
analysis of this issue is beyond the scope of the present inquiry.
48
H. Ullrich, Legal Protection of Innovative Technologies (2001).
114
49
E. Mackaay (1992) op. cit. Although, there may be other problems in the case of
real property also, mostly associated with physical and economic constraints preventing
duplication, and also with capacity to supply, that are, in most cases, not an issue with
regard to information.
50
H. Ullrich, Legal Protection of Innovative Technologies (2001).
115
reasons justifying the exclusivity (on the technology market) and an alleged right to
restrain competition (on the product market). Therefore it assumes an antagonism
where there is none. The reason for protecting technologies is that by their very
nature, they cannot be exposed to competition, unless they are protected against imitation, in one way or the other.51
Hence, the traditional approach viewed antitrust and IP as two competing and
separate fields, where IP granted a monopoly within which the property rights
were absolute. In viewing these fields as separate spheres involving an inherent
tension required the determination of the precise scope of the property rights,
so that anything within was lawful whereas anything beyond, constituted an
antitrust violation. It is in this context that the European Courts and Commission
resorted to the doctrines of existence/exercise, the specific subject matter and
the essential function. These doctrines attempted to determine what was in the
scope of the property right in question, and to set the boundaries for anti-competitiveness. The result was an artificial and incoherent demarcation of the scope
of property rights.
While such a formalistic approach may have the advantage of creating clear
rules that are predictable and transparent, and can be efficiently administered,
it is undesirable as it shifts the emphasis in the determination on the precise
scope envisioned in IP statutes, which may lead, as indeed did, to artificial results and distinctions and effects that may prevent certain types of transactions
that foster innovation, or lead to a false determination of illegality.52
The transition from the perception of antitrust and IP as two separate and
competing fields, to a unified field, in the sense of working towards the common
goal of maximising wealth by producing what consumers want at the lowest
cost, introduces the benefits of treating IP in the same way as any other property
right. While this might impose a burden of analysis of the market conditions,
and might result in a slow, resource-intensive and less predictable system, consideration of the effects allows for a more accurate determination of what
constitutes pro- and anti-competitive activity, without resorting to artificial
doctrines.
IP and competition policy address the same dilemma through different means,
namely, the balance of the monopoly privilege, and its disseminationthe
vertical and horizontal dilemma. IP addresses these questions through the definition of exclusivity and outlining its limitations. Competition addresses these
questions by maintaining competition in the face of exclusivity as defined by IP.
This is also reflected in the fact that claims of patent infringement and the abuse
51
Ibid. p.7.
W.K. Tom and J.A. Newberg, Antitrust and IP: From Separate Fields to a Unified
Field, 66 Antitrust L. J. 167 (1997).
52
116
of a dominant position based on refusal to grant access address the same problem: the definition of degree of exclusivity permitted and patent breadth. While
both respond to a series of social, economic and political considerations, and
therefore may point to different conclusions depending on their different policies, IP and competition policy are interdependent and mutually determining.
In conclusion, IP and competition law are interdependent and inter-determining. IP changes a non-market to a market, sets out a regulatory framework
embodying competition concerns, and by granting exclusive rights it limits
competitors in certain respects, as with any other type of property. However, as
a piece of individual property, it is open to abuse, both exploitatively or structurally as any other case, as provided for in competition law. It is in this sense that
IP can be said to be a constitutive element of competition, and indeed a protection for competition, but is not a restriction or exemption from competition
law.53
5.3.2.4 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, and in favour of immunising it from
liability.
While there is very little empirical evidence on the effects of this control in
general, and compulsory licensing in particular,54 it is none the less argued that
such a concern is based on a series of erroneous assumptions.55 First, it assumes
that IP laws grant holders an economic monopoly. Secondly, it assumes that the
53
Hence, economically there is no reason for treating IP differently from other
property. IP confers a property right as in the case of tangible property, however, that is
not unlimited and unqualified. Restrictions may be built into the system granting these
rights, but they may also come externally from other sources, such as competition laws.
While IPR legislation can change the market conditions and has built-in safeguards to
restrict the scope of the exclusivity granted, it cannot be expected to assume the responsibilities of competition law and ensure the proper functioning of market forces. See
Anderman (1998) op. cit. Hence, for example, just as a port owner might be required to
grant access to competing ferry services, in a similar situation the IP owner might be required to grant access to products or services covered by the IPR, especially where a
monopolisation of derivative markets might otherwise have been permitted.
With regard to competition, IP grants a legal monopoly that does not necessarily coincide with the economic monopoly, therefore, if the latter is present, competition law
assumes its usual role. While IP restricts competitors and affects the competitive market,
competition controls the IP-holder and the way in which he uses his property rights as
in any other case. It is the exclusivity as exercised against the market conditions that is
controlled and not exclusively by virtue of the exclusivity.
54
F.M. Scherer (1977) op. cit.
55
S. Genevaz (2004) op. cit.
117
56
Ibid.
H. Hovenkamp et al. (2003) op. cit.
58
See H. Perritt (1996) op. cit.
59
S. Genevaz (2004) op. cit. p.750.
60
Ibid. See also K.J. Arrow, Economic Welfare and the Allocation of Resources for
Invention, in Essays in the Theory of Risk-Bearing, Chicago, Markham Publishing Co.
(1971).
61
Ibid. p.10.
62
I. Ayres and P. Klemperer, Limiting Patentees Market Power Without Reducing
Innovation Incentives: The Perverse Benefits of Uncertainty and Non-Injunctive Remedies, 97 Mich. L. Rev. 985, (1999), p.990: Because the last bit of monopoly overcharging
is so disproportionately damaging, restricting the patentees monopoly power a small
amount is likely to increase social welfare. The benefit of reducing the deadweight loss
57
118
where there is high price elasticity in the market so that every price reduction
results in an increase in demand.63 In industries such as the biopharmaceutical
industry, where demand for the end product is not elastic as consumers need
access to medicine (as opposed to luxury products), a reduction in the monopoly
price may have few consequences on the deadweight loss and can greatly diminish incentives to innovate. Nevertheless, 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, as distinct from end product
situations.
In addition, 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.64 Even testimonies of industry operators
themselves seem to take for granted that antitrust liability might arise as in any
other case, and this is not perceived to impact negatively on incentives.65
Finally, it would also make little sense, in practice, 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
119
66
In the USA, this is explicitly recognised in the US FTC/DOJ Antitrust Guidelines
for the Licensing of Intellectual Property (6th April 1995), reprinted in 4 Trade Reg. Rep.
(CCH) 13, 132, available at http://www.usdoj.gov/atr/public/guidelines/ipguide.
htm#back1 which provide that liability IP will be treated like any other kind of property
for the purposes of antitrust, that there should be no presumption of market power, and that
licensing may allow complementary factors of production and hence be pro-competitive.
See also UK Patent Act s. 51 on powers exercisable following the report of the Competition Commission, 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.
See also Berne Convention for the Protection of Literary and Artistic Works of 9
September 1886, as last amended on 28 September 1979, and by Council Directive
91/250/EEC of 14 May 1991, on the legal protection of computer programs, OJ 1991 L
122/ 42. In the 27th recital, that Directive states that its provisions are without prejudice
to the application of the competition rules under Art. 82 EC if a dominant supplier
refuses to make information available which is necessary for interoperability as defined
in this Directive.
67
See the Draft Proposal for a Council Regulation on the Community Patent (2000)
op. cit. and the explanatory Memorandum.
120
accordance with economic theory, the patent is the same as any other property
right for the purposes of competition law, and that the incentives and need for
innovation do not justify an immunity, first, because it is not clear how much
incentive is required, and therefore it may not be sensitive to these limited instances of control, and secondly, because there may be static distortions
outweighing the dynamic benefits or other concerns regarding follow-on
inventions.
Patents grant a legal monopoly that cannot necessarily be equated with an
economic monopoly. For example, in the pharmaceutical industry, patents do
not award a legal monopoly over the treatment of a specific disease, but only
over a specific product or process. Hence, there is often some potential for strong
competition between products in a therapeutic class. The fact that a legal monopoly does not coincide with an economic monopoly operates on two levels.
On the one hand, it should not be assumed that patents create market power.68
Equally, however, when the legal monopoly that patents confer, coincide with
an economic monopoly, they will not be exempt from competition control.
Competition control operates ex post according to the market conditions, while
patent protection operates ex ante irrespective of the market conditions.
The provisions of TRIPS are important in recognising that IP and competition
are no longer understood as separate spheres, so that the metes and bounds must
be sought within which IP is absolute, but IP remains subject to competition
law liability as provided for by the latter for any case according to its effects.
Indeed TRIPS may be read as the legitimation (on the part of IP instruments)
of such competition control.
With regard to competition law, it is clear that IP is subject to competition
law rules as shown in the practice of the EC Commission and Courts. 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, 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.69 As has been shown, this
difference cannot be justified. The circumstances should be regarded as more
exceptional than in other cases.
There is no defining-line in IP determining when an act will be deemed anticompetitive. Rather, the latter will be determined according to the impact of
specific practice under a rule of reason analysis. The scope of a patent is not
something concrete that exists in isolation, but is also dependent on external
68
121
factors such as antitrust control. In this way, antitrust law should be seen as
simply another factor in determining patent scope.
5.4 Conclusions
In this chapter, 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. Whilst different doctrines were created by the EC Courts to distinguish
IPRs in theory, this control has been applied in practice as exceptionally as in
other cases, thus according to the facts of the case. The EU Commission seems
to be more willing recently to recognise this approach, and indeed in its recent
Microsoft decision, it resorted to the Magill case to argue that intellectual
property rights are not in a different category to property rights as such.70
The next chapter addresses the antitrust duty to deal under Art. 82 and its
application in the biopharmaceutical industry.
70
See C-3/37 Microsoft Case 792, 2004, para. 550: The Court of Justice stated that
the refusal by the owner of an exclusive right [copyright] to grant a license, even if it
is the act of an undertaking holding a dominant position, cannot in itself constitute abuse
of a dominant position. It pointed out, however, that the exercise of an exclusive right
by the proprietor may, in exceptional circumstances, involve abusive conduct thereby
clarifying that intellectual property rights are not in a different category to property rights
as such.
122
123
deal will be imposed. The duty is exceptional regardless of whether an intellectual or other property right is involved.
In this context, a refusal to deal refers to a situation in which the licensor
refuses to give a licence, leaving potential licensees with no option but to seek
a compulsory licence. However, 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.
In general, even dominant undertakings have the right to refuse to license and
to unilaterally decide which third party they wish to deal with. In the absence
of other special circumstances, Art. 82(c), which requires the application of
similar conditions to equivalent transactions, cannot be invoked to challenge a
refusal to license or to order a licence on the same terms. However, if a certain
abusive conduct or exceptional circumstances are deemed to exist, a duty
will be imposed.
