An extract from The Intellectual Property and Antitrust Review, 5th Edition

Licensing and antitrust

i Anticompetitive restraints

As mentioned above, Portuguese law, both in the area of IPRs and antitrust, is largely based on European law. Within this context, under Portuguese law, anticompetitive restraints related to licensing agreements may fall under either the prohibition of agreements and concerted practices (Article 9), or the prohibition of abuse of dominant position (Article 11).

Article 9 prohibits anticompetitive restraints in agreements between undertakings, including licensing agreements, unless they are justified under Article 10 of the Competition Act, which corresponds to Article 101(3) of the TFEU. Consequently, competing companies under a licensing agreement shall not, directly or indirectly, determine as their object or effect, among others, to restrict the parties' ability to determine its prices, to restrict the licensee's ability to carry out R&D or to allocate markets or customers.

In addition, Article 11 of the Competition Act prohibits abuse of dominant position. Under this provision, several types of behaviours may be deemed unacceptable within the context of licensing agreements. Among others, two types of practices are expressly prohibited by Article 11(2):

  1. the application of 'dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage' (Article 11(2)(c)), including the granting of licences under discriminatory conditions, as referred in the GDA/MEO case; and
  2. to refuse 'access for another undertaking to a network or other essential facilities that it controls when appropriate payment for such is available' (Article 11(2)(e)), as further explained below, such prohibition covers the refusal of access or licensing of IPRs.

In Portugal, anticompetitive restraints in breach of Articles 9 and 11 are sanctioned with fines up to a maximum of 10 per cent of the offending undertaking's turnover in the year preceding the decision. The Competition Act also provides for ancillary penalties, as the prohibition up to two years on the right to take part in public tenders, as well as the publication of the infringement decision in the Portuguese Official Gazette and in national, regional or local newspapers.

ii Refusals to license

The refusal to license may be considered an abuse of dominant position under Article 11 of the Competition Act. As in the EU, in Portugal the essential facilities doctrine (infraestruturas essenciais) sets out the obligation to ensure that competitors have access to essential infrastructure controlled by a dominant undertaking.

Unlike the TFEU, Article 11(2)(e) specifically prohibits a dominant undertaking to refuse 'access for another undertaking to a network or other essential facilities that it controls when appropriate payment for such is available', whenever this other undertaking cannot, as a consequence, compete with the dominant undertaking, unless it can demonstrate that such access cannot reasonably be provided.

It is recognised that the Article 11(2)(e) prohibition covers the refusal of access or licensing of IPRs, which may constitute an offence within the essential facilities doctrine. Under this framework, two types of practices may lead to abusive behaviour of a dominant undertaking: the refusal to license itself and the refusal to license under abusive conditions.

To this end, a refusal to license will be considered abusive if the information or product at stake is an essential resource for the exercise of a certain activity and the refusal, not objectively justified, is likely to exclude all effective competition within the relevant market or to limit, or both, or to prevent the development of a new product.

As for the refusal to license under abusive conditions, this provision essentially covers situations of unfair or discriminatory conditions applied to the licensing of IPRs and may fall under Article 11(2)(c) or Article 11(2)(e) of the Competition Act, as described above. Such abuse may be constituted by attempts to license an IPR at higher prices or to engage in price discrimination.

iii Unfair and discriminatory licensing

Unfair and discriminatory licensing practices as an abusive behaviour from a licensor in a dominant position and owner of IPR undertaking may fall under Article 11 of the Competition Act, as well as under Article 102 of the TFEU.

Abusive discriminatory licensing may be found where a licensor in a dominant position applies different conditions and prices to licensees placed in similar situations.

A very relevant case regarding discriminatory licensing of copyright was decided in 2018 by the Competition Court, which followed the ECJ preliminary ruling decision, in the MEO/GDA case.

The case began in 2014, when MEO, one of the major Portuguese telecom companies and the provider of paid television signal transmission service and television content, submitted a claim to the AdC. MEO claimed that GDA, the Portuguese Cooperative for the Management of the Rights of Performing Artists, which centralises the licensing rights of performing artists in Portugal, had abused its dominant position by applying dissimilar conditions relating to the referred licensing to MEO, in comparison to its direct competitor in the market for paid TV platforms NOS; that is, by charging MEO higher amounts of royalty that had arisen from the use of IPRs, which was in breach of Article 11(2)(c) of the Competition Act and Article 102(2)(c).

