Intellectual Property and Competition Law

 

Sri Richgopinath and Natalie Lim examine the relationship between intellectual property and competition law

Intellectual property rights (“IPRs”) and competition laws may be said to be complementary in their shared objective of promoting economic efficiency and innovation for the benefit of consumers. However, they also appear to be at odds as competition laws have the primary purpose of protecting competition in the markets and reducing trade barriers whereas IPRs confer exclusive rights on the owner to exploit his intellectual creation.

IPRs are monopolistic in nature in that the proprietor is given the exclusive right to exploit the IPR. The rationale behind this is to reward the proprietor for the efforts, time and money expended on his intellectual creation.


MALAYSIA

In Malaysia, most IPRs are governed by statutes. Section 35 of the Trade Marks Act 1976 confers the exclusive right on the owner to use, or license the use of, his trademark in relation to goods or services for which the mark has been registered. Section 36 of the Patents Act 1983 gives the owner of a patent the exclusive right to use and exploit the patent. Section 13 of the Copyright Act 1987 on the other hand, provides the exclusive right to the owner to deal with and control, inter alia, the reproduction in any material form, the communication and distribution of the copyrighted work to the public, by sale or otherwise.

Competition in Malaysia is mainly regulated by the Competition Act 2010 (“CA 2010”), which prohibits two types of conduct:

(a)     an anti-competitive agreement, whether a horizontal or vertical agreement between enterprises or an association of enterprises, which has the object or effect of significantly preventing, restricting or distorting competition in any market for goods or services (section 4(1) prohibition); and  

(b)     an enterprise engaging, whether independently or collectively, in any conduct which amounts to an abuse of a dominant position in any market for goods or services (section 10 prohibition).

In the context of IPRs, the prohibitions under the CA 2010 give rise to the following issues. First, whether IPR licence agreements, technology transfer agreements and other IPR pooling arrangements, being vertical agreements, will be prohibited under section 4(1) of the CA 2010 in absence of any exemptions. Second, whether IPR agreements will be prohibited under section 10 as an “abuse” of dominant position, given that IPR essentially allows the owner to be in a dominant position.

To-date, the Malaysian Competition Commission (“MyCC”) has only finalised the Guidelines on Market Definition, the Guidelines on Chapter 1 Prohibition (Guidelines on Anti-competitive Agreements), and the Guidelines on Chapter 2 Prohibition (Guidelines on Abuse of Dominant Position). The MyCC has stated in its Chapter 1 Guidelines that separate guidelines will be issued to address both IPR and issues relating to franchise agreements.

The Chapter 2 Guidelines include a statement that a refusal by a dominant enterprise to supply (which includes refusal to license IPR) may amount to an abuse of dominant position. The MyCC however recognises in its Chapter 2 Guidelines that forcing supply may reduce the incentive to invest in the product, IPR or essential facility. The MyCC will take into account the difficult trade-off involved in forcing supply which leads to a short-term increase in competition but which may harm longer term incentives for innovation and investment.

In the absence of specific guidelines that apply to IPR, we shall turn instead to other jurisdictions for an indication as to how concerns over IPRs have been addressed in light of competition law.


THE EUROPEAN UNION

The main prohibitions in the European Union (“EU”) are contained in Article 101(1) (anti-competitive agreements) and Article 102 (abuse of market power) of the Treaty on the Functioning of the European Union (“TFEU”).

Vertical Restraints Block Exemption Regulation

The Vertical Restraints Block Exemption Regulation provides for an exemption for vertical agreements that contain certain provisions relating to the assignment of IPRs to, or use of IPRs by, the buyer, subject to the following conditions being fulfilled:

  1. the agreement must be a vertical agreement under which parties may purchase, sell or resell goods or services;
  1. the IPRs must be assigned to, or licensed for use by, the buyer;
  1. the IPR provision must not be the primary object of the agreement;
  1. the IPR provision must directly relate to the use, sale and resale of the goods by the buyer or its customer; and
  1. the IPR provision must not contain restrictions of competition that have the same object as vertical restraints which are not exempted.