6.1.2 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, as opposed to individual
competitors.
ECJ, Cases C-241/91 P and C-242/91 P, Radio Telefis Eireann (RTE) and Independent Television Publications (ITP) v Commission (Magill), [1995] ECR I-743, para 50.
See Chapter 5.
Delays in negotiations are only abusive if there is a duty to deal. Hence, when
negotiations are delayed it should first be examined whether there is a duty to negotiate
and reach an agreement in the first place.
With regard to the licensing terms, while they may in themselves on many occasions amount to an abuse of a dominant position (e.g. tying, non-compete obligations
etc) there may also be cases where this is not the case, such as high royalty rates. Where
the terms are such that any licensee is prevented from making an economically viable
use of the license, then the offer to deal may amount to a refusal.
Once access is given to one licensee, there should not be an automatic obligation
to grant identical access to everybody else, as this would inhibit the first license, and
may not be reasonable.
Case 238/87 Volvo v Veng [1988] ECR 6211 (para 9).
D. W. Carlton, Antitrust at the millennium: A general analysis of exclusionary
conduct and refusal to deal, 68 Antitrust L J 659, (2001).
See also the ECJ in Case C 418/01, IMS, judgement of 29 April 2004, para. 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, confirming
that harm to competition should not be equated with harm to a particular competitor.
124
The refusal to license will not in itself constitute an abuse in all cases. Hence,
the refusal to license can be seen as the means, and harm to competition as the
end, prohibited in Art. 82. Accordingly, in GlaxoSmithKline the AdvocateGeneral made a distinction between the negative consequences for competition
of a refusal to supply that may be abusive, and the refusal to supply with the
object/effect of restricting parallel trade, which was found on the facts to be
non-abusive.10
A refusal which seriously disrupts competition on a market may constitute
an abuse. On the other hand, 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.11
The concerns relating to the potential harm to competition consider the direct
impact on end consumers, who may have to pay higher costs, with a more restricted choice or lower product quality by virtue of the refusal, resulting in a
loss in consumer welfare.12 In essence, four categories of refusals have been
identified in the literature:13
1. A refusal to take part in a joint venture: in such a situation, 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.
2. Where an enterprise in a dominant position refuses to deal with any customer who deals with his competitor. This echoes the situation in United
Brands14 in so far as United Brands (UBs) refusal was based on Olesens
promotion of a competing firm. In such a case, 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. This case may, however,
also raise competitive concerns as if economies of scale are present, exclu-
Case C-53/03 Synetairismos Farmakopoion Aitolias & Akarnanias (Syfait) and
Others v Glaxosmithkline AEVE, Opinion of the AG Jacobs, 28 October 2004.
10
Ibid para. 104. As stated by AG Jacobs, 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 Courts 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.
11
Ibid para. 104. This was, however, based on the particularities of the pharmaceutical industry.
12
J.K. Mackie-Mason, What about Unilateral Refusal to Deal? In FTC/DOJ Hearings on IP and Competition Policy 2002.
13
D. W. Carlton (2001) op. cit.
14
Case 27/76 United Brands [1978] ECR 207.
125
sive dealing might inhibit the second firm (Olesen) from achieving
efficiency. Hence, a rule of reason is required, in order to inquire into the
possibility of economies of scale and offsetting efficiencies.
3. Where there are two markets, in which firm one (F1) is present, and the
product of market A is a necessary input for market B, in which firm two
(F2) is also present, and F1 refuses to license F2. Economic theory suggests
that F1 will only refuse F2 if the latter does not allow him to price discriminate, as in other cases, 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. This is not
the case, however, if products A and B are not complements for some consumers and economies of scale are present. In such a case, F1 may refuse
to deal in order to preserve its power on market B. If F1 refuses to supply
product A to any customer consuming B from F2, F2s scales will drop,
forcing him to leave the market. In this case, customers only want product
B and will be faced with a monopoly and thereby suffer as a result of the
reduced competition.
4. Finally, the dynamic model, in which F1 is present on market A and both
firms are present on market B, but there is a possibility of competition in
A and economies of scale in B. In this case, F1 will seek to limit the power
of F2 in market B so that it preserves its power in market A. By keeping F2
small in market B so that it is not an effective supplier of market B to competitors, F1 protects its position in market A. This will also allow F1 to
transfer his monopoly over time from one product to another.
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, or if the monopolist excludes a
competitor by depriving it of customers who also need the first product of the
monopolist.15
In economics, the optimal balance is empirical, however, 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, how the latter will
affect ex ante future decisions to invest. The optimal balance will depend on the
static allocative inefficiency resulting across firms, industries, time, the amount
of additional innovative effort it is likely to induce and the amount of future
consumer welfare induced by the incremental investment.16
15
It should also be remembered that economics takes not only the local effects of
the case at issue into account, but also its global effects, as this affects the expected returns from innovation.
16
J.K. Mackie-Mason (2002) op. cit.
126
17
127
Cases involving the cutting off of supplies to existing customers: Commercial Solvent, United Brands.
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, with the possibility of eliminating
all competition from such undertakings: Telemarketing.
30
128
Cases in which the refusal concerned a product or service that was either
essential to the exercise of the activity in question, in the sense that there
was no actual or potential substitute, or a new product whose entry might
have been prevented despite the constant, specific and regular potential
demand by consumers: Volvo, Magill, Tierce Ladbroke.36
Any obligation to deal, however, will only be imposed after close scrutiny
of the factual and economic context and even then within narrow limits.37
6.2.1 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.
In Commercial Solvents38 the party was compelled to continue supplying Zoja
with the raw materials necessary for the production of a derivative, despite its
decision to vertically integrate and also become operative on the downstream
market for the supply of the derivative. 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.39
Similarly, 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, if the orders placed by that customer are
in no way out of the ordinary.41 Such conduct would be incompatible with Art.
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 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. However, 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
undertakings own product on that market para. 43. It seems that the Advocate-General
is looking for an additional element to find an abuse, such as tying sales, or discriminating vis--vis independent competitors.
37
Case C-53/03 Synetairismos Farmakopoion Aitolias & Akarnanias (Syfait) and
Others v Glaxosmithkline AEVE, Opinion of the AG Jacobs, 28 October 2004 at para.
53.
38
Case 6/73 Istituto Chemioterapico Italiano and Commercial Solvents v Commission [1974] ECR 223.
39
Para. 25 of the judgment.
40
Case 27/76 [1978] ECR 207.
41
Para. 182 of the judgment.
42
Para. 183 of the judgment.
129
to take reasonable steps to protect its commercial interests, provided its behaviour is proportionate to the threat and not aimed at strengthening or abusing a
dominant position.43
Hence, in the BP case, 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, was not found to constitute an abuse of a dominant position.44
There is a three-fold rationale behind the relevance of previous dealing.45
First, previous dealing proves that dealing is feasible and consistent with investment and creation. Secondly, it is possible to use the previous terms as a
benchmark, and thirdly, people may have relied on the expectation of a deal.46
However, flexibility should also be preserved, as the conditions of the licence
may have changed, or the party may reasonably seek to change the terms and
cost of the licence.47
An obligation to deal can, thus, 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.48 This may be seen as an extension of the
abuse of market power to cases of relational market power.
Furthermore, in Germany for example, the concept of economic dependence
has been introduced.49 Nacke also contemplates that a partenaire obligatoire
may also be found in the Community law, under which a company may be
43
130
50
T. Nacke, Abuse of Dominant Positions, 1995 at http://europa.eu.int/comm/competition/speeches/text/sp1995_025_en.html, p.6.
51
Ibid.
52
In Commercial Solvents (1974) op. cit. for example consideration was also paid
to the possibility of leverage by virtue of vertical integration, and there might even have
been a case for arguing that the raw materials were essential facilities. Similarly, in
Telemarketing (1985) op. cit. the focus was on the essentiality of access for the secondary
market to operate, and on the possibility of leverage.
On the other hand, in United Brands (1978) op. cit. and British Midland/ Aer Lingus
(1993) op. cit. these considerations were present, but the focus was on the hardship suffered by the customer/competitor.
53
Case 311/84 [1985] ECR 3261.
54
Ibid. para. 25 to 27.
55
Magill (1995) op. cit. para. 56 of the judgment.
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.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.
This theory has been criticised as it is argued that a firm cannot obtain two
monopoly rents, and that there is no gain from leveraging as one can extract
all monopoly rents on the first market.57 The Chicago school has argued that
if product A is used as an input, the monopolist could simply charge a high
price for it.58 If it is used on a stand-alone basis, 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.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.60
It cannot be assumed that efficiency can be found in cases in which the monopolist is unable to make monopoly profits.61 If the monopolist is unable to
obtain monopoly rents, then it might refuse to deal in order to eliminate competition on lower levels and receive a monopoly price.62 This would arise in the
following cases: if the nature of the product and business relationship renders
the transaction costs of metering prohibitive; if a variable fee for use would lead
56
In the case that the firm is present in the downstream market (hence, vertically
integrated) it can do this by refusing to deal, charging high wholesale prices or by making
the upstream product incompatible with the downstream ones, amongst other. If such
vertical integration is not present, he may do so by favouring a particular downstream
competitor by exclusive dealing or by discriminatory treatment.
57
M. Whitener, 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, May 1 2002. The theory has also been criticised
for failing to capture the essence of patents, 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, should be irrelevant for antitrust purposes.
58
D.G. Gerber, Rethinking the Monopolists Duty to Deal: A Legal and Economic
Critique of the Doctrine of Essential Facilities, 74 VA L Rev 1069 (1988).
59
See for example D.G. Gerber (1988) op. cit. pp.10691085. 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. See also D.W. Carlton, (2001) op. cit.
60
Ibid. This is because the profits of the licensee firm can be extracted through the
pricing of the product on the upstream market, to which access is required in order to
produce in the downstream market.
61
Ibid.
62
Ibid.
132
63
Ibid. If the upstream and downstream products are not complementary for some
consumers, and there are economies of scale in the production of the downstream product, there may be a risk to competition arising from the refusal to supply, In addition,
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, 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.
64
Ibid.
65
Ibid. Efficiencies can result from the elimination of the double marginalisation
problem associated with successive monopolies. The latter relates to the fact that all
parties wish to maximise profit by increasing prices. By vertically integrating, there are
no longer several companies seeking to make a profit but rather one and this may lead
to lower prices. Vertical integration can also lead to efficiencies arising from the reduction
of transaction costs. This is because it reduces the friction in the organisation of the enterprises, internalizes certain transactions and avoids the necessity of having to protect
oneself against opportunistic behaviour such as hold up and free riding. See however
N.W. Hawker, Open Windows: The Essential Facilities Doctrine and Microsoft, 25 Ohio
NUL Rev. 115 (1999); P. Rey, 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, 1 May 2002, which suggests that vertical
integration by a monopolist may also increase the difficulty of entering either market,
by requiring competitors to enter both markets simultaneously.
