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

Licensing and antitrust

According to the KPPU Guideline on the Exemption of Intellectual Property Agreements, the exemption provided by KPPU would only be applicable if the licence agreement was made in line with the intellectual property laws. According to intellectual property laws in Indonesia, intellectual property licence agreements must be recorded at the relevant intellectual property office to bind third parties. However, intellectual property owners have only been able to file recordal requests since the issuance of Minister of Law and Human Rights Regulation No. 8 of 2016 on Requirements and Procedures for the Recordal of Intellectual Property Licence Agreements and Government Regulation No. 36 of 2016 on IP Licence Recordal. In addition to this, license recordal is also regulated under Government Regulation No. 36 of 2018 on IP License Recordal.

The purpose of the requirement to record intellectual property licence agreements is to bind third parties. From the perspective of third parties, recordal automatically serves as notification that there is an intellectual property licence arrangement in place between the intellectual property owner as the licensor and the licensee in Indonesia – which would be important if the intellectual property owner needed to show proof of use of its intellectual property in Indonesia. However, as yet there have been no notable cases before the commercial courts where a licence agreement was overruled because of non-recordal issues. Moreover, KPPU has not issued any notable decisions in which it considered an intellectual property licence agreement as anticompetitive on the basis of non-recordal issues.

Although the following discussion is based on the KPPU Guideline on the Exemption of Intellectual Property Agreements, in practice, KPPU guidelines do not restrain KPPU from adopting a different approach to particular cases if deemed necessary. Therefore, the views expressed in the Guideline might not reflect how KPPU will act in a particular case.

KPPU is in the process of reviewing and revising all of its guidelines. A revision of the KPPU Guideline on the Exemption of Intellectual Property Agreements may be issued later in 2020.

i Anticompetitive restraints

As stated previously, the Anti-Monopoly Law exempts agreements related to intellectual property, but KPPU regards such exemptions as not being absolute, as a licence agreement would still be subject to the application of the Anti-Monopoly Law if it were to cause conditions of actual monopolistic practices or unfair business competition. As regards the Anti-Monopoly Law, business actors should not prevent other competitors from carrying out business activities in the same relevant market, or from carrying out development of technology, or prevent consumers from engaging in business relationships with competitors, as such conduct may lead to monopolistic practices or unfair business competition.

According to the KPPU Guideline on the Exemption of Intellectual Property Agreements, intellectual property licence agreements may be subject to the application of the Anti-Monopoly Law if the intellectual property is deemed as an essential facility and the owner refuses to license it, or the licence agreement leads to exclusive dealing.

The KPPU Guideline on the Exemption of Intellectual Property Agreements provides some examples where licence agreements may lead to exclusive dealing, such as pooling licensing and cross-licensing, tying arrangements, material supply limitation, production and marketing limitation and grant-back licensing. According to this Guideline, it should be identified whether the licensed intellectual property is deemed as an essential facility. An essential facility in general is a facility that is required to run a business and not economical to duplicate.

Specifically in relation to franchise agreements, according to KPPU Guideline No. 2 of 2009 on Exemption of Franchise Agreements (the KPPU Franchise Guideline), a franchise agreement cannot be exempted from the application of the Anti-Monopoly Law if it consists of provisions relating to purchase obligations or unrelated to the intellectual property that is the essence of the franchise business or that cause entry barriers for other suppliers.

Exclusive dealing

The Anti-Monopoly Law also prohibits exclusive dealing. This is, for example, an agreement where any of the following apply:

  1. the recipient of any product or service may only resupply or may not resupply the product or service to certain parties or in certain places;
  2. the recipient of any product or service must agree to purchase other products or services from the supplier (tying-in agreements); and
  3. the recipient of any product or service will get certain prices or discounts, but in return it is required to purchase other products or services from the supplier or the recipient is prohibited to purchase the same type of products or services from the supplier's competitors.

Article 15 of the Anti-Monopoly Law provides that a prohibition on exclusive dealing is illegal per se, but the KPPU guidelines indicate that this should be subject to the 'rule of reason', specifically prohibiting the practice if it has caused or might cause monopolistic practices or unfair competition.

Grant-back licences

The intellectual property laws do not specifically regulate grant-back licences. Nevertheless, according to the KPPU Guideline on the Exemption of Intellectual Property Agreements, each party should consider the fact that a grant-back licence may hinder the licensee from advancing the technology. The grant-back licence may also be unfair, as it allows the licensor to own intellectual property that it has not created itself. Therefore, this provision could be seen as anticompetitive and, hence, it may be further examined for potential violation of the Anti-Monopoly Law, with consideration given to the background, purpose and reasons for the inclusion of the grant-back provision in the licence agreement.

ii Refusals to license

From the intellectual property law perspective, refusals to license are not considered as prohibited practices. However, in terms of the Anti-Monopoly Law, this could be seen as a form of abuse of dominant position if the licensor has a market share of 50 per cent or more of a certain product or service, or where the licensor and one or two other business actors collectively control market share of 75 per cent or more of a certain product or service. Moreover, a business actor could also be deemed dominant if it no longer has any significant competitors in the relevant market in terms of the market share controlled, and has a higher position than all of its competitors in terms of financial capability, access to supply or sales, and capability to adjust the supply or demand for certain products or services.

As explained earlier, that assessment should also consider whether the licensed intellectual property is deemed as an essential facility. In general, if the intellectual property is not deemed as an essential facility, the exemption could be applicable.

The Patent Law does not provide specific measures that could be taken by third parties if patent holders refuse to grant a licence. Nevertheless, according to the Patent Law, a third party who can show that he or she has the capability to fully exploit a patent and has his or her own facilities for doing so can file an application for compulsory license of a patent within 36 months of the patent being issued. A compulsory licence could be given based on the Minister of Law and Human Rights' decision in any of the following circumstances:

  1. the patent holder does not implement an obligation to create a product or use a process in Indonesia within 36 months of the patent being granted;
  2. a patent has been implemented by the patent holder or its licensee in a form or way that harms the public interest; and
  3. a patent resulting from a development of a previous patent cannot be implemented without using a third-party patent that is still under protection.

To obtain the compulsory licence, the applicant (or its proxy) should also provide evidence that it has taken action within 12 months of the first action to obtain a licence from the patent holder based on proper requirements and conditions, but that it was not successful. The Minister of Law and Human Rights can only grant a compulsory licence if the Minister is of the opinion that the aforementioned patent can be implemented in Indonesia on a 'proper economic scale' and can benefit society. 'Proper economic scale' is regarded as circumstances in which the products manufactured using the patent could be sold at an affordable price to the public while still taking the rights of the patent holder into consideration.

iii Unfair and discriminatory licensing

As stated earlier, the refusal of a dominant business actor in a relevant market to license intellectual property could constitute a prohibited relative monopolistic practice.

The Anti-Monopoly Law provides the following criminal and civil liabilities for dominant business actors who impose terms of trade with the intention of preventing or obstructing consumers from acquiring competitive products, restrict the market and the development of technology, or obstruct potential competitors from entering the market:

  1. criminal liability: criminal fine of between 25 billion rupiah and 100 billion rupiah, or imprisonment for a maximum period of six months; and
  2. civil liability: subject to an order to cease the abuse of the dominant position and fines of between 1 billion rupiah and 25 billion rupiah, and damages.
iv Patent pooling

Patent pooling takes the form of an agreement between multiple patent holders to license their patent to a third party. In general, the Patent Law does not specifically regulate patent pooling issues. Nevertheless, from the perspective of the KPPU Guideline on the Exemption of Intellectual Property Agreements, the Anti-Monopoly Law could still be applicable to patent pooling arrangements, subject to the rule of reason. Specifically, the Guideline provides that if the pooling of a licence consists of provisions allowing manufacturing or marketing activities of a product dominantly owned by one business entity such that other business entities could not compete effectively, those provisions could be seen as anticompetitive. For example, these kinds of monopolistic practices could be applied by setting discriminatory pricing for other business actors outside the patent pool and limiting the grant of licences to those outside the pool.

v Software licensing

In practice, software may be protected by different forms of intellectual property, such as patents and trade secret rights, although the common form of intellectual property protection for software is copyright. The Copyright Law does not specifically regulate software licences (or software distribution and end-user licence agreements). However, as a general rule, the Copyright Law provides that copyright licensing should not extend beyond the validity and protection period of the licensed copyright work, and that the licensor is entitled to receive royalties from the licensee (unless agreed otherwise). Moreover, a copyright licence agreement should not be used as an avenue to diminish or take over all the author's rights in relation to its copyright.

vi Trademark licensing

With regard to trademark licensing, the licensors' perspective is usually that it would be essential for them to control the use and commercial exploitation of their marks by licensees, and ensure that this use does not conflict with the licensors' business and interests. For example, in a franchise business, the licensors may request the licensees to purchase materials from a certain supplier. According to the KPPU Franchise Guideline, such an arrangement could be exempted from the application of the Anti-Monopoly Law as long as it is related to the intellectual property that is the essence of the franchise business or would not cause entry barriers for other suppliers.

In some jurisdictions, competition issues relating to trademark licensing may also arise in the form of coexistence agreements when both the licensor and licensee decide to regulate each party's use and registration of its marks to avoid confusion among consumers. In general, the Trademark Law and also the Indonesian Trademark Office's practice do not acknowledge coexistence agreements. Therefore, while coexistence agreements may be considered binding between parties from a contractual perspective, coexistence agreements may not be used to overcome possible rejections of trademark by the Indonesian Trademark Office. The Anti-Competition Law also does not specifically regulate the coexistence-agreement issue. As a general rule, however, coexistence agreements should not limit competitors' ability to carry out their business activities in the same relevant market or prevent consumers from doing business with competitors, as such terms may be monopolistic and anticompetitive.