There's a guest editorial in the November issue, by long-standing JIPLP editorial board member and Bristows LLP partner Pat Treacy, who writes:
Valuing innovation
When Jeremy invited me to act as guest editor of JIPLP, I knew immediately what subject I would discuss: the ever evolving IP–competition interface. Virtually all textbooks on competition law include at least a few pages on the ‘tension’ between IP and competition law. Strangely, the reverse is not always true. In the coming months IP professionals can anticipate developments in competition law which may illuminate the scope of IP protection and may question how innovation is valued and rewarded through the IP system.
Pharmaceuticals are first to shine. In late July the European Commission sent statements of objections to Lundbeck and various generic companies, alleging that they had concluded anticompetitive patent settlement agreements. Similar statements of objections were sent to Servier and further generic companies a few days later. Public details are sparse, but the outline allegation is well known: the proprietor of a patent allegedly agrees to share its monopoly rents with a potential infringer through so-called ‘reverse payments’ rather than risk losing in litigation. As yet, there is no precedent in the EU for such cases. Across the Atlantic there has been no shortage of precedent, often conflicting.
In April, the Court of Appeals for the 11th Circuit ruled that even where a patent proprietor was ‘likely’ to lose at trial, a reverse payment settlement would be immune from antitrust attack so long as its exclusionary effects fell within the exclusionary potential of the patent. The court commented that even a patentee likely to prevail has an incentive to settle rather than gamble in litigation, and concluded that it makes little policy sense to guess what a court would have decided if the case had gone to trial. In July, the Court of Appeals for the Third Circuit took the contrary view. It suggested treating any payment to a patent challenger by a patentee as prima facie a restraint of trade. The US Federal Trade Commission (FTC) supports the view of the Third Circuit. There is now speculation that the US Supreme Court may step in to resolve the varying approaches of the Appeals Courts.
Next on stage is mobile telephony and the so-called ‘patent wars’ between new-comers, including Apple and others, and more established players such as Nokia and Motorola. As smartphones took off, various patent infringement actions were launched to persuade new entrants to conclude licences, relying on the essential patents that support mobile telephony standards. The patentees made the usual requests for relief—including injunctions. The competition authorities then took an interest.
In March 2011, the FTC published a report ‘The Evolving IP Marketplace—Aligning Patent Notice and Remedies with Competition’ which was critical of injunctions as a remedy for infringement of standards essential patents. Not to be outdone, earlier this year the European Commission launched investigations against Motorola and Samsung for alleged abuses of dominance, including the seeking of injunctions. The acquisition by Google of Motorola's patent portfolio was also examined in merger proceedings in Europe and the USA. The national courts in Europe are grappling with how to value licences of standards essential patents; with the meaning of ‘fair, reasonable, and non-discriminatory terms’ (FRAND) (alongside the more usual issues of validity and infringement); and with the circumstances in which they will grant injunctions. The media is gripped by an unusual interest in patent law—and its unruly sibling, competition law.
In a perfect world, questionable patents would not be granted; questions of infringement would easily be resolved; all licensees would be willing; all licensors would be generous and negotiations smooth and efficient; courts and regulators would be omniscient; and the valuation of innovation would be straightforward with appropriate compensation precisely calibrated. In the real world, things are not so simple. Information shortfalls exist; transaction costs are high; and innovation has real worth even when the IP which protects it is imperfect—but it is difficult to calculate and attribute that value, and to know when innovation should be shared, irrespective of IP rights.
The competition interest in the current cases highlights imperfections in the IP system, while it is unclear that competition law has perfect or practical answers. Nevertheless, given the supra-national reach of European competition law, and similar developments in the USA and elsewhere, these cases are important, not simply because competition rules may constrain the exercise of IP rights, but also because these cases explore fundamental questions about the value of innovation, how that value is realized and by whom. Perhaps now it is time for IP texts to start including more (or longer) chapters on competition law.