133
customers to deviate from the most efficient input mix, or where the monopolist
is subject to rate regulation and integrates in order to avoid it.66
In this way, the economic theories on leveraging and foreclosure have hence
largely been discredited and, even if they still have some support, they depend
on structural preconditions underlying the exceptional nature of a duty to deal.
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.67
6.2.3 The Indispensability Requirement and the Essential Facilities
Doctrine (EFD)
In Oscar Bronner68 the Court, in line with Magill, observed that in order to find
an abuse, 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, but also that
the service itself must be indispensable for the running of the individuals business, as there is no actual or potential substitute for this scheme.69
The indispensability requirement alludes to the essential facilities doctrine
(EFD). 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.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. It traditionally requires the existence of two markets, the upstream market
66
C.S. Yoo, Vertical Integration and Media Regulation in the New Economy, 19
Yale Journal on Regulation 171 (2002).
67
Case C-241 & 242/91P [1995] ECR I-743, para. 56.
68
Case 7/97 [1998] ECR I-7791.
69
Ibid. para. 38, 41, 42 and 44.
70
See United States v Terminal Railroad Assn of St. Louis, 224 U.S. 383 (1912);
United States v Griffith 334 U.S. 100 (1948). Aspen Highlands Skiing Corp. v Aspen
Skiing Co., 738 F.2d 1509 (10th Cir. 1984) affd on other grounds, 472 U.S. 585 (1985);
Fishman v Wirtz, 807 F.2d 520 (7th Cir. 1986); Hecht v Pro-Football, Inc., 570 F.2d 982
(D.C. Cir. 1977), cert. denied, 436 U.S. 956 (1978); Consolidated Gas Co. of Florida v
City Gas Co. of Florida , 880 F.2d 297 (11th Cir. 1989); BellSouth Advertising & Publishing Corp. v Donnelly Information Publishing, Inc., 933 F.2d 952 (11th Cir. 1991) ,
vacated, 977 F.2d 1435 (11th Cir. 1992), and reversed en banc on other grounds, 999
F.2d 1436 (11th Cir. 1993), cert. denied, 114 S. Ct. 943 (1994). MCI Communications
Group and MCI Telecommunications Corp v American Telephone & Telegraph 708 F.2d
1-81 (7th Cir. 1983).
134
and the downstream market.71 The dominant firm will usually be active on both
markets, and the other firm will be active or wish to become active in the downstream market. The latter normally seeks access to an input of the integrated
firm that has been denied.72
The usual elements quoted as necessary for the establishment of mandatory
access are found in the US case MCI.73 They include: the control of an essential
facility by a monopolist; the competitors inability to practically or reasonably
duplicate the EF (requiring more than being more economical than alternatives,
or mere inconvenience or economic loss); the denial of the facility to the competitor (including the charging of unreasonable prices); and the ability to provide
the facility.74
71
Whether the existence of two markets is a prerequisite is a matter of debate, and
this is evident from the conflicting arguments of the parties in IMS.
72
While the EFD may arise in purely private circumstances, it is often raised in
situations involving regulation or involving some state-related or state-owned facility.
This explains why it is often a public policy choice. OECD, Essential Facilities Doctrine,
Paris (1996).
73
P. Areeda, Essential Facilities: An Epithet In Need of Limiting Principles, 58
Antitrust Law Jnl 841, (1989).
74
However, there are significant variations in the definitions of the doctrine. It has
even been described as follows: It is less a doctrine than an epithet, indicating some
exception to the right to keep ones creations to oneself, but not telling us what those
exceptions are. Ibid. A. Kezsborn and A.V. Goldman, No Shortcut to Antitrust Analysis:
The Twisted Journey of the Essential Facilities Doctrine, 1996 Colum Bus L Rev 1. See,
for example, the issue of whether the doctrine should be limited to natural monopolies.
This is based on the argument that as these markets are particularly vulnerable to tipping,
the tendency will be for a monopoly. In such cases, the key to maintaining a monopoly
the key is to create a large installed base, as it tends to become self-perpetuating afterwards as users will become locked-in because of high switching costs. A monopolist can
use the monopoly base to tip the downstream market creating a bandwagon effect, by
creating technological links between the two products. M.H. Harz, Dominance and Duty
in the EU: A Look through Microsoft Windows at the Essential Facilities Doctrine, 11
Emory Intl Rev 189 (1997). Harz explains that, in natural monopolies, free market forces
do not gravitate toward an equilibrium point, the maximum production and most efficient
resource allocation, and there are many equilibrium points. Tipping may move the market
off its equilibrium point towards a new point that favours a competitor or a particular
product. J.S. Venit, J.J. Kallaugher, Essential Facilities: A Comparative Law Approach,
in Hawk ed, 1994 Fordham Corp. L. Institute, pp.245-344.
Others argue that as antitrust cannot change the structural characteristics of 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. See A. B. Lipsky
and J.G. Sidak, Essential Facilities, 51 Stan Law Rev 1187, (1999); See also C.O. Robinson, On Refusing to Deal with Rivals, 87 Cornell L. Rev. 1177 (2002); Troy, Unclogging
the Bottleneck: A New Essential Facilities Doctrine, 83 Colum L Rev 441 (1983).
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. This, in effect,
requires that there would not be any workable alternative technology available,
and that there would be a potential effect to eliminate competition by the requesting party or from any third party.75 The facility, whether physical or
technological, must be indispensable to enter or stay on the market. Once a facility is deemed essential and unless there is a legitimate justification, the denial
of access will amount to an abuse of dominance.
The application of the indispensability requirement (similar to essentiality in
the EFD) raises three fundamental questions on its application: first, what constitutes indispensable/essential, secondly, whether there is a need for two
markets, and thirdly, what classifies as an objective justification.
6.2.3.1 Indispensability
Different definitions have been proposed as regards the issue of essentiality/indispensability.76 In Sealink,77 the Court defined an essential facility as a facility
or infrastructure, without access to which one cannot provide services to their
customers.
75
136
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.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. The test can only be
objective.79
Accordingly, as clarified in Bronner,80 any alternative technology must be
assessed on the assumption that comparable assets would be invested for its
development, even if they are less advantageous for competitors.81
In addition, certain factors may be taken into account in the determination of
essentiality. For example, whether the facility has become an industry standard,82
U.S. Dist. LEXIS 12049; 1970 Trade Cas. (CCH) P73,170, 16th April, 1970, 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. See also A.B. Lipsky,
J.G. Sidak, (1999) op. cit. who believe that inherent in the notion of essentiality lies the
premise that the owner of the facility possesses monopoly power. They identify three
requirements: a. some uniqueness and market control; b. the lack of feasible alternative
or ability to reproduce; and c. 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. They also believe that the
EFD is inappropriate in the following situations: where there is no monopoly power; the
facility is not an indivisible unit; an IPR is involved; and it is necessary to expand the
capacity of the facility to accommodate for the new user.
See M.A. Bergman, The Bronner Case A Turning Point for the Essential Facilities
Doctrine? [2000] 2 ECLR 59, who believes that the requirement of a market share
equivalent to the dominant firm in Oscar Bronner is too strict. However, the EFD should
not be applied simply if a firm finds it impossible to establish an EF. Ideally, it is argued,
that the criterion should be able to distinguish between situations in which investments
and other desirable behaviour might be jeopardised by its application, and situations in
which such significant risk is at hand and the application of the doctrine can potentially
result in substantial efficiency gains.
77
Stena Sealink (1994) op. cit.
78
Lipsky and Sidak (1999) op. cit.
79
In general, Art. 82 applies an objective concept of abuse. 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.
80
Case C-7/97 Bronner, [1998] ECR I-7791.
81
Ibid, paras. 43-45.
82
This has influenced the Commission in IMS in deciding that the product was indispensable and in favour of granting a compulsory licensing order. It is believed that
once a service or product develops into a standard, then access should be available to all
competitors as it is impossible without it to compete. The Commission reasoned that as
the 1860 brick structure had developed into an industry standard, according to consumer
preferences, the dominant undertaking was not allowed to refuse access to it. Hence, in
this sense the industry standard consideration could militate in favour of finding of
indispensability.
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.83 On the other hand, the threshold of essentiality may be
higher, where there are significant sunk costs involved, or if the incentives to
innovate are very important.
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, even if they are less advantageous, and whether
there are technical, 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, possibly in cooperation with other operators, the alternative
products or services.85
83
This is an unspoken consideration that seems to have influenced the EU Courts
and Commission in the Magill and IMS case. It is interesting that both cases involved a
national IP law that did not exist in the rest of the EU countries, and was viewed with
disbelief as failing to warrant IP protection. 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 perception that the laws in question were of limited value,
may have been a consideration that influenced the Courts to find the refusals abusive.
Admittedly if an IP of no merit is concerned, this should be remedied in the IP provisions, and competition law should not be seen as correcting perceived IP regulatory
failures.
If it was controlled by competition law, it would be seen as addressing IP failures and
not treating IP like other cases. If competition law did not control it, it would be seen as
exempting IP from something, unjustifiably, as argued in Chapter 5. However, if competition law merely controls it, then, because of the effect of these laws on the market as
they eliminate downstream competition, there would arguably be no objection.
Accordingly, the IP in question is not relevant in determining the effects of exclusion,
but may be relevant as a matter of fact in the determination of essentiality/indispensability
of the facility. The weaker the rationale for protecting the exclusivity of the facility,
stemming from IP or otherwise, the easier it may be for a facility to be deemed indispensable. In this sense, the weak nature of the IP in question may be relevant after all.
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. See below.
However see also G. Lunney, Re-examining Copyrights Incentive/ Access Paradigm,
49 Vanderbuilt L. Rev. 483 (1996), on the incentive/access paradox, 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.
84
Case C-418/01 29 April 2004
85
Ibid. para 28. See however, the Commission Decision in Case COMP/C-3/37.792
Microsoft [2004] where a lower standard for indispensability was adopted. While it was
recognised that there may be less advantageous alternatives, it was argued that those
were not in reality alternatives.
138
86
R. Pitofsky, The Essential Facilities Doctrine under US Antitrust Law, Paper
submitted to the European Commission in support of National Data Corporation in its
essential facilities case against IMS. 2002; The courts require only that the plaintiff
prove that the facility is indispensable for competition in a relevant product market, is
controlled by a monopolist who could practically make access available, and is not capable of duplication. 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. pp.234. R.
Pitofsky, D. Patterson, J. Hooks, The Essential Facilities Doctrine under US Antitrust
Law, 70 Antitrust L. J. 443 (2002).
87
P. Marquandt, M. Leddy, The Essential Facilities Doctrine and Intellectual
Property Rights: A Response to Pitofsky, Patterson and Hooks, 70 Antitrust L. J. 847
(2002).
