Further Reflections on the Impact of the EC Horizontal Cooperation Guidelines on Intellectual Property Rights and Innovation

Richard Taffet, Feb 11, 2011

The European Commission has now issued its Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (the “Guidelines“). The final version of Chapter 7 of the Guidelines reflects significant modifications from the draft released last year, and appear to reflect an attempt to address many comments submitted regarding the draft’s lack of balance in Chapter 7 between intellectual property and competition law rights and principles. Indeed, as I previously observed, the draft Guidelines might, in fact, have reflected an anti-IP bias that could be construed in ways that would diminish the rights of IP owners, create less certainty with respect to the lawful exercise and assertion of IP rights, and undermine the pro-competitive use of IPR specifically in the standards context, thus threatening to diminish the positive, innovation-enhancing potential of standardization.

More specifically, as previously commented, while the draft Guidelines identified the potential for anticompetitive effect in connection with standardization, they failed to observe that as a general matter (i) the use of proprietary technology in standards is pro-competitive, and (ii) the effective enforcement of IP results generally in positive competitive effects. Furthermore, the draft Guidelines provided no context-or even definition-of the anticompetitive conduct identified-i.e., “hold up” or “excessive pricing”-in the standards context, or acknowledged that competitive risks resulting from what may be claimed as “hold up” or “excessive pricing” are, in large measure, theoretical.

As a result, the draft Guidelines could have easily been interpreted as requiring a fundamental shift of existing legal standards and standardization processes, even though no systemic competitive problems in the standards arena actually exist. Moreover, and perhaps most troubling, the draft Guidelines risked interpretation as imposing prescriptive rules, rather than applying the type of competitive analysis necessary to properly evaluate the effect of conduct in the context of standardization and in relation to IPR for purposes of determining whether any unlawful competitive restriction has or would likely occur.  As such, the draft Guidelines created the risk that they themselves would limit the pro-competitive nature of standardization, limit the rights of IP holders (contrary to settled IP law), and overall diminish the ability of firms effectively to compete, especially in the fast moving world of information and communications technology.

As revised and reflected in the final Chapter 7, however, the Guidelines now, while still lacking coherence in some critical areas (e.g., explaining meaningful standards underpinning the analysis of unilateral conduct in the IPR and standards contexts), have come a long way to expressly recognize the generally pro-competitive nature of standardization and IP, as well as the limited and discrete circumstances that may result in restrictive competitive effects in such contexts.

Equally important, it appears indisputable that the Guidelines make it clear that conduct, including in relation to standardization, must be analyzed for purposes of assessing its lawfulness under Article 101 of the Treaty based upon objective criteria that assess the actual competitive effects of the subject conduct. This is the case even for conduct that will not qualify for Chapter 7’s safe harbor-there will be no presumption that non-safe harbor protected conduct is unlawful, and rather all conduct shall be considered based on its actual or likely competitive effects.

Thus, while the Guidelines will no doubt be the subject of ongoing discussion, and perhaps alternate interpretation, it should now be clear that they do not represent a “sea change” from existing law, if any change at all, and they should not be considered as an invitation to require any modification of current standardization processes as successfully pursued not only in Europe, but globally. This note touches on certain aspects of the Guidelines that support these conclusions.