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The following are excerpts prepared by HyperLaw from an article written by John Temple Lang. This was written prior to the High Court's Opinion in the Magill case. The complete text of the article may be found on the EEC server.
This paper considers the European Community antitrust law rules on duty to supply competitors with important goods or services.
In general competition law discourages competitors from cooperating with one another. But if one competitor owns something access to which is essential to enable other competitors to do business, and which they cannot be expected to provide for themselves, European Union competition law obliges the owner of the essential facility to give equal access to its competitors, because of the effect of a refusal of access on competition. This principle has to be treated with caution, because the law normally allows a company to retain for its own exclusive use all advantages which it has legitimately acquired. Also, companies are normally free to improve the bargains which they offer to customers, by offering related goods or services as part of the bargain, even if that makes it difficult or even impossible for their competitors to offer comparable bargains. All the same, the principle that companies in dominant positions have a legal duty to provide access to genuinely essential facilities on a nondiscriminatory basis is one of great and increasing importance in telecommunications, in transmission of energy, in transport, and in many other industries. It is often the principal or the most crucial legal problem which arises after an industry is deregulated, but it can arise in any industry.
These rules apply both to State-owned and to private enterprises. They may be specially important if a company has been given a privileged position by a State, such as control over an essential facility such as an airport or a harbour.
A dominant company which discriminates selectively against a particular competitor e.g. to discourage it from too-vigorous competition, by denying access to an important facility on the same terms as it gives to other companies, is likely to break the law, even if the facility is not necessarily "essential".
Where the parent companies of a joint venture have considerable market power, they may be required under Article 85(3) not to discriminate in favour of their joint venture and to deal with its competitors on the same basis, even if it is not strictly essential for competitors to contract with them, and even if neither are dominant.
If a dominant company owns intellectual property rights which enable it to prevent competitors from producing directly competing products, it is not necessarily an abuse for it to refuse to grant licences to its competitors. Licences may be necessary to give access to an essential facility, but this is so only if unlicensed competitors cannot enter the market. Otherwise, refusal to licence infringes Art. 86 only if there is some related behaviour which constitutes an abuse, whether exploitative or exclusionary, in addition to the refusal to licence. In some cases at least, compulsory licensing of the intellectual property rights is the appropriate remedy.
It is convenient to begin (Part I) by summarising the Treaty provisions, then caselaw of the Court and the Commission on essential facilities, beginning with the less specialised cases, and outlining the Court and Commission cases on telecommunications and performing rights societies, and some relevant Community legislation, separately. This provides the basis for a discussion of the general principles and problems, in Part II of this paper.
What are essentially issues about access to essential facilities have arisen frequently in Europe in connection with the liberalisation of the gas, electricity and telecommunications industries. However, the Commission has considered that these industries could not be satisfactorily liberalised using only Community antitrust law, and that it was necessary to adopt general measures of which access to networks and grids would be only one aspect.
The caselaw briefly summarised below makes it clear that there is a duty to supply both competitors and customers in a variety of circumstances. The caselaw uses several legal principles or theories, more or less explicitly:
These principles are not, of course, mutually exclusive.
This paper deliberately disregards formal legal categories such as refusal to deal, discrimination etc., and calls attention to the economic aspects of the cases and situations described.
Article 86 EEC Treaty says that an abuse of a dominant position may consist in, among other things,
"applying dissimilar conditions to equivalent transactions with other trading parties thereby placing them at a competitive disadvantage."
This prohibits second line discrimination, between competitors downstream from the market in which the dominant position exists, placing one or more of the competitors at a disadvantage vis-à-vis the others. It applies whether the favoured competitors are associated with the dominant company or not, but it does not impose a duty to supply on a non-discriminatory basis regardless of the effect on competition.
An unjustified refusal to deal is of course an extreme form of illegal discrimination.
The Court has confirmed that Article 86 also prohibits discrimination between customers of the dominant company based on whether or not they deal exclusively with it. This behaviour creates a competitive disadvantage for competitors of the dominant company at the same level in the market. It is not within the narrow phrase just quoted ("placing them at a competitive disadvantage").
The Court has not yet had an opportunity to consider the duties of a dominant company which has never supplied the goods or services in question to anyone outside its own group.
Article 66(7) of the European Coal and Steel Community Treaty prohibits, in effect, abuses of a dominant position by dominant coal and steel companies, but in general terms. Article 63 ECSC Treaty allows the Commission to take action if "discrimination is being systematically practised by purchasers, in particular under provisions governing contracts entered into by bodies dependent on a public authority". This was primarily intended to allow the Commission to prevent non-ECSC companies from discriminating in favour of coal and steel producers of their own nationality - in effect, a special case of what later became Article 90 EEC Treaty.