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, 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. Viewing the doctrine from this
perspective directs attention to the situations, irrespective of vertical integration, in
which it is either desirable to impose judicial regulation, 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), or the refusal to deal would be anticompetitive from a dynamic point of view.
Accordingly, a competitive relationship would not be necessary and the issue of
whether two markets are necessary is avoided; the focus is placed on the essentiality
of the input. D.J. Gerber (1988) op. cit.
139
as it would lead to the same effect if there was another sole downstream
supplier.89
The conclusions drawn by the ECJ on the two market requirement in IMS
should be seen in light of these considerations. It is determinative that two different stages of production may be identified and that they are interconnected,
the upstream is indispensable in as much as for supply of the downstream
product.90
Therefore, 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. Such is the case where the products or
services are indispensable in order to carry on a particular activity.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.92
6.2.3.3 Objective justification
The third contentious issue relates to the scope of an objective justification. A
legitimate justification generally includes situations such as: the lack of capacity
to supply or grant access; 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, but also a reasonable return for the investment); and cases
where access would interfere with the service of other customers.93
Furthermore, the analysis undertaken in the previous chapter supports the
conclusion that IP, in itself, would not constitute an objective justification as
this would amount to the exemption of IP from antitrust control.94
89
J. Ratner, Should there be an Essential Facilities Doctrine, 21 UC DAVIS L.
REV. 327 (1988) p.382. In addition, it is sometimes impossible to characterise some
markets as separate markets in an antitrust sense, but nonetheless there is a dependence
situation as in the case of IMS, and also in the case for research tools.
90
IMS Case (2004) op. cit. para 45.
91
Ibid. para 44.
92
See J. Killick (2004) op. cit.
93
D.E. Troy (1983) op. cit.
94
See Chapter 5. As it was contended earlier, the existence of unwarranted IPRs
that lead to unreasonable monopolisations of the market may constitute an unspoken
consideration in the determination of essentiality. In cases where weak IP laws are involved which grant an extra advantage in the market without justification, the
essentiality benchmark may effectively be lowered. This should not be seen as competition law adopting a different threshold for IP, 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. This effectively involves taking the specific regulatory and
other contexts into account in determining indispensability. See also Dutch Telegraaf
case (Decision of director-general Dutch Competition Authority 10 September 1998,
140
1/501.o119 (Telegraaf v NOS/HMG); Trade and Industry Appeals Tribunal, 15th July,
2004, www.rechtspraak.nl, LJN-number: AQ1727) in which the Rotterdam District
Court decided that the existence of IPRs could not be used to establish an objective
justification.
See also Commission Decision in Case COMP/C-3/37.792 Microsoft [2004] Microsofts refusal cannot be objectively justified merely by the fact that it constitutes a refusal
to license intellectual property (recital 712).
95
AG Opinion in Glaxosmithkline (2004) op. cit.
96
Ibid. para. 72.
97
Ibid. para. 68.
98
Ibid. para. 76.
99
Ibid. para. 100. 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, which is responsible for price differentials between the Member States; b. 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; c. the potentially negative consequences of parallel trade for competition,
the common market and incentives to innovate, given the economic characteristics of
the pharmaceutical industry; d. the fact that end consumers of pharmaceutical products
may not benefit in all cases from parallel trade and that public authorities in Member
States, as the main purchasers of such products, cannot be assumed to benefit from lower
prices, given that they are themselves responsible for fixing prices within their territories
(para. 105).
141
tory context should also be taken into account in determining abuse and its
individual elements, including indispensability.100
6.2.4 New Product Innovation
In the IMS case, 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. 82 EC. Following Magill, 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; it
is unjustified; and it amounts to the exclusion of any competition on a secondary
market.101
100
In the case of IP, this again does not amount to an exemption but rather to a consideration of the regulatory context that may include IPRs. This is likely to be crucial in
finding in favour of a duty to deal where a weak IP is concerned.
101
IMS (2004) op. cit. para. 38 of judgment. See also Magill op. cit.
This differs from the Magill case, as although the product was not yet in existence
there was certitude as to its development and what it would involve. On the other hand,
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. In biotechnology and specifically
in the case of research tools, 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.
Other cases however have not made reference to the new product rule or found it not
to be decisive. The Bronner case made no reference to the new product rule in its interpretation of the duty to deal. See Bronner (1998) op. cit. 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, it would still be necessary,
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, 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, but also that the service in itself be
indispensable to carrying on that persons business, inasmuch as there is no actual or
potential substitute in existence for that home-delivery scheme.
Hence, while Magill identified the new product requirement, Bronner did not perceive
it as an essential element of the test. Similarly, the Commission Decision in Microsoft
(2004) op. cit. did not make any reference to the new product rule.
See also, however, Ladbroke (1997) op. cit. para. 131. 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-
142
This new product rule alludes to both consumer preferences and also to innovation and the need to promote new and efficient products.
Therefore, the refusal by an undertaking in a dominant position to allow access to a
product protected by copyright, where that product is indispensable for operating on
a secondary market, 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 intends to produce new goods or services not offered by the owner of the right
and for which there is a potential consumer demand.102
There are two fundamental issues which should be noted with regard to the
new product rule. First, 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. The EFD did not contain a requirement relating to
the new product. Hence, strict adherence to the requirement would imply that
the EFD is insufficient to capture the essence of the duty to deal under Art. 82;
the emphasis should not only be on the indispensability of the facility but also
on the creation of a new product.
Secondly, 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. There may be significant implications arising from this
broad definition, particularly in the biopharmaceutical industry, as there may
be a duty to deal where access to an input is required as a basis for further research and development, to enable further innovation, even if it is as yet
impossible to identify the new products that would be developed, or even to
state with certainty that new products would be developed.103 Taking this argument to the extreme, one could also argue that the reference to an intention to
produce actually negates the very requirement of a new product.
cific, constant and regular potential demand on the part of consumers. The new product
rule would accordingly be a sufficient ground for liability, but not a necessary one.
102
IMS (2004) op. cit. para. 51.
103
Unfortunately, the Commission did not address the issue of this requirement in
its Microsoft decision. See Commission Decision in Microsoft (2004) op. cit. para.
693701, in which the Commission briefly discusses whether the refusal limits technical
development to the prejudice of consumer, without analysing the new product
requirement.
See however the Dutch Telegraaf case (1998) op. cit. 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, thus applying the considerations of the ECJ in
IMS.
143
6.3 Conclusions
As recently confirmed in EC case law, the duty to deal under Art. 82 remains
exceptional and only sanctioned within narrow limits.104 It is applicable where
the refusal to license leads to harm to competition, rather than to a specific
competitor105 or to the restriction of parallel trade.106
Determining whether there are exceptional circumstances which amount to
a risk of harm to competition requires a comprehensive examination.107 In
addition, the regulatory and economic context needs to be considered.108 This
is important, as industry-specific characteristics may be decisive in establishing
indispensability and objective justification.
The case law clarifies that the duty to deal remains limited to situations in
which:
1. the product or service is indispensable for carrying on a particular
business;
2. the refusal prevents the emergence of a new product with a potential consumer demand;
3. the refusal is not objectively justified;
4. the refusal effectively excludes all competition on the secondary
market.109
The aftermath to the Sealink decision underlines the importance of considering
alternatives and avoiding an over-eagerness in finding something essential.110
It should be recalled that the decision provided that the defendant should make
the port available to the rival ferry service, Sea Containers. 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. cit. para. 53; IMS (2004) op. cit.
See Bronner (1998) op. cit.
106
See Glaxosmithkline (2004) op. cit.
107
Microsoft Commission decision (2004) op. cit. para. 555558.
108
AG opinion Glaxosmithkline (2004) op. cit. para. 53 any obligation to deal pursuant to Article 82 EC can be established only after a close scrutiny of the factual and
economic context.
109
IMS case (2004) op. cit. 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, it is sufficient that three cumulative
conditions be satisfied, namely that the refusal is preventing the emergence of a new
product for which there is a potential consumer demand, that it is unjustified and such
as to exclude any competition on a secondary market.
110
N/e/r/a, Competition Brief, Oscar Bronner: Legitimate Refusal to Supply, 1999,
at www.nera.com, p.3.
105
144
operate a service to Ireland from Liverpool rather than Holyhead. At the time,
the Commission had dismissed this as an alternative, being too readily persuaded
by the claimant claims as to the essentiality of the facility.111
It therefore becomes clear that in imposing any obligation to deal, it is important not to dismiss the alternatives too easily. It is likely that the essential
nature of a product is overstated and thereby found essential, even though it
might not have been more than an inconvenience to the competitor. It is also
important not to encourage competitors to rely on the dominant firms facilities
but rather to encourage them to develop new and innovative services
themselves.112
In conclusion, 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. 82. 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. It should be noted, however, 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. 114
111
Ibid. p.4.
Ibid.
113
IMS Case (2004) op. cit.
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. 206: Clearly, that question cannot be resolved at the interim
relief stage. It should be pointed out, however, that the Court of Justice has held, in the
words of paragraph 38 of the judgment in IMS Health, that it is sufficient, 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, that
that refusal is preventing the emergence of a new product for which there is a potential
consumer demand, that it is unjustified and [that it is] likely to exclude all competition
on a secondary market.
112
145
Market B: Ethambutol P
115
Case 7/73 ICI and Commercial Solvents v Commission [1974] ECR 223.
146
The ruling in this case thus imposes an obligation to grant a licence to existing customers, if the failure to supply would lead to
the elimination of a significant competitor in the market. The ECJ
seems to have been particularly wary of vertical integration, 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, with the possibility of also monopolising that
market.
Therefore, it took an interventionist approach, shaping the market
in line with its structural objectives, beyond its mandate to protect
the interests of customers and competitors.116 The case supports
the view that consumer interests are served by having as much
competition as possible in the final market.117 The decision, however, 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.
How would the court have ruled if CS had not chosen to integrate
vertically, but had none the less refused to supply Zoja, in response
to the latters initial preference of another upstream supplier? It is
probable that, even in this case, CS would have been forced to
supply as it would have been found to have been a disproportionate
response to the conduct of Zoja, and an unreasonable means to
protect its own interests.118 If the conduct of CS were to be deemed
to be proportionate and reasonable, then it could have also qualified as an objective justification for the refusal to supply. However,
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,
as it was believed that CS would have refused to license, even
116
R. Grosvenor, To what Extent can Art 86 be used to compel dominant undertakings to supply competitors? at www.jumper.demon.co.uk/comm8a.htm, p.3.
117
Ibid.
118
See also Case 27/76 United Brands v Commission [1978] ECR 207, on the issue
of proportionality.
