An extract from The Intellectual Property and Antitrust Review, 5th Edition
Licensing and antitrust
In considering the area of licensing and antitrust, consulting and complying with the AMA and IP Guidelines are important.
Article 21 of the AMA states that 'The provisions of this Act shall not apply to such acts recognisable as the exercise of rights under the Copyright Act, the Patent Act, the Utility Model Act, the Design Act, or the Trademark Act'. This means that the AMA applies to restrictions that are not considered to be an exercise of rights. In addition, the AMA applies to an act that seems to be an exercise of rights prima facie if such act is considered as deviating from the intent and objectives of the intellectual property systems. The IP Guidelines analyse and explain antitrust issues in relation to IP from the viewpoints of private monopolisation, unreasonable restraint of trade and unfair trade practice. This means, for instance, that there are some cases where an act is evaluated not only from the viewpoint of private monopolisation, but also from the viewpoint of unfair trade practice. Thus, it is of particular note that these categories of viewpoints do not perfectly fit the following itemisation of this chapter in Sections III.i, III.ii and III.iii, even though important content of the IP Guidelines has been categorised into each of the items mentioned above.
One of the important points of the IP Guidelines is that it includes a section titled 'Basic Principles on Application' of the AMA. This section contains the 'Principles in identifying a market' and 'Method of analysing the effect in reducing competition'. The 'Principles in identifying a market' section explains that identifying a market is necessary even when evaluation is made from the viewpoint of unfair trade practice. This section also explains a method of identifying the market where the technology is traded (technology market) and a way of identifying the market where any product incorporating the technology is traded (a product market).
The section on the 'Method of analysing the effect in reducing competition' explains that the following factors should be considered comprehensively to determine whether restrictions regarding the use of technology reduce competition in each identified market:
the nature of the restrictions, how they are imposed, the use of the technology in the business activity and its influence on it, whether or not the parties pertaining to the restrictions are competitors in the market…, their market positions…, the overall competitive conditions that prevail in the markets…, whether or not there are any reasonable grounds for imposing the restrictions, as well as the effects on incentives of research, development and licensing.
In addition, the IP Guidelines stress that restrictions on the use of technology among competitors and restrictions on the use of technology that is influential would be considered to have a greater effect on competition than non-influential technology. Moreover, the IP Guidelines also explain safe harbour standards, within which the effect on the competition in the market is considered to be minor. With regards to a product market, the safe harbour standard is 20 per cent product share or less; with regards to a technology market, the safe harbour standard is 20 per cent product share or less, or the existence of four parties owning an alternative technology.i Anticompetitive restraintsRestrictions that are considered, in principle, to constitute unfair trade practicesObligations to assign improved technology or to grant exclusive licences for improved technology
Under the IP Guidelines, imposing on a licensee an obligation to hand over to the licensor the rights for improved technology developed by the licensee or to grant an exclusive licence for it is, in principle, considered to constitute an unfair trade practice. In addition, an obligation that causes a licensee to co-own the rights for improved technology with the licensor would also constitute an unfair trade practice if the obligation has the tendency to impede fair competition.
Conversely, if the improved technology created by a licensee is one that cannot be used without the licensed technology, an obligation on the licensee to hand over its rights for the improved technology, in exchange for fair consideration, would generally be considered as having no tendency to impede fair competition.Restrictions on research and development activities
Prohibiting licensees from independently, or jointly with any third party, conducting research and development activities regarding the licensed technology (or any technology that competes with it) is considered, in principle, as having the tendency to impede fair competition and as an unfair trade practice.
Conversely, in cases when the licensed technology is treated and protected as know-how, restricting licensees' research and development activities with a third party, to the extent necessary for preventing disclosure of the know-how or unauthorised use, does not constitute an unfair trade practice.Restrictions on selling and resale prices
Imposing a restriction on licensees on the sale or resale price of products incorporating the licensed technology limits the fundamental means of competition and reduces competition. This, in principle, constitutes an unfair trade practice.Restrictions that might constitute unfair trade practicesObligations of the non-assertion of rights
Imposing an obligation on licensees to refrain from exercising the rights owned or to be obtained by them against the licensor is considered as constituting an unfair trade practice if it tends to impede fair competition.
Conversely, if the licensees are merely obliged to grant a non-exclusive license for improved technology developed by them to the licensor, it does not constitute an unfair trade practice in principle.Restrictions after the extinction of rights
Imposing a restriction on licensees on the use of a technology or an obligation to pay royalties even after the extinction of rights to the technology licensed (expiration of patent right) would constitute an unfair trade practice if it tends to impede fair competition. However, reasonable installment or deferred payment of royalty might be allowed.No-contest obligation
Imposing an obligation on licensees not to contest the validity of rights for licensed technology is less likely to reduce competition directly. However, there are some cases where such an obligation preserves rights that should have been invalidated, restricts the use of the technology and has a tendency to impede fair competition. Then, in such a case, it might constitute an unfair trade practice.