Under Article 63 it is not necessary to prove dominance or an effect on trade between Member States.
"making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts".
Tying-in is normally practised by horizontally integrated companies selling different products to customers at the same level of industry or distribution. It is, in essence, an attempt by a company dominant in the market for one type of goods to use its position in that market to strengthen its position in the market for other goods. * * *
Another complex case involving intellectual property issues and supply to downstream competitors was McGill - RTE/BBC. BBC and RTE (the Irish television authority) each published their own weekly guide to their own television and radio programmes, but both refused to give details of their programmes more than a day in advance to other magazines, making it impossible for anyone to publish a single independent weekly magazine giving all the week's BBC and RTE programmes. The Court of First Instance held that the BBC and RTE held dominant positions in the markets for the supply of their weekly programme lists and for the magazines in which these were published. The refusal of both television companies to provide details of their programmes to a competing weekly magazine was an abuse contrary to Article 86. Only restrictions on competition which are inherent in the protection of the actual substance of intellectual property rights are permitted in Community law. A dominant company is not free to exercise such rights so as to pursue an aim contrary to Article 86. Citing Volvo v. Veng, the Court said that by reserving to itself the exclusive right to publish their weekly programme lists the BBC and RTE were preventing the emergence of a new product, a general TV magazine. They were using copyright in the listing derived from broadcasting to secure a monopoly in the derivative market for weekly TV guides. This went beyond what was necessary to fulfil the essential function of copyright. The refusal was comparable to the arbitrary refusal of a car manufacturer to supply spare parts to an independent repairer in the derivative market of car maintenance and repair. Also, like a car manufacturer's decision to stop production of spare parts for a model still in use, the BBC's refusal failed to take consumers' needs into consideration.
There are several points to note about the RTE-BBC case:
In the appeal in the RTE case to the Court (not yet decided at the time of writing) the Advocate General disagreed with the Court of First Instance. In a long careful opinion, he said that the central issue was whether, and if so when, a refusal to licence may be contrary to Article 86 depends on whether there are
"such special circumstances in connection with a refusal to licence that it can no longer be regarded as a refusal to licence in itself. If Article 86 can apply where the dominant enterprise has done no more than refuse to grant licences, but where there were special circumstances in connection with the refusal to licence, the position will be that the infringement of Article 86 can be terminated only by granting licences' (para. 40, emphasis in the original).
He went on to point out that in some situations the owner of the right can terminate the violation of Article 86 without licensing the right, either by resuming supplies to people improperly denied supplies or by lowering prices. In these situations Article 86 does not lead to interference with the specific subject matter of the right. He said later (para. 61):
"I consider that in fact, as the Commission has argued, unreasonable royalties and a discriminatory licensing policy are examples showing that it is possible pursuant to Article 86 to interfere with rights within the specific subject-matter where those rights are exercised in special circumstances. The dominant undertaking does not do anything more than exercise rights within the specific subject-matter, namely impose royalties and refuse to grant licences. But the exercise of those rights takes place under special circumstances since the undertaking demands royalties which are considerably higher than in other Member States or refuses a licence at the same time as licences are in fact given to others. Application of Article 86 to the two situations would signify interference with rights falling within the specific subject-matter since the possibility for the owner of the registered design to freely determine his remuneration would be restricted and since the owner would be required to grant a licence to the person against whom he had discriminated. There is no reason to define the charging of unreasonable royalties to operation of a discriminatory licensing policy as conduct which in general is outside the specific subject-matter of copyright ......"
Later he went on to consider the Commission's argument that by refusing a licence RTE was preventing the emergence of a new kind of product.
"The Commission contends that in classifying a product as new it is not relevant whether it will compete with the copyright owner's own products.
I do not believe that the Commission's view is tenable.
I consider it appropriate to find that there is an abuse of a dominant position if a copyright owner by means of his copyright prevents the emergence of a product which does not compete with his product since it meets other consumer needs than those that are met by his product.
The contrary is true, in my view, if copyright is used in order to prevent the emergence of a product which is produced by means of the work protected by the copyright and which competes with the products produced by the copyright owner himself. Even if that product is new and better, the interests of consumers should not in such circumstances justify interference in the specific subject-matter of the copyright. Where the product is one that largely meets the same needs of consumers as the protected product, the interests of the copyright owner carry great weight. Even if the market is limited to the prejudice of consumers, the right to refuse licences in that situation must be regarded as necessary in order to guarantee the copyright owner and the reward for his creative effort."