119
See BP, Case 77/77, Benzine en Petroleum Handelsmaatschappik BV and others
v Commission [1978] ECR 1513, in which the Court held that BP had not abused its
dominant position during the 1973 oil crisis, when it reduced supplies significantly more
to the complainant than to its regular customers. This conduct was justified as reductions
were relative to the oil shortage. See, however, also Boosey & Hawkes OJ [1987]
L286/36, where the Commission stated that a dominant undertaking may always take
reasonable steps to protect its commercial interests, but such measures must be fair and
proportional to the threat.
147
without the initial cancellation of Zoja and stressed that vertical integration cannot be used to justify the elimination of a principal
manufacturer.
D and Competitors
Long-standing customer
Market B: distributors/ripeners P
The argument that Olesen was selling a competitors product
and neglecting the sale of UBs 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
121
148
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 ones 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 distributors sales policy,122 and the actual restriction of competitors from access to the distributors marketing networksthe
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 firms right to participate in the advertising of a supplier would
effectively hamper the actual sales of other brands, as well as the
buyers freedom to decide its business interests. The arbitrary interference in the management of Olesens 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
149
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 Courts condemnation of
price discrimination, see L. Zanon di Valgiurate, Price Discrimination Under Art 86 of
the EEC Treaty: The United Brands Case [1982] Internatl and Comparative Law Quar-
150
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.
151
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 dEtudes du March-Tlmarketing SA (CBEM) v
Companie Luxembourgeoise de Tldiffusion [1985] ECR 3261.
152
D Competitors
Market C: Telemarketing P
The judgment is significant for several reasons. First, it held that
Art. 82 applies even where dominance arises from provisions enshrined in law. While the case the Court referred to liberalised
companies by virtue of Art. 90(2), in the present case, this also
implies the same attitude for IPRs, which are also granted by law.
Secondly, it appears that in the present case, the Court and
Commission were particularly concerned about the existence of
related markets, and the possibility of extending market power from
an upstream to a downstream market with the possibility of eliminating competition. The requirements for an abuse would hence,
thus far, seem to include: (a) the existence of a dominant position;
(b) the reservation of an ancillary activity; (c) with the possibility of
eliminating all competition from such undertaking; and (d) with no
objective necessity.
153
130
154
D P
The Commission was paving the way for the essential facilities
doctrine. It also took consideration of the fact that the refusal to
grant access was not based on a lack of capacity, but on a desire
to prevent the competitor from entering the market. Sabenas operations on both markets opened the possibility for leverage, 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
155
Market B: Receivers
D P
132
156
133
157
136
See Commission Speeches on short-term benefits, in http://europa.eu.int/comm/
competition/speeches/text/sp1996_0542_en.html which refers to cooperation between
competitors that might be essential to carry out certain operations, specifically referring
to airlines interlining, where more participants is considered better as there is usually
only scope for one system. Network externalities magnify disadvantages of exclusion,
and reduce the viability of otherwise essential competitors. Exclusion would be hard to
justify, as it would create a category of second-class competitors, unless admission would
reduce the efficiency of the network. p.17.
137
R. Grosvenor, To what extent can Art 86 be used to compel dominant undertakings to supply competitors? at www.jumper.demon.co.uk/comm8a.htm, pp.45.
138
Anderman, EC Competition Law and IPRs: The Regulation of Innovation, 1998,
p.202. See also T. Nacke Abuse of Dominant Positions, 1995 at http://europa.eu.int/
comm/competition/speeches/text/sp1995_025_en.html. He refers to the notion of economic dependence of some Member States, in which a company has market power but
is not dominant. The author proposes that we should develop a concept of partenaire
obligatoire so that there is an abuse if the dependent company cannot substitute, if it is
likely to deter new competitors and if the companys behaviour is not constrained by
competition in the wider downstream market.
158
D P
139
159
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
142
S. Anderman, EC Competition Law and IPRs: The Regulation of Innovation,
Oxford University Press (1998).
161
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
appellants conduct was an abuse of a dominant position within the
meaning of Art. 86 of the Treaty.143
143
144
162
D P
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).
163
148
C 7/97 Oscar Bronner, A-G Jacobs Opinion, ECR [1998] I-07791, para. 58.
Ibid. para. 65.
150
Ibid. para. 66.
149
164
151
152
219.
For a criticism of this see M. Bergman, The Bronner CaseA 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, only natural/inevitable monopolies will qualify as EF. The author also believes that although the strict
criterion encourages strong firms to take risks and invest, it hampers competition (at least
in the short run) and reduces incentives for small firms to invest. He also believes that
the ECJ replaced the circumstance approach of economic analysis for legal certainty,
thus undermining the flexibility of the notion of abuse which is perceived by many commentators to be its virtue. This case has also been criticised for confusing the issues of
dominance and abuse. See Stothers, Refusal to Supply as Abuse of a Dominant Position:
Essential Facilities in the EU, 7 ECLR 256 (2001). The author shows that two out of the
three requirements laid down by the Court for abuse involve dominance. He concludes
that in the end the traditional test of Commercial Solvents and the modern approach of
Magill and Oscar Bronner are the same. This test involved the question of whether there
was a dominant position on the market, and if there was, whether it had been abused.
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. 82. Regarding the need to preserve incentives for investment, refusal to supply will only constitute abuse if it is determined that there is no
sufficient possibility of substitutes to prevent dominance. It is unnecessary to show
dominance in a downstream market as, if this is not the case, the dominant firm will not
be able to take monopoly rent at that level in any case. Finally, the author believes that
165
166
D (brick structure) P
154
D. Hull, J. Atwood, J. Perrine, Intellectual Property Compulsory Licensing, 2002
European Antitrust Review 36, at www.Global-Competition.com.
155
Ibid.
167
there was no alternative and Magill could not invent or develop the
listings, nor could it publish the non-listings material without this
information. In the IMS case, access to medical data was not at issue, but the use of the format developed to present this information
to the pharmaceutical companies.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. This might be criticised, as although
consumers interests are an important consideration, it is only natural that they prefer a higher product developed with a significant
level of skill and merit. However, the Commission based its decision
on the fact that the brick structure had been developed by a working
group, and pharmaceutical companies had participated in this
process; the brick structure was therefore built to suit their interests
over a long period of time and there were many disincentives in
switching. It therefore found that it had evolved into a de facto industry standard.
The fact that the pharmaceutical companies were economically
dependent on the brick structure was also relevant in this decision,
as switching would be an unviable economic option in light of the
comparability and compatibility of data, the change of sales territories and the costs of modifying the software applications. In reaching
its conclusion on the indispensability of the brick structure, the Commission was also concerned that it would not be likely for competitors
to create an alternative structure due to technological and legal
constraints.157 These included administrative boundaries, data protection constraints and uncertainty surrounding the sale of data and
whether it would infringe the copyright of the 1860 brick structure.
The Commissions 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, along
with whether IP is treated or should be treated differently from other
cases.
The decision of the Commission was suspended by Order of the
President of the CFI on 10 August 2001, as IMS argued that the
156
Ibid. p.37.
It might also have been relevant that there was a low margin of creativity in the
brick structure of 35%, which means that any alternative is bound to be similar and,
therefore, likely to lead to an infringement of the data. This was also confirmed by the
practice in other countries that showed that the brick structures were either similar, or
identical.
157
168
158
IMS Health Inc v Commission, 10 August 2001, Order of President of CFI, 26
Oct 2001, Order of President of CFI, 11 April 2002, Order of President of Court. p.15.
159
Case C-418/01, not yet reported, 29 April 2004.
169
requirements by stating that the refusal must prevent the emergence of a new product. It adopted a broad definition of a new
product, however, as it referred to the intention to produce new
goods as distinct from the actual production.
As regards the presence of two markets in an antitrust sense,
the Court concluded that it is determinative that two different
stages of production may be identified and that they are interconnected, the upstream is indispensable in as much as for supply of
the downstream product.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. Such is the case where the products or
services are indispensable in order to carry on a particular
activity.161
160
170
163
Case C-53/03 Synetairismos Farmakopoion Aitolias and Akarnanias (Syfait) and
Others v Glaxosmithkline AEVE, Opinion of the A-G Jacobs, 28 October 2004.
171
Principles
Considerations
Commercial
Solvents:
Leverage. Vertical
integration (VI)
proportionate sanction
United Brands:
1. long-standing
customer
2. regular commercial
practice
SMEs, dependence
proportional sanction
Price discrimination
and market
segmentation
Hugin:
No effect on trade
IGR Stereo-TV:*
COM
1. new entrant
2. essential for downstream research
Leverage. Vertical
integration
Essential Facilities
Doctrine (EFD)?
same standard for IP
Telemarketing:
1. reservation of
ancillary activity
2. possibility of eliminating all competition
from such
undertaking
3. no objective
necessity
Leverage. Vertical
integration
long-standing customer
1. indispensable
2. for another market
3. no objective
justification
EFD
Volvo v Veng:*
additional abusive
conduct
London European:
COM
1. essential service
New entrant
Vertical integration,
Leverage
EFD?
172
Principles
Considerations
Decca Navigation:*
COM
1. essential
New entrant
Leverage. Vertical
integration, EFD?
same for IP and non-IP
British Midland:
COM
1. long standing
2. Significant impact on
firm even if new
entrant
No indispensabilityno
EF
No leverage
dependence?
Proportionality of
sanction
Sea Containers:
COM
1. essential facility
2. denial
3. no objective
justification
Leverage, EFD
New entrant
Magill:*
1. new product
2. no objective
justification
3. indispensable for
secondary market
IPRs exceptional
circumstances
New entrant
Leverage
EF
In practice same for
non-IP?
Tierce Ladbroke:
Oscar Bronner:
1. indispensable
2. likely to eliminate all
competition
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
173
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
PART IV
177
178
While concerns relating to access are not new in the area of antitrust law, research tools are more complicated as they are not only end products whose
dissemination/distribution effects can readily be measured or witnessed, but
they are also tools for research, which are important in the pre-commercial stage
when the impact of the restricted access cannot be easily determined.
The problem in the case of research tools does not relate to the restriction of
a product or technology market, but rather the hindering of the innovation
process. The concern is that the lack of access may lead to reduced research
which would, in turn, lead to less innovation. Therefore, we are not concerned
with something that may already crystallise in a product or technology market,
but rather with something in even earlier stages of research and development.
professionals or private firms, and whether they are importers or exporters. See Chapters
2 and 3.
However, research tools are merely an example of what might be a general problem.
For example there may be similar exclusionary concerns in cases involving Pharmacy
Benefits Management (PBM) networks. See R. Levy, The Pharmaceutical Industry: A
Discussion of Competition and Antitrust Issues in an Environment of Change, Bureau
of Economic Staff Report, FTC March 1999. While until recently the doctors prescriptions were the most crucial factor in determining which drugs would be dispensed by
pharmacists, today pharmacies are usually part of PBM networks that administer the
drug benefits as part of health insurance plans to employers and others. 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. In addition, this could raise the marginal costs of unintegrated drug
companies and lead to higher prices and lower level in prescription drug markets. A refusal to deal scenario may exist where C, an unintegrated pharmaceutical manufacturer,
has no substitutes for the marketing services of A and Bs downstream PBMs and A and
B have the incentive to coordinate to limit a companys ability to undermine collusion.
