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Refusal to License IPRs under Ukrainian Competition Law
Intellectual property (IP) laws confer exclusive I rights on holders of patents, copyright, design right, trademarks and other legally protected rights (IPRs). The rationale behind this exclusivity is that those who produce intellectual goods are not sufficiently awarded or incentivized to innovate, unless they benefit from the right to prevent others from using their innovations. On the other hand, exploitation of intellectual asset sometimes goes beyond the boundaries provided by IP laws and amounts to anti-competitive conduct that chills innovation, hinders long-run consumer welfare and thus requires intervention of competition law. Against this background, this article explores an issue where insufficient work has been done in Ukraine but that is relevant to understand possible tension between these areas of law. Hereafter, we focus on one of the most notable levels where IP and competition laws intersect — refusal to license IPRs.
Under competition law, the possibility of allowing third parties to use IPRs in cases of refusal to deal is considered in the context of "essential facility" doctrine. This doctrine is usually invoked when one undertaking controls an essential facility and denies the other one a reasonable excess to it to the detriment of potential competition. Its scope has developed to cover a wide range of different assets, including essential IPRs, which unreasonable refusal may now well result in anti-competitive IP-based dominance abuse. In that case, the intervention of competition law would normally start from assessing the market power of the essential facility-holder. Notably, under the EU approach, it is settled case law that IPRs as such cannot amount to dominance. Neither does refusal to license IPRs by a dominant company necessarily constitute abuse. As far as the EU is concerned, this type of abuse requires a special degree of dominance proved through existence of exceptional circumstances. Such an "exceptionality" test has emerged from Volvo v. Veng and CICCRA v. Renault cases. The Economic Court of Justice (ECJ) held that the mere fact of securing the benefit of exclusive right cannot be regarded as an abusive method of eliminating competition. But in some exceptional circumstances, including an arbitrary refusal to supply spare parts to independent repairers, the fixing of prices at an unfair level or a decision no longer to supply spare parts for a particular model, while many cars of that model were still in circulation, could be abusive.
The "exceptionality" test was benchmarked in Magill , where the ECJ found abusive the refusal by three broadcasters to reproduce their television schedules. Such a refusal (i) had no objective justification, (ii) prevented the appearance of a new product, (iii) concerned indispensable product and (iv) excluded all competition in the secondary market of television guides. The aforesaid principles were then reiterated in IMS Health . However, the new product requirement was slightly shaped.
The ECJ held that refusal to license was only abusive where the entrant did not intend to limit itself essentially to duplicating the goods or services already offered on the secondary market by the owner of the copyright, but intended to produce new goods or services not offered by the owner of the right and for which there is a potential consumer demand. Lastly, the "exceptionality" test was widened in Microsoft . First, the General Court (GC) confirmed that "exceptional circumstances" in Magill and IMS Health were not exhaustive. Second, the GC broadened the new product requirement stating that it could be met there where substantial elements that result from the licensee's own efforts merely exist. Third, the GC widened the notion of indispensability so that the concept to cover "economic indispensability". In this respect, the GC held that although access to the market might have been technically possible, Microsoft's refusal to license the interoperability information eliminated the economic viability of such entry. The GC added in this context that the test for indispensability isalso satisfied when competition is eliminated gradually, rather than immediately. Fourth, the GC lowered the threshold for intervention by eroding the requirement for elimination of all competition in the secondary market. According to the ECJ, it was not necessary to demonstrate that all competition on the market would be eliminated. What mattered was that the refusal was liable to, or was likely to, eliminate all effective competition on the market. In this respect, the European Commission's Guidance on Article 102 Enforcement Priorities follows the same approach adhering to the formula for intervention as provided in the case law described above.
In turn, Ukrainian competition law has not established clear criteria to deal with IP-based dominance abuse. In fact, it lags behind the national IP law that was shaped faster under international coercion. Namely, Ukraine is a member of WTO, while its legislation complies with provisions of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) containing broad set of rules linked to the acquisition and exercise of IPRs that may directly influence market entry and contestability. These rules integrate what may be called the Ukrainian "competition policy" and include provisions dealing with compulsory licensing. The latter were not specifically designed to address dominance abuse by IPR-holders. So far, it has been mainly used to discipline pharmaceutical industry mitigating national health concerns rather than promoting free competition. On the other hand, statutory provisions embodied in the Ukrainian IP law do contain language reminiscent of that addressing "essential facility" doctrine in developed countries. Moreover, some of them literally mirror TRIPS explicitly stating that, in the case of semi-conductor technology, compulsory licenses are aimed at remedying practices determined after judicial or administrative process to be anti-competitive . It currently remains uncertain what will amount to anti-competitive practice in the aforesaid sense. There is no public registry of the decisions of the Antimonopoly Committee of Ukraine (AMCU) that would shed some light on its approach and expertise in this area. Theoretically, abuse may be found when an undertaking refusing a license has no objective justification for such conduct and holds a market share in excess of 35%, facing no significant competition, or less than that threshold if there is no effective competition due to comparatively small market shares of its competitors. However, for the AMCU a particularly complex challenge would be to constrain the exclusivity of IPR owners. In the absence of the guidelines addressing this issue, it is unclear how to fairly strike a balance between IP protection and competition policy. After all, the AMCU may harmonize its practice in line with the EU approach seeking legal certainty from the European Commission's Guidance on Article 102 Enforcement Priorities. To some extent, this recourse would be consistent with recent Ukrainian case law on compulsory licensing. Namely, the latter requires that the dependant patent of the party requesting the license be intended for other purpose or has significant technical and economical advantages than the dominant patent of the party refusing with the license (i.e. new market requirement) . Apart from that, the dependant patent shall not be used without infringing the IPR of the refusing party (i.e. indispensability requirement). Finally, to handle IP-based dominance abuse effectively, Ukrainian legislation also has to ensure adequate coordination among the AMCU and other state bodies responsible for compulsory licensing, whose decisions may also influence the Ukrainian market structure.
Case 238/87AB Volvo v. Erik Veng (UK) Ltd, 1988 E.C.R. 6211.
Case 53/87, Conzorzio Italiano della Com-ponentistica di Ricambio per Autovericoli & Maxicar v. Regie National des Usines Renault, 1988 E.C.R. 6039.
Cases C-241, 242/91P, RTE & ITP v. Commission, 1995 E.C.R. I-743.
Case C-418/01, IMS Health GmbH & Co OHG v. NDC Health GmbH & Co KG, 2000 E.C.R. I-5039.
Case T-201/04, Microsoft v Commission, 2007 E.C.R. II-3601.
Guidance on the Commission's enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, OJ 2009, C45/7.
The On Protection of Rights to Inventions and Utility Models Act of Ukraine, Article 30 (3)(3).
Overview Letter of the Supreme Economic Court of Ukraine On Some Issues of Practice of Application by Economic Courts of the Legislation on Protection of the Rights to Objects of Industrial Property of 15 July 2010, NoO1-08/415, Clause 9.