Still later he said:
"The Commission has further claimed that the example from the judgments of the Court of Justice in Volvo v Veng and Cicra v Renault cited by the Court of First Instance are relevant to a decision in the present cases. According to the Commission the situation of Magill corresponds to that of an independent repairer in so far as both are dependent on the supply of products from an upstream market (in programme listings and car parts respectively) in order to carry on an activity on a derivative market (the market for television guides and the market for servicing Volvo and Renault cars respectively) where they compete with their suppliers (RTE's and ITP's own weekly television guides and Volvo's and Renault's authorized repairers respectively). The Commission concedes however that the analogy is not complete since Magill's situation differs in so far as the supply of a product was not sufficient for Magill to be able to carry out its activity as Magill needed to obtain a licence in order to produce copies of the protected work itself.
The difference is precisely crucial. As RTE and ITP point out, a distinction must be drawn between a refusal to supply a product to customers who wish to use that product on a derivative market and a refusal to grant a licence to a competitor who wishes to produce and sell products incorporating the protected work. In the first case the existence of any infringement of Article 86 does not depend on whether the products concerned are protected by an intellectual property right....
... it is appropriate to draw an analogy with the situations at issue in Volvo v Veng and CICRA v Renault, namely that Volvo and Renault were entitled to refuse a licence to market spare parts that had been produced without Volvo's and Renault's approval. It should be noted that the Court of Justice did not see fit in that connection to distinguish between licences for the purpose of competing on the market for the sale of spare parts and licences for the purpose of competing on the market for repairing Volvo and Renault cars.
There is therefore no basis for treating the exercise by a copyright owner of his copyright in order to prevent competitors from using the protected work differently according to the market on which such use takes place..... the possibility of exploiting the copyright on what is described as a derivative market must be regarded as necessary in order to obtain sufficient reward for creative effort."
The Hilti case concerned the Commission's finding that a manufacturer of nail guns and the nails and cartridge strips which are used with them had abused its dominant position in the nail gun market, by practices preventing competitors from supplying nails for use with Hilti guns. The Court of First Instance upheld the Commission's decision, saying that nail guns, cartridge strips and nails constitute three separate markets, and that there is a separate market for Hilti-compatible nails. Hilti had abused its dominant position by demanding excessive fees and so needlessly prolonging proceedings for the grant of compulsory licences to competitors, and by selective and discriminatory policies. These included reducing discounts to its customers, when Hilti cartridge strips were bought without Hilti nails, and refusing to fulfil orders or to honour guarantees when non-Hilti products were used. Hilti had failed to ask the UK authorities to confirm its claim that non-Hilti nails were dangerous, and so had no right to eliminate their use itself. On appeal, the Court of Justice also found against Hilti. The Commission had found that Hilti had tied the sale of nails to sales of strips, refused to supply cartridges to competing producers of nails, and refused to supply cartridges for resale. Hilti also gave more favourable discounts to customers which agreed to buy only its products. Hilti's practices therefore, though intended to exclude downstream competitors, involved both its customers and its competitors. As in Commercial Solvents, therefore, there was no question of the dominant company having difficulty in supplying sufficient quantities, there was little competition downstream, and no real justification for the refusal to supply was suggested.
In the Greek Television case the Greek television transmission monopoly had a subsidiary company which produced programmes. The Court said that a television monopoly can be created for non-economic reasons concerned with the public interest (this repeated the ruling in Sacchi). However, its operation must respect the rules on competition and free movement of goods. A television monopoly must not discriminate against foreign broadcasts unless this is justified under Article 59. Article 90 prohibits exclusive rights to transmit and retransmit programmes when these rights are likely to create a situation in which the monopoly is led to infringe Article 86 by discriminating in favour of its own programmes. In other words, a television monopoly must give non-discriminatory access to suppliers of programmes even if they are competing with its own programme producing activities. * * * xxx
This paper suggests that the essential facility concept is more important in European Union law than in U.S. antitrust law. Is this true, and why should it be so? Several points:
* * *
As mentioned above, the Commission considered in Sea Containers that the duty to provide access applies to a new entrant, and in the McGill-RTE-BBC case that the duty to provide access applies to new entrants in new markets. In addition, the EC measures on airport slots specifically benefit new entrants. Both in the Hoffmann La Roche and Michelin cases, the Court spoke of the maintenance or "development" of competition.
If the duty to provide access were limited to companies already in the market, it would unjustifiably create a privileged category of competitors without any legal or economic rationale, and deprive consumers of whatever new entrants have to offer. A distinction between a new entrant and an existing competitor increasing its capacity would not make sense. Nor would it make sense to protect entrants into new markets and not new entrants into existing markets. Where there