Across the globe, disputes have broken out between manufacturers of smartphones and tablet computers (such as Apple and Samsung) about “standards-essential patents”, and whether competition law limits their enforcement.
In recent years, it has become clear that competition law puts constraints on the freedom of a holder of intellectual property rights to enforce those rights.
- In certain circumstances, the holder of an IP right may be obliged to license that IP right to another party (often a competitor), even if it does not want to do so – where refusal to license would be anti-competitive. This was the outcome of the long-running Microsoft case under EU competition law where Microsoft was obliged to grant competing manufacturers of “work group” servers access to the interoperability codes necessary for work group servers to be compatible with the Microsoft operating system, even though Microsoft had IP rights in those codes. In 2007, the EU’s Court of Justice ruled that:
- “although undertakings are, as a rule, free to choose their business partners, in certain circumstances a refusal to supply on the part of a dominant undertaking may constitute an abuse of a dominant position”, infringing the prohibition on such abuses9.
- However, it is only in exceptional circumstances that competition law will override IP rights. There is a balance to be struck here, in terms of public policy. On the one hand, IP rights are designed to reward, and incentivise, innovation, and the case for protecting IP rights is that, if competitors are allowed to “freeride” on the IP right, that reduces the incentives to innovate. On the other hand, if enforcing the IP right would squeeze out all competition, that too would limit the prospects of innovation and so, in what the EU’s Court of Justice’s Microsoft judgment described as “exceptional circumstances”, the exercise of intellectual property rights will sometimes be regarded as an unlawful abuse of a dominant position, infringing competition laws.
The “smartphone wars” of the past year hinge precisely on the balance between these considerations. The smartphone and tablet manufacturers who hold standards-essential patents are reluctant to share them with their competitors; the competitors, on the other hand, see access to those patents as indispensable to being able to compete effectively. Attempts by the patent holders to take proceedings under intellectual property law against those infringing their patents have been met with the response that enforcing the patents is anti-competitive and so violates competition law. Litigation has commenced in various countries, and complaints have been made to competition authorities worldwide. On 27 March 2012, the European Commissioner for competition, Joaquin Almunia, said:
“The holders of standard-essential patents have considerable market power. This market power can be used to harm competition… I am determined to use antitrust enforcement to prevent such holdup by patent holders”.
Meanwhile, in Germany, in February 2012, the court of appeals in Karlsruhe ruled that Motorola Mobility, which had bought a patent infringement procedure against Apple seeking to limit sales of some iPad and iPhone models in German stores, was instead obliged to license the patents concerned to Apple under competition law, and on terms that Apple had proposed10.
It remains to be seen how the courts and competition authorities worldwide will resolve this dispute, while retaining the delicate balance between encouraging innovation through the enforcement of IP rights, but not so much that it stifles competition and so suppresses the potential for greater innovation.