Commission Regulation (EC) No. 1218/2010


The EU has also adopted the Commission Regulation (EC) No. 1218/2010 of 14 December 2010 (“EC 1218/2010”) on the application of Article 101(3) of the TFEU to specialisation agreements. Article 2(1) of EC 1218/2010 exempts the following types of specialisation agreements from the application of Article 101(1) of the TFEU provided that the combined market share of the parties concerned does not exceed 20% of the relevant market:

(1)     unilateral specialisation agreement: an agreement whereby one party agrees to fully or partly cease production of certain products or to refrain from producing those products and to purchase them from the other party, who agrees to produce and supply those products;

(2)     reciprocal specialisation agreement: an agreement whereby two or more parties agree on a reciprocal basis to fully or partly cease or refrain from producing certain but different products and to purchase those products from the other parties, who agree to produce and supply them; and

(3)     joint production agreement: an agreement whereby two or more parties agree to produce certain products jointly.

 

The exemption under Article 2(1) of EC 1218/2010 also applies to specialisation agreements for the provision of services, other than distribution and rental services.

 

Article 2(2) of EC 1218/2010 provides that the exemption in Article 2(1) also applies to provisions contained in the specialisation agreements which relate to the assignment or licensing of IPRs between the parties provided that such provisions are not the primary object of the agreements but are directly related to and necessary for their implementation. 

 

Technology Transfer Block Exemption Regulation

Furthermore, the EU has adopted a block exemption for technology transfer agreements i.e. the Technology Transfer Block Exemption Regulation (“TTBER”). The TTBER provides for specific situations where the licensing agreement will be exempted from the prohibition under Article 101(1). If the licensing agreement or any part of it falls outside the provided scope, the TTBER will not be applicable and therefore the agreement or part thereof may be deemed to be anti-competitive.

The TTBER defines a technology transfer agreement as a patent, know-how and software copyright licensing agreements or mixture thereof. The TTBER also makes it clear that other IPR, such as trademarks and other types of copyright licensing, will not fall within its ambit unless they are being licensed ancillary to a patent, know-how or software licensing agreement.


SINGAPORE

In Singapore, the main prohibitions are contained in Sections 34 (arrangements that prevent, restrict or distort competition) and 47 (abuse of dominant position) of the Competition Act 2004 (“CA 2004”). The Competition Commission of Singapore (“CCS”) introduced the CCS Guidelines on the Treatment of Intellectual Property Rights (“CCS Guidelines”) to provide guidance on the factors that the CCS will consider when assessing whether agreements or conduct concerning IPRs will contravene sections 34 or 47 of the CA 2004.

The CCS Guidelines define IPRs to include only rights granted under the Patents Act, Copyright Act, Plant Varieties Protection Act, Layout-Design of Integrated Circuits Act, Registered Designs Act and trade secrets. Rights pursuant to trademarks appear to be excluded from the purview of the CCS Guidelines, which suggests that trademark licensing agreements may still be subject to the general rule under the CA 2004.


AUSTRALIA

Section 51(3) of the Australian Competition and Consumer Act 2010 (“ACCA”) exempts particular provisions of agreements or conduct in the exercise of certain IPRs, namely patents, registered designs, copyright, trademarks and rights pursuant to the Circuit Layouts Act 1989, from the prohibition under the ACCA.

For instance, the imposition of certain conditions on a patent licence is exempted to the extent that the condition relates to the invention to which the patent relates or articles made by the use of the invention. Similarly, the exemption extends to a provision in any licence, arrangement or understanding between the owner and a registered user of a trademark, to the extent that such provision relates to the kinds, qualities or standards of goods that bear the licensed trademark.


CONCLUSION

It is clear from the overview of the legislation and guidelines in other jurisdictions that as a general rule, agreements and conduct concerning IPRs fall within the ambit of the competition laws of those jurisdictions. Although various actions have been taken to exempt certain types of agreements and conduct concerning IPRs from the prohibitions under the competition laws, none of those jurisdictions have granted blanket exemptions that apply to all agreements and conduct concerning IPRs from their competition laws.  

The uncertainty that we now face in Malaysia is the extent to which CA 2010 should affect IPRs. The need for the MyCC to issue guidelines to address IPR-related issues as soon as possible cannot be overstated. Until then, the spectre of the CA 2010 will, like the Sword of Damocles, hang over every transaction that involves the licensing of IPRs.

 

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