In March 2016, the AdC concluded that GDA's behaviour did not distort competition, namely because the difference in tariffs did not place MEO at a competitive disadvantage, in particular because the fees represented a relatively low percentage of the total costs borne by MEO. Subsequently, MEO claimed that the AdCs had misinterpreted Article 102(2)(c) of the TFEU and had filed an appeal to the Portuguese Competition Court, which led the Competition Court, for the first time since its creation in 2013, to request a preliminary ruling to the ECJ related to the concept of competitive disadvantage.

In this context, in April 2018, the ECJ stated that discrimination by an undertaking is abusive only when it creates a distortion of competition between trading partners that are competitors. To this end, the mere occurrence of an immediate disadvantage that affects those companies to which higher prices have been applied does not mean that competition is distorted, but that all relevant circumstances must be analysed, including the relevance of the amounts at stake in MEO overall cost structure.

Based on the ECJ interpretation, the Portuguese Competition Court decided in June 2018 that given the relative weight of the IPRs' licensing prices offered by GDA, such differentiation was unsusceptible of affecting MEO's effective competitive position on the pay-TV platforms market. Indeed, according to the Competition Court's decision, between 1 January 2010 and 31 December 2013, the amounts paid annually to GDA by MEO in the context of the wholesale services represented between 0.71 per cent and 2.34 per cent of the costs incurred by MEO for the provision of the retail access service to pay-TV signal, and between 0.03 per cent and 0.08 per cent of the revenues earned by MEO in the scope of the provision of such retail service.

In addition, the market share of MEO in the retail service of access to the pay-TV signal market increased during the period under analysis, from around 25 per cent to more than 40 per cent, while the respective market share of the NOS Group decreased in the same period from more than 60 per cent to less than 45 per cent. The AdC had also relied on this data in the case's original decision.

The interpretation provided by the ECJ and the Competition Court's decision seems to have opened the door for dominant undertakings that may justify differentiated pricing policies, considering that customers – for whom the provided products or services provided represent a less significant portion of their total costs – are able to assume higher fees, without this constituting a competitive disadvantage.

iv Patent pooling

Patent pooling agreements – as licensing agreements that provide a platform for the parties notably to fix prices, partition the market or reduce innovation – may fall under Article 9 of the Competition Act and Article 101(1) of the TFEU. In any case, according to the TTBER guidelines 'patent pools can also play a beneficial role in the implementation of pro-competitive standards', that is, patent pools can have anti- or pro-competitive effects. Although the EC guidelines are not binding, it is likely that the AdC and other national enforcers take into account the EC approach, as there is no specific provision under Portuguese law. According to this practice, these recommendations are likely to be followed by the AdC and to serve as guidance in patent pooling cases that may arise at a national level.

v Software licensing

Portuguese competition law does not provide specific provision regarding antitrust issues arising from software licensing. However, based on the above mentioned, as a licensing agreement, it must comply with general competition rules and may be analysed under the general prohibitions of anticompetitive restraints.

In 2015, in the National Association of Pharmacies (ANF) case, the AdC addressed a case related, even if incidentally, to the conditions of access to data obtained through a software licensed within the ANF Group, allowing an exclusive right of access to pharma data gathered by each pharmacy.

In fact, ANF, the largest association of pharmacies operating in Portugal, and three other undertakings of the same group, had allegedly abused their dominant position through margin squeezing in the market of commercial data of pharmacies, and in the markets of pharma market studies based on this data. In short, ANF made the access to pharmacy data to IMS Health, Lda difficult. IMS Health, Lda provides market studies in the health sector, and is an undertaking competing with HMR (a company created within the ANF Group to operate in the market for the production and sale of market research based on commercial pharmacy data). The AdC considered that the ANF Group's practice was abusive and had led to upstream and downstream markets foreclosure, and an overall fine of €10.3 million was imposed. The Competition Court upheld the AdC's decision while reducing the amount of the fine to €6.89 million due to the nature and size of the affected market. ANF appealed this decision and in June 2017, the fine was reduced a second time by the Lisbon Court of Appeal, on the grounds that the requirements to establish Farminveste's parental liability were not met, thus revoking the fine of €6.08 million specifically imposed on Farminveste.