Foreclosure effects might also occur with regard to the exclusion of unintegrated PBMs
from the market, depending on the availability of ways for the unintegrated company to
avoid the exclusion.
For more information on pre-commercial stage patents see R.A. Epstein, Steady
the Course: Property Rights in Genetic Material, The Law School of Uni of Chicago,
working paper no 152, 2003 at http://ssrn.com/abstract_id=317101.
See In The Matter Between Mpho Makhathnini, Nelislwe Mthethwa, Musa Msomi,
Elijah Paul Musoke, Tom Myers, AIDS Healthcare Foundation Limited, and GlaxoSmithKline (Pty) Ltd, Glaxo Group Limited, Case Number 34/CR/Apr04, where the South
African courts found GlaxoSmithKlyne to have abused its dominant position by virtue
of excessive prices of drugs. See also South African Competition Tribunals decision and
order in Pharmaceutical Wholesalers and Glaxo Wellcome, case 68/IR/Jun00, 18 June
2003 at www.comptrib.co.za/decidedcases/pdf/68IRJUN00kinesis.pdf, and Case No.
15/CAC/Feb02.
179
See Chapter 3.
See Chapter 4.
See Commission Decision in Microsoft (2004) op. cit. para. 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 consumers choices by locking them
into a homogeneous Microsoft solution. As such it is particularly inconsistent with the
provisions of Art. 82(b) of the Treaty, hence, 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. S. Anderman, 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.
180
developer of the final product but society would be better off if this were not
the case.
A significant amount of economic research has focused on the issue of
whether competition and potential competition are capable of increasing innovative activity. The findings are ambiguous in this regard. Some commentators
have argued that firms which are insulated from competition may choose a quiet
life. Yi has found that in the case of process innovations, as long as they are
not drastic, their benefit decreases in line with the number of firms under certain
conditions.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.11
On the other hand, other economic studies seem to support innovation by
large firms in concentrated markets. Schumpeter found that large firms are more
innovative than smaller firms, which could mean that in concentrated markets
there was more innovation taking place. This may be due to two factors.12 First,
innovative activity may be less costly for large firms as there are significant
economies of scale in innovation. Large firms may have more specialised resources undertaking many R&D projects which reduce the marginal costs of
innovation. As innovation involves significant fixed costs, these companies are
able to incur less average total costs, and they may have larger portfolios of
R&D, increasing the likelihood of success. Secondly, it might be the case that
firms obtain higher benefits from innovative effort as they diversify products,
R. Aoki and J. Small, Compulsory licensing of technology and the essential facilities doctrine, 16 Information Economics and Policy 23 (2004).
W.M. Cohen and R.C. Levin, Empirical Studies on Innovation and Market Structure, in R. Schmalensee and R.D. Willig (eds), Handbook of Industrial Organization,
North-Holland, Amsterdam (1989), p.1078; J. Lerner, An Empirical Exploration of a
Technology Rate, 28(2) Rand J. Econcs 228 (1997).
See K. Arrow, Economic Welfare and the Allocation of Resources for Innovation,
in pp.60926, R.R. Nelson (ed.), The Rate and Direction of Inventive Activity, New York:
New York, Princeton University Press (1962); S. De Santi and W. Cohen, Competition
to Innovate: Strategies for Proper Antitrust Assessments, in R. Dreyfuss et al. ed., Expanding the Boundaries of Intellectual Property, Oxford, Oxford University Press (2001);
ABA (2002) op. cit.
10
S. Yi (1999) op. cit.
11
J. Boone (2001) op. cit.
12
Ibid. See also F. Parisi, B. Depoorter (2002) op. cit. on oligopoly in complementary as opposed to substitutable products. See also R.A. Epstein, Steady the Course:
Property Rights in Genetic Material, The Law School of Uni. of Chicago, Working Paper
No. 152 (2003) on the marginal cost and double marginalisation problem. R.C. Dreyfuss,
Varying the Course in Patenting Genetic Material: A Counter-Proposal to Richard Epsteins Steady Course, NYU Law School, Public Law Research Paper No. 59 (2003).
181
thus increasing the likelihood of discovery, and even the more effective marketing of new products.
Empirical evidence shows that large firms have developed a significant share
of innovation but in recent years small firms have also done so.13 Early studies
showed that R&D rose more than proportionately with firm size, however,
Scherer14 has shown that was up to some size level. Recent studies suggest that
large firms may actually be generating less innovation per dollar of R&D than
small firms.
13
182
Others contend, however, that research tools should be excluded entirely from patenting. See public comments received from USPTO in response to its first round of Interim
Written Description Guidelines, published in June 1998 asserting that ESTs are genomic
research tools that should be available for unencumbered research to advance the public
good. Department of Commerce, Patent and Trademark Office, Revised Utility Examination Guidelines, 64 Fed. Reg. 71 (1999) 440.
16
R.S. Eisenberg, Patents and the Progress of Science: Exclusive Rights and Experimental Use, 56 U. Chi. L. Rev. 1017 (1989), pp.107478.
17
See Chapter 3.
18
It was believed that these tools could be readily licensed or bought on the open
market. The patentee will want to sell to these users they fall squarely within the
market for the patented invention. Ibid. p.1085.
19
On this distinction see G. Calabresi and D. Melamed, Property Rules, Liability
Rules and Inalienability: One View of the Cathedral, 85 Harv. L. Rev. 1089 (1972); I.
Ayres, E. Talley, Solomonic Bargaining: Dividing a Legal Entitlement to Facilitate
Coasean Trade, 104 Yale L. J. 1027, (1995).
183
downstream products. They would fall into the second category of Professor
Eisenbergs model of the ordinary consumers.
The extension of the doctrine was also considered by the NIH Working Group,
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. Researchers
are ordinary consumers of patented research tools, and if these consumers were exempt from patent infringement liability, the patent holder would have nowhere else
to turn to collect patent royalties. 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.20
The difficulty with such a view, however, is that the assumption that such
workers are truly ordinary consumers of the tool is called into question. When
it becomes increasingly difficult for these consumers of the tool to obtain access, then to the extent the experimental use doctrine is based on that distinction,
it becomes questionable. When research tool transaction costs are severe
enough to impede or stop the development of new biomedical products, line
drawing between experimenting on and experimenting with is no longer
justified. 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.21
The arguments against an expanded experimental use exemption mirror to a
large extent the general arguments against a reduced patent scope. In this context, it is felt that any reduction in patent protection would lead to a reduction
in innovation.22 As argued in Chapter 5, however, the optimal balance between
initial and follow-on innovation is not known to any degree of precision. Although there may be some reduction in the development of new research tools
by forcing wider access, there may equally be more products developed by virtue of the broader access to those tools. The trade-off ultimately is an empirical
one.23
20
184
24
185
As shown in Chapter 3, 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. In accordance with economic
theory, this was interpreted to mean that there is no justification for applying a
different antitrust threshold for cases involving IPRs, and that the application
of the competition law provisions remains intact.34
31
M. Lao, Unilateral Refusals to Sell or License IP and the Antitrust Duty to Deal,
9 Cornell J. L. & Pub. Policy 193 (1999).
32
While it is true that antitrust law presumes that the market will fix failures, 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.
33
M. Lao (1999) op. cit. p.201.
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, makes little difference
in practice. See D.S. Karjala, Copyright Protection of Operating Software, Copyright
Misuse ad Antitrust, 9 Cornell J. L. & Pub. Poly 161 (1999), 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, 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. This is not
186
necessarily easy but the only fundamentally new aspect suggested here is that antitrust
rather than copyright supplies the hook for devising remedies p.189.
35
See Chapter 6.
36
Case C-418/01 IMS, 29 April 2004, para. 28.
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.
This is because it may not make economic sense to duplicate them and they may be of
national economic significance, similar in some ways to land facilities. R. Aoki and J.
Small (2004) op. cit. p.27.
38
Ibid. p.28.
39
See Chapter 6.
187
40
188
hypothetical market can be identified. Such is the case where the products or
services are indispensable in order to carry on a particular activity .43
Hence, it would seem that this case can be used as a precedent that two markets in an antitrust sense are not required, and an obligation to deal will be based
on the essentiality of an input for the operation of a market. Therefore, it effectively extended harm to competition to potential or hypothetical markets.
In the example of research tools which require access to potentially develop
some downstream product, the doctrine remains applicable, and if truly indispensable the research tools could be the object of a CL. In IMS, the Court stated
that it is determinative that two different stages of production may be identified and that they are interconnected, the upstream product is indispensable in
as much as for supply of the downstream product.
This is also consistent with the innovation markets approach, in the sense that
the court extended its interpretation of the elimination of competition not only
to existing or potential product or technology markets, but also to innovation
markets not yet in existence.44
7.2.2.4 The absence of an objective justification
In the Microsoft case, the Commission confirmed that intellectual property
rights are not in a different category to property rights as such45 and, therefore,
they could not amount to an objective justification. Hence, the fact that research
tools are protected by patents of itself would not negate the duty to deal if it
arose. This is in line with recent competition findings, whereby the fact that
something involves IPRs does not exempt conduct from competition control.46
43
189
7.2.3.1 The impact of Art. 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. In this way, it can address problems
associated with the hindrance of potential technology and potentially restricted
access to necessary inputs. It involves recognition of the importance of potential
innovation, and bases the remedy on treating IP just as any other case, while
adopting a broader definition of a new product and of secondary markets.
Although the economics of cumulative innovation fail to provide a clear formula, none the less, they affirm that concentration may not necessarily lead to
more innovation; the granting therefore of an unqualified exclusive right (and
thereby immunising IP) may not actually be conducive to innovation.47 In the
same way as the patent system attempts to balance initial innovation with follow-on innovation through the patent length and breadth, competition law may
also be used to achieve this objective.
In this way, antitrust can be seen as interchangeable as a remedy with patent
CL provisions, only with a difference in threshold; one requiring a patent of
significant technological advance of considerable economic interest, 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, respectively.
Noticeably, the new product rule imports in Art. 82 also the consideration of
ensuring some advantage from access. None the less, the definition of the new
product is much broader than the one in patent law, as it is not limited to patented
products or processes constituting a significant technological advance, and it
can even relate to potential goods. It is not restricted to dependent patents, but
may be applied to downstream innovation as distinct from improvements.48
It should be noted, however, that market definition will preserve its centrality
as it will in turn determine the availability of substitutes, the risk of elimination
of competition and hence also the indispensability of the product or process in
question. 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, without a real alternative in the market.
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; the
47
See also the endorsement of this view with the introduction of the innovation
markets approach in the USA discussed below, at section 7.2.2.2.