In addition, giving a licensor a right to terminate the licence agreement when a licensee challenges the validity of the licensed rights is not considered as constituting an unfair trade practice.Restrictions on raw materials and components
There are some cases where a limitation on licensees regarding the quality or supply of raw materials and components for licensed products might be necessary to ensure the proper function and effect of the technology, the maintenance of safety and the prevention of the disclosure of confidential information.
However, such limitations would constitute an unfair trade practice if they exceed the necessary scope and tend to impede fair competition.Package licensing
Imposing an obligation to obtain a package licence that covers technologies other than the technology licensees wish to use is examined based on the same viewpoints as restrictions on raw materials and components.
If such an obligation is not essential to ensure the proper function of the licensed technology or forces licensees to obtain a licence beyond the necessary scope, it would constitute an unfair trade practice if it tends to impede fair competition.Other restrictions that might constitute unfair trade practice
In the IP Guidelines, it is considered that there are some cases where the following limitations or restrictions would constitute an unfair trade practice:
- inhibiting the use of technology (see Section III.ii);
- setting a maximum quantity of products (Part 4(3)(ii)(b));
- restrictions on the manufacture and sale of competing products or on transactions with competitors (Part 4(4)(iv));
- termination provisions that are unilaterally disadvantageous to licensees (Part 4(5)(i));
- obligations to export via any entrepreneur designated by the licensor (Part 4(3)(iii)(d));
- establishment of royalties without relation to the use of technology (Part 4(5)(ii)); and
- limitation on the counterparties of the sales of licensed products (Part 4 (4)(ii)(b)).
Imposing an obligation on a licensee to grant the licensor non-exclusive licences for improved technology made by the licensee, in principle, would not constitute an unfair trade practice if the licensee can use the improved technology without restriction.
However, even under the said non-exclusive licence scheme, if the licensor also imposes on the licensee a limit on, for instance, the type of parties to which the licensee can grant a licence to use the improved technology, it would constitute an unfair trade practice if it has the tendency to impede fair competition.Obligations to report obtained knowledge and experience
Imposing an obligation on licensees to report obtained knowledge and experience during the use of the licensed technology does not, in principle, constitute an unfair trade practice, except for cases where imposing such an obligation substantially leads to forcing licensees to give the licensor a licence to use such obtained knowledge (Part 4(5)(x)).Other restrictions
In the IP Guidelines, the following conduct, in principle, is not considered as constituting an unfair trade practice:
- function-specific licensing (Part 4(3)(i)(a));
- limiting the licence period (Part 4(3)(i)(b));
- limiting the field where the technology may be used (Part 4(3)(i)(c));
- limiting the area in which manufacturing is allowed (Part 4(3)(ii)(a));
- limiting the area in which sales of the product are allowed (Part 4(4)(ii)(a));
- setting the minimum quantity of products that licensees must manufacture (Part 4(3)(ii)(b));
- limiting the exportation of the product (Part 4(3)(iii)(a));
- limiting areas to which licensees may export products (Part 4(3)(iii)(b));
- limiting parties to which licensees may grant a sublicence (Part 4(3)(iv));
- imposing obligations to use the best possible efforts in the use of the licensed technology (Part 4(4)(v)); and
- imposing obligations to protect the confidentiality of know-how (Part 4(4)(vi)).
In the IP Guidelines, both the section on 'Viewpoints from private monopolisation' and the section on 'Viewpoints from unfair trade practices' deal with 'inhibiting the use of technology'.Viewpoints from private monopolisation
In general, a right-holder not granting a licence for the use of technology is considered as an exercise of rights and normally does not cause a problem. However, in the IP Guidelines, some cases are provided where the following acts would be considered as not being an exercise of rights and as constituting private monopolisation if they substantially restrain competition in a particular field of trade:
- in a case where entrepreneurs are participating in a patent pool, the entrepreneurs refuse to grant a licence to new entrants without any reasonable grounds;
- in a case where a technology is influential in a particular market and numerous entrepreneurs use it, an entrepreneur obtains the rights to the technology from the right-holder and refuses to license the technology to others;
- an entrepreneur conducting business in a particular market comprehensively collects the rights to a technology that can be used by competitors, does not use the technology and does refuse to license the technology to the competitors;
- in a case where a product standard has been jointly established by entrepreneurs, an entrepreneur has its own technology adapted as the product standard by using deceptive means and then refuses to license the technology to the other entrepreneurs; and
- a patent holder making a fair, reasonable and non-discriminatory (FRAND) declaration refuses to license the rights of standard-essential patents or brings an action for injunction against a party who is willing to take a licence under FRAND conditions or the parent holder withdraws the FRAND declaration.
The following acts would be considered as not being an exercise of rights, and would therefore cause a legal issue from the viewpoint of unfair trade practices if they degrade the competitive ability of the competitors and tend to impede fair competition:
- in a case where an entrepreneur obtains the rights to a technology from the right-holder, and knowing the fact that competitors use the technology and the said competitors would have difficulty in obtaining an alternative technology, the entrepreneur refuses to grant a licence to use the technology;
- in a case where a right-holder of a technology has other entrepreneurs use the technology by unjustifiable means and after the said entrepreneurs face difficulty in replacing the technology with an alternative technology, the right-holder refuses to grant a licence to use the technology to the said entrepreneurs;
- in a case where a technology provides the basis for business activities in a particular product market and many entrepreneurs in the market actually receive a licence for the technology, the right-holder of the technology discriminately refuses to grant a licence to a specific entrepreneur without reasonable grounds;
- the same as for Section III.i.(e) under 'Viewpoints from private monopolisation' above (even if the act does not constitute private monopolisation).