The Portuguese Court of Audits outlined the fundamental role played by competition within software licensing proceedings through public tenders. Indeed, in 2018, the Court denied a direct adjustment required by the Portuguese Tax and Customs Authority in relation to the acquisition of software licences, through a public tender, on the grounds that the tender procedure launched by the Tax Authority for the acquisition of such software licences infringed the principle of competition. The Court raised this issue mainly on the grounds of a substantial difference between the financial terms of the Tax Authority and the licensor's contract and the corresponding terms of the Software Licensing and Related Services Framework Agreement.

This software licensing procedure was subject to the general principles of public procurement according to which 'to public procurement the principles of transparency, equality and competition shall apply in particular'. In this context, the Court considered that the offer for the tender was formulated by the Tax Authority in a way that allegedly excluded competitors, favouring Oracle, because the three companies that responded to the tender are all part of the Timestamp group, the largest representative of the Oracle technology in Portugal. Additionally, the Court mentioned that it was likely to lead to market foreclosure because it restricted the access to the tender to a limited number of pre-qualified companies.

Although the Court of Audits is not competent to apply the Competition Act, it denied the authorisation of authorising an expenditure related to software licensing, owing to the restriction of competition induced by the respective procurement procedure. To this end, the Court of Audits has also ordered that its decision be brought to the attention of the Competition Authority.

vi Trademark licensing

Similar to the other types of IPR licensing, trademark licensing is not explicitly provided under the Portuguese Competition rules and this relationship is mainly governed by the EU rules.

As for the general rules on trademarks, the Industrial Property Code contains specific limitations on IPRs, derived from competition rules, such as the concept of exhaustion of a trademark. According to Article 253 of the Industrial Property Code, the owner of a trademark cannot prevent the use of its trademark for products sold within the European Union with that same trademark, provided there was a previous authorisation by the owner of the trademark.

Specifically in relation to franchise agreements, these agreements normally include a combination of different vertical restraints, in particular selective distribution, non-compete obligation and territorial exclusivity.

In principle, anticompetitive restraints, such as non-compete obligation, territorial restrictions and price-fixing, are banned by Article 9 of the Competition Act. However, in line with the EU law, the VBER is directly applicable and these restrictions provided in a franchise agreement are not covered by Article 9, when the franchisor has a market share of less than 30 per cent.

In any case, hardcore restrictions that may eliminate intra-brand competition, such as price maintenance, restriction of cross-supplies between distributors or exclusivity, are not allowed and cannot benefit from the Block Exemption.

In 2014, the AdC had identified a set of competition concerns allegedly related to franchise agreements of the Portuguese supermarket chain Dia Portugal Supermercados. The AdC found that information asymmetries may have induced the franchisees to understand recommended and maximum prices as fixed prices. In this context, the AdC considered that the absence of price competition between the franchisees of Dia Portugal was likely to prevent more efficient retailers from entering the market or reaching a sufficient size through the practice of lower prices, as well as to facilitate the adoption of collusive behaviour. The AdC closed the case taking into account the commitments undertook by the franchisor not to bind its franchisees as to the implementation of recommended or maximum prices.

As for the non-competition obligation in respect of goods or services purchased from the franchisee, it is not covered by Article 9 of the Competition Act, where such obligation is necessary to maintain the common identity and reputation of the franchised network, provided it does not exceed the duration and scope of the franchise agreement itself.

In this context, the Portuguese Supreme Court of Justice has already declared null and void a non-competition clause on the grounds that such a clause was invalid – in violation of competition law – because it did not underlie a transfer of know-how that justified such protection.

In another case, the Supreme Court of Justice concluded that the non-compete clause was void by prohibiting post-term competition beyond the territorial limits indispensable to the protection of the franchisor's intellectual property, and accordingly ordered a reduction in the scope of the clause.