48
See above at section 7.2.2 on the new product requirement and the IMS definition.
See also Chapter 3 on patent CL provisions.
190
extent to which the consumers will benefit by virtue of access; 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.
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, but also for investigations of
cross-licences and patent pools, and potentially for mergers.49 Indeed, in the
EU, unilateral restraints on innovation have been condemned on several occasions,50 either because they involved the acquisition of control over potentially
competitive innovations,51 the prevention of downstream innovation,52 or the
foreclosure of innovation by raising barriers to entry.53
In brief, the issue of research tools introduces a new element into the analysis
of refusals to deal or to grant access. The new element centres on the fact that
it is not concerned with the restriction of a downstream existing product or
technology market, either by virtue of distribution or otherwise, 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, in some cases, as
new innovation markets.
In the case of research tools, access is mandated for potential innovation and
this, similar to the traditional cases where access is mandated to a facility, contains assumptions about the type of structure that is more conducive to market
developments (whether product, technological or innovation).54
49
See, for example, innovation markets approach in merger review and the consideration paid to potential competition. J.H. Barton, Patents and Antitrust: A rethinking in
light of patent breadth and sequential innovation, 65 Antitrust L. J. 44 (1997), who proposes that attention should also be paid to technology lines and not only product market
or technology or innovation markets. 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.
50
See M. Dolmans, Antitrust and the Suppression of Technology in the US and Europe: Is there a Remedy? Restrictions on Innovation: An EU Antitrust Approach, 66
Antitrust L. J. 455 (1998).
51
Case 88/501 Tetra Pak I (BTG license) [1988] OJ I.272/27.
52
Magill (1995) op. cit.
53
Microsoft decision (2004) op. cit.
54
In conventional antitrust enforcement there is a broad consensus on the relationship between market structure and market performance. In contrast, this is seen as more
contentious in innovation market enforcement and, for this reason, these structural assumptions are seen as being more dangerous. In view of the role of technological change,
however, in todays 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. R.W. Davis, Innovation Markets
and Merger Enforcement: Current Practice in Perspective, 71 Ant. L. J. 677 (2003),
191
192
In the context of mergers, the innovation markets approach aims to assess the
effects of a merger on the incentive for R&D and innovation. 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.
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, or in the elimination of one or more parallel research
tracks, when such a reduction of resources, or elimination of a line of research, 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); and second, 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.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.
This approach is contentious,57 as unlike traditional oligopoly theory applied
to markets for existing products, 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.58
Similarly, there have been several cases where mergers have raised concerns in the
field of R&D and innovation. Commission Decisions Shell-Montedison, OJ 1994 L.
332/49, M.555 Glaxo-Wellcome and others, OJ 1995 L. 2985, Crown Cork OJ 1995 L
75/39, Ciba-GeigySandoz OJ 1996 C.102/737, M.984 DuPont-ICI, OJ 1997 L. 2985,
M.468 MSG-Media Services OJ 1994 L. 364/01, M.877 Boeing-McDonnell-Douglas OJ
1997 C.59/877. In all of these cases, a divestiture or licence remedy was imposed. However, the Commission has also allowed collaborations where the agreements contained
some efficiencies, such as Konsortium OJ 1990 L. 228/31.
56
R.W. Davis, Innovation Markets and Merger Enforcement: Current Practice in
Perspective, 71 Ant. L. J. 677 (2003) pp.6778
57
Criticism and more extensive analysis of the use of the approach is beyond the
scope for present purposes. For alternative views on the approach see T.N. Dahdoud and
J.F. Mongoven, The Shape of Things to Come: Innovation Market Analysis in Merger
Cases, 64 Antitrust L. J. 405, 1996; M.H. Morse, The Limits of Innovation Markets, at
www.dbr.com; E. Kwoka, Non-Incumbent Competition: Mergers Involving Constraining
and Prospective Competitors, 52 Case W. Res. L. Rev. 173 (2001).
58
D.L. Wald and D. L. Feinstein, Merger Enforcement in Innovation Markets: The
Latest Chapter Genzyme/Novazyme, The Antitrust Source, July 2004, p.4. On a debate
between the optimal market structure for innovation see section 7.1.3. above. See also
193
194
195
66
There is no definitive test for dividing the optimal level of protection for IP.
Logically the law should not place antitrust constraints on a monopolists right to refuse
to license if such constraints would undermine the IP laws. Conversely, 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. M. Lao (1999) op. cit. p.210.
67
See Chapter 5 on alleged harm to incentives to innovate. See also C. Springman,
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, DOJ/FTC Hearings on IP
and Competition Law. The author questions whether innovation incentives are sensitive
to narrow refusal to deal liability, leading to a significant reduction in incentives across
industries. He also refers to Klemperers model (P. Klemperer, How Broad Should the
Scope of Patent Protection Be? 21 Rand J. Econcs 113 (1990)) that suggests that a small
reduction in the patent holders right to profit may reduce deadweight loss even more.
Hence, the assumption that the IP right to exclude is complete may prove to be incorrect.
A similar argument is levelled with regard to the commensurability and proportionality
of the incentive to innovate and the benefit form immunity. See A. Arora, 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, DOJ/FTC Hearings on IP and Competition Law, and D.J. Gerber (1988) op. cit.
See also T.C. Bailey (2001) op. cit. p.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. There is no reason to assume that the present level of research activity is in fact the socially optimal level.
68
An alternative may be a patent compulsory licensing provision in the case of
necessary inputs for follow-on or downstream innovation.
196
197
77
In The Matter Between Mpho Makhathnini, Nelislwe Mthethwa, Musa Msomi,
Elijah Paul Musoke, Tom Myers, AIDS Healthcare Foundation Limited, and GlaxoSmithKline (Pty) Ltd, Glaxo Group Limited, Case Number 34/CR/Apr04, in which the South
African courts found GlaxoSmithKlyne to have abused its dominant position by virtue
of the excessive pricing of drugs. See also South African Competition Tribunals decision
and order in Pharmaceutical Wholesalers and Glaxo Wellcome, case 68/IR/Jun00, 18
June 2003 at www.comptrib.co.za/decidedcases/pdf/68IRJUN00kinesis.pdf.
See Competition Commission finds pharmaceutical firms in contravention of the
Competition Act, 16 October 2003, available at http://www.cptech.org/ip/health/sa/
cc10162003.html and Competition Commission concludes an agreement with pharmaceutical firms, 10 December 2003, available at http://www.cptech.org/ip/health/sa/
cc12102003.html.
78
Ibid. 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; (2) grant up to three more voluntary licences on terms no less favourable than
those granted to Aspen Pharmacare, based on reasonable criteria which include registration with the Medicines Control Council and the meeting of safety and efficacy
obligations; (3) permit the licensees to export the relevant antiretroviral drugs to subSaharan African countries; (4) where the licensee does not have manufacturing capability
in South Africa, GSK will permit the importation of the drugs for distribution in South
Africa; (5) permit licensees to combine the relevant ARV with other antiretroviral medicines; 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, at www.
cptech/ip/health/cl/recent-examples.html.
198
In this way, specific health concerns associated with the effect of patents in
the biopharmaceutical industry may be mitigated by competition law and the
obligations relating to the right to health.
This interpretation of competition law, however, is more likely in cases involving dissemination concerns where the effect on health would be apparent,80
rather than in cases such as research tools where the effects on health are more
indirect and can only be speculated.81 None the less, 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.
In the IMS case, the interpretation of the new product requirement as extending to intention to produce new goods, and the interpretation of a market as
including a potential or even hypothetical market could be seen as a step in
this direction. 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.
Consistent with the above, in the Discussion Paper on the application of Art.
82 to exclusionary abuses it is stated that when it comes to refusal to deal with
IPR: a refusal to licence an IPR protected technology which is indispensable
as a basis for follow-on innovation by competitors may be abusive even if the
80
See, for example, in 1973 when the Monopolies Commission in the UK required
Roche to lower the price of its patented Librium and Valium to the NHS. Chlordiazepoxide and Diazepam (H.C. 197, 1973). The Monopolies and Mergers Commission was the
forerunner of the present Competition Commission.
81
As explained above, the crucial element in the case of research tools is the indispensability of the input for downstream innovation. Classical antitrust cases in the
biopharmaceutical industry, however, have rather been concerned with products which
were present on the market. In this context, the Commission has distinguished between
the markets for the production and sale of approved products, R&D into new therapeutic
compounds and wholesale distribution of medicines. Drug markets usually correspond
to the therapeutic classes, although reimbursement policies are also relevant. In the case
of research tools however, the novel element of the analysis is the future potential innovation element. In addition, unlike traditional antitrust cases where markets are still quite
fragmented along national lines in this industry, with prices differing according to the
pricing policies of each Member State, in the case of research tools, the market may
consist of the global innovation market. See J. Gatti, Mergers, Mergers, Joint Ventures
and the Pharmaceutical Industry, 1996 EU Pharmaceutical Forum 1996 at http://europa.
eu.int. See also S.A. Singham, Competition Policy and the Stimulation of Innovation:
TRIPS and the Interface Between Competition and Patent Protection in the Pharmaceutical Industry, 26 Brooklyn J. Intel L 363, 2000; K. Maskus, Parallel Important in
Pharmaceuticals: Implications for Competition and Prices in Developing Countries,
Report to WIPO 2001, at http://www.wipo.org/about-ip/en/studies/pdf/ssa_maskus_pi.
pdf.
199
82
Commission Discussion Paper on the Application of Art. 82 to Exclusionary
Abuses, December 2005, para. 240.
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232
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233
234
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235
236
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237
238
Bibliography
Index
AAAS (American Academy of Arts and
Sciences) 85
ABA (American Bar Association) 21, 22,
26, 126, 181
Abbott, F.M. 32, 58, 64
abuse of dominance
compulsory licensing and 150, 15961
essential facilities doctrine and 1678
proportionality and 1478, 1567
refusal of access to essential services
and 1546, 158, 1625
refusal to license and 15051, 1534,
163, 169
refusal to supply and 1479, 1514
requirements for 152, 1534, 156, 165
Treaty of Rome and 103
vertical integration and 1457, 149,
151
acceptability
right to health and 78
access
essential services, to, refusal of 1546,
158, 1625
see also technology access
accessibility
right to health and 78
ACIP (Advisory Council on Intellectual
Property) 47, 51, 52, 53, 54
Adcock, M. 88
agreement see MTA; TRIPS
Aguilera, M.C. 9
ancillary activity
reservation of, leverage cases and duty
to deal 13033
Anderman, S. 101, 106, 116, 129, 157,
160, 179
anti-commons
property rights and 10910
research fragmentation and 5, 6
anti-competitive conduct
remedy for, compulsory licensing as 63
antitrust
aims 101
compulsory licensing as interchangeable remedy with 189
control
effect on incentives to innovate,
IPRs and competition law
11619
recent recognition of, IPRs and
competition law 11921
essential facilities doctrine and 1334
intellectual property and, transition
from separate to unified fields
115
law see competition law; duty to deal
technology access problems and 1856
Aoki, R. 180, 186, 196
Areeda, P. 134, 135
Arora, A. 195
Arrow, K.J. 49, 117, 180
Attwood, J. 166
Austin, D. 22
Australia
compulsory licensing 64
experimental use exemption 47
Australian Department of Health and
Ageing 47
Austria
compulsory licensing and experimental use exemption provisions 66
see also EU
availability
right to health and 78
Ayres, I. 117, 182
Bailey, T.C. 55, 56, 177, 195
Baily, M. 28
Balto, P. 193
Banks, K. 104
Barinaga, M. 9
Barton, J.H. 32, 190, 196
239
240
Index
Battcock, R. 65
Belgium
duty to deal 154, 1612
see also EU
Bendekgey, L. 10
Benkler, Y. 23, 181
Bergman, M.A. 135, 164
Bhatnager, 59
Biotechnology Industry Organization 4
Birdsall, N. 71
Blackburn, R. 8, 177
Bloche, M.G. 83, 94
blocking patents doctrine
patent protection and 37, 49
see also patent
Boone, J. 126, 180
Boyle, J. 108
Brazil
compulsory licensing 59
right to health 94
Britain see UK
Britz, J. 90
Calabresi, G. 182
Campbell, E.G. 6
Carl, P. 78, 81
Carlson, S.C. 34
Carlton, D.W. 123, 124, 131, 193
case law
essential facilities doctrine cases, duty
to deal 122
intellectual property 946
patent system, technology access
problems impact on 18990
public health 934
refusal to deal under Art 82 EC 1479,
1512, 1713
denial of access 1546, 158, 1625
no effect on trade 150
refusal to continue joint venture
with competitor 1567
refusal to fully meet supply requests
to prevent parallel imports 170
refusal to license 15051, 1612,
1659
refusal to provide interoperating
information 169
refusal to share spare parts with
independent provider of
aftermarket support 1534
Index
241
242
Index
Index
243
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, Social and Cultural
Rights)
property rights and, public interest
limitations 86
right to health elements and 78
right to health sources and 756
right to health strengthening and 81
right to property and IP as human right
and 84, 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 889
indispensability
duty to deal and technology access
problems and 186
essential facilities doctrine and
1337
objective justification 13941
two-market requirement 1389
information
access see technology access
goods, IPRs and competition law
10912
see also knowledge
innovation
nature of biopharmaceutical 268
new product, duty to deal 1412
patenting and 2831
see also cumulative innovation;
follow-on innovation; patent
innovation incentives
antitrust control effect on 11619
compulsory licensing and 118
innovation markets
duty to deal and technology access
problems and 1914
optimal structure 17981
see also market
invention
commercialization, as patent system
rationale 223
dissemination
patent system goals and 234
patent system rationale, as 22
motivation, as patent system rationale
212
orderly cumulative development of, as
patent system rationale 23
see also patent
IP (intellectual property)
European cases on, fundamental rights
analysis and 946
human right, as, right to property and
846
system, competition embedded in
114
see also property
IPRs (intellectual property rights)
competition law and 101, 103, 121
antitrust control 11621
competition embedded in IP system
114
courts practice 1036
EC Treaty provisions 102
exclusivity, patronage, procurement
and property and 10912
information goods, patronage,
procurement and property and
10912
IPRs like other property rights for
purposes of competition
11213
public goods
market failure and 1079
patronage, procurement and
property and 10912
transition from separate to unified
fields 11416
see also rights
Ireland
duty to deal 1567, 15961
see also EU
Israelsen, N.A. 41
Italy
compulsory licensing and experimental use exemption provisions 67
see also EU
James, E. 71
Japan
compulsory licensing 61
Jehoram, H.C. 923
Jensen, E. 28
Julian-Arnold, G. 57, 59, 60, 62, 64
Junnarker, S. 8
Kallaugher, J.J. 134, 1589
Karjala, D.S. 1856
Karp, J.P. 183
Kass, L.R. 77
Kattan, J. 191
Kelley, D. 72
Kenney, P.J. 87
Kenya
generic products and drug prices 82
Kern, M. 39, 60, 645
Kezsborn, A. 134
Killick, J. 139
Kind, J.L. 181
Kitchm E.W. 21, 23, 24
Klemperer, P. 24, 117, 195
Knable Gotts, I. 191
knowledge
public good, as 1078
see also information
Ko, Y. 11
Korah, V. 56, 1489, 162
Kraus, J.G. 191
Kubalski, J. 51
Kukies, J. 26, 29
Kwoka, E. 192
Ladas, S.P. 59
Laherty, C. 42
Lang, J.T. 159
Lao, M. 185, 195
Lawson, C. 6
Leaffer, M. 184
Leary, V.A. 72, 73
Leddy, M. 138
legislation
Act Against Restraint of Competition
(Germany) 129
Affordable Prescription Drugs Act
(USA) 623
African Charter on Human and
Peoples Rights (Banjul Charter)
72
Index
245
246
Index
market
failure, public goods and, IPRs and
competition law 1079
structure, optimal for innovation,
technology access problems and
17981
see also innovation markets; twomarket requirement
market-oriented experiments
experimental use exception and 40
Marquandt, P. 138
Marshall, E. 13
Maskus, K. 198
Maurer, S. 181
McFetridge, D.G. 56
McGowan, D. 191, 193
McLeod, J.M. 8
Melamed, D. 182
Merges, R.
IPRs and competition law and 110, 111
patent balance and 24
patent protection and 48, 4950, 51,
52, 53
research tools and 8
Merkin, R. 101
Metz, J.F. 10
Miller, C.G. 1056
Mongoven, J.F. 192
Montgomery, J. 77, 79
Morse, M.H. 192
MTA (material transfer agreement)
research tools and 7
Mueller, J.M.
duty to deal and technology access
problems and 181, 183, 184
patent protection and 36, 47
research tools and 7, 8, 9, 11, 13, 17
Mully, T. 83, 856, 95
Mwalimu, U.A. 82
Myrick, M.E. 104, 105
Nacke, T. 12930, 157
National Institutes of Health (NIH)
(USA) 13, 183
Nelson, L. 1213
Nelson, R.R. 24, 111
Netherlands
compulsory licensing and experimental use exemption provisions 69
see also EU
new product
innovation, duty to deal 1412
potential consumer demand existing,
preventing emergence of, duty to
deal and technology access
problems and 187
see also product
Newberg, J.A. 115
Nicol, D. 6
Nielsen, J. 6
Nigeria
right to health 80
NIH (National Institutes of Health)
(USA) 4, 7, 17, 177, 183
non-use
compulsory licensing role for 59
Norway
compulsory licensing and experimental use exemption provisions 67
Nuffield Institute of Biotechnology 4, 5,
910, 11, 13, 14, 17
objective justification
absence of, duty to deal and technology access problems 188
abuse of dominance and 148
essential facilities doctrine and
indispensability requirement and
13941
parallel trade restrictions and 170
refusal to supply and 149
obligations see duties
OECD (Organisation for Economic
Cooperation and Development) 3,
13, 27, 29, 52, 134
Ordover, J. 24
ordre public
right to health and 70, 87, 96
Orsengo, L. 26, 27
Oxfam 31
Pammoli, F. 26, 27
Parisi, F. 126, 180
Pate, G.N. 46
patent
blocking, doctrine, patent protection
and 37, 49
breadth, patent system goals and 24
dependent 49, 65
importance, overstating 313
Index
247
248
Index
property
public goods, exclusivity and information goods and, IPRs and
competition law 10912
see also IP; right to property
property rights
specific subject matter doctrine and
115
see also IPRs; rights
proportionality
abuse of dominance and 1478, 1567
public goods
market failure and, IPRs and competition law 1079
patronage, procurement and property
and, IPRs and competition law
10912
public health
case law, patent law and right to health
934
compulsory licensing and 70
see also health
public interest
IP as human right and right to property
84, 86
quality
right to health and 78
R&D (research and development)
cumulative innovation and 37, 1618
biomedical research tools 912
defining research tools 78
patent trends effect on patent
balance for research tools
1215
see also research
Rabinow, P. 9
Rai, R.K. 4
Rapp, R. 193
Ratner, J. 139
Reichman, J. 54, 59
remedy
anti-competitive conduct, for, compulsory licensing as 63, 185
interchangeable, compulsory licensing
and antitrust 189
research
fragmentation, biopharmaceutical
R&D and 57
Index
249
250
Index
Sweden
compulsory licensing and experimental use exemption provisions 68
see also EU
Switzerland
compulsory licensing 60, 61, 69
experimental use exemption provisions
69
patents importance, overstating 33
Talley, E. 182
Tandon, P. 55
Taq (Thermus aquaticus YTI DNA
polymerase)
research tool, as 9
Taylor, C.T. 56
technology
PCR 8, 9
significant advances, CL role in 5961
technology access
competition law, human rights
approach to 1969
compulsory licensing as safety net
177, 1956
duty to deal (Art 82 EC) and see duty
to deal, technology access
problems and
impeded, patent protection and 1415
innovation and 1617
license stacking and 56
research tools and patent system,
conclusions
antitrust law see duty to deal
innovation, optimal market structure
for 17981
patent law 1815
patent system gap 179
research tool particularity 1778
see also access
Thailand
generic products and drug prices 82
Toebes, C.A. 71, 73, 74
Tom, W.K. 115, 193
Treaty of Rome (EC Treaty)
abuse by dominant undertaking and 103
Art 82 see duty to deal
existence/exercise distinction and 104,
105, 106
IPRs and competition law and,
relevant provisions 102
technology access problems 194
two-tier R&D system, cumulative
innovation and 3
use see EUE; non-use
Van Boven, T.C. 73
Venit, J.S. 134, 1589
vertical dilemma
patent system goals and 23
vertical integration
abuse of dominance and 1457, 149,
151
leverage cases and 1312
Vinje, T. 104, 106
Voissiues and Partner 12
Walsh, J. 3, 6, 17
Walter, W.G. 61
Weissbrod, D. 90
Weisburst, S. 33
Welch, L.T. 41
Index
251
Whish, R. 164
Whitehead, M. 77, 88
Whitener, M. 131
WHO (World Health Organization)
compulsory licensing and health
emergencies and 62
Constitution 71, 73, 76
Declaration of Alma-Ata on Primary
Health Care 74
innovation and patenting and 31
right to health and 778, 79, 82, 87
WIPO (World Intellectual Property
Organization) 33
WTO (World Trade Organization) 312,
889, 89, 90, 94, 96
Yamin, A.E. 77, 78, 79, 81, 83, 88
Yi, S. 126, 180
Yoo, C.S. 133
Zanon di Valgiurate, L. 14950