Many items given in Section III.i and III.ii above would also count for this section in the sense that they would constitute unfair licensing.
In addition, regarding the discriminatory aspect of conduct, Note 12 of the IP Guidelines supplementing the case given in Section III.ii.(c) ('Viewpoints from unfair trade practices') above stresses that in a case where restrictive conduct is taken in a discriminatory manner, the restrictive conduct is examined not only from the viewpoint of the impact it has on competition, but also from the viewpoint of the impact on the competition derived from its discriminatory nature.
Furthermore, Note 12 states that this applies to acts stated under the sections 'Limiting the Scope of the Use of Technology', 'Imposing Restrictions in relation to the Use of Technology' and 'Imposing Other Restrictions' of the IP Guidelines if the acts are taken in a discriminatory manner.iv Patent pooling
An introduction will be given here on the content of the section on 'Analysis of constraints on licensees in a licence agreement through a patent pool' in the Standardisation Guidelines published by the JFTC.
The Standardisation Guidelines emphasise the idea that it is necessary to assess the impact on competition carefully because licensing through a pool of specifications has an enormous influence on the business activities of licensees that adopt a specification, and this influence will reach many licensees in a uniform and extensive way. From these viewpoints, the Standardisation Guidelines particularly explain the following five categories.Setting different licensing conditions
Licensing with different conditions does not necessarily cause a legal issue under the AMA, including different conditions such as the scope of authorised use and different licensing royalties. However, imposing different conditions on specific businesses without due cause, such as refusing to license the patents or requiring extremely high licensing fees, is considered to be potentially violating the AMA when there is a direct and serious impact on the competitive ability of licensees.Restricting research and development activities
When licensing patents for specifications through a pool, any restriction on a licensee's research and development of the technologies for the specifications or competing technologies could cause difficulty in developing them, and could potentially result in restricting competition.
Conversly, there may be some cases where such restriction is considered reasonably necessary if a small number of competitors confidentially develop core technologies for the specifications in a joint research and development. However, this would not apply once the specifications have been developed.Obligation to grant a licence for patents on improvements or developments of the technologies for the specifications through a pool (grant back)
When licensing patents through a pool and requiring licensees to add any improvements or developments of the technologies to that pool, there is a concern that this may cause a restriction on competition in the technology market. Conversely, in the case where a licensee adds a patent (i.e., an improvement) and that constitutes a part of the essential patents group and the licensee is required to grant a non-exclusive licence only, without other restrictions on the use and with non-discriminatory treatment in, for instance, the distribution of licensing fees, then it is generally considered as not causing a legal issue under the AMA.Measures against filing a petition for invalidation of patents
Imposing a non-challenge clause, on licensees, that leads to a circumstance where licensing agreements with the licensee for all patents in the pool is terminated might cause a legal issue under the AMA.
Conversely, when the measure taken is to terminate licensing agreements between the licensee and the patent holder whose patent is subject to the invalidation claim, it is generally considered as not causing a legal issue under the AMA.Non-assertion of patent rights against patent holders and other licensees
Imposing a non-assertion obligation on licensees and prohibiting the exercise of patent rights that the licensees obtain against the patent holders, might cause a substantial restriction on competition in the technology market by accumulating many patents in the pool of specifications.
Conversely, when a patent that is subject to a non-assertion obligation is one that constitutes a part of the essential patent group, and the restriction is only to require the licensee to grant a non-exclusive license without other restrictions on the use and with non-discriminatory treatment in, for instance, the distribution of licensing fees, then it is generally considered as not causing a legal issue under the AMA.v Software licensing
Under Japanese law, software can generally be protected by the Copyright Act and the Patent Act under certain conditions. The AMA does not apply to acts recognisable as the exercise of rights under the Copyright Act or the Patent Act. In addition, the IP Guidelines, in principle, apply to software licensing.
Regarding software licensing, there is specific content in a note in the IP Guidelines that states that a prohibition on modifications to computer programs is considered an exercise of rights under the Copyright Act; however, a restriction on modifying licensed software to use it more effectively is not considered to be an exercise of rights under the Copyright Act.
In addition, the IP Guidelines have an illustrative example regarding packaging licensing in terms of software licensing.vi Trademark licensing
Trademark licensing is covered by Article 21 of the AMA, meaning that the AMA does not apply to acts recognisable as the exercise of rights under the Trademark Act.
In addition, the IP Guidelines state that with regards to 'restrictions on sales' of products incorporating licensed technology, a licensor imposing an obligation on a licensee to use a specific trademark does not, in principle, constitute an unfair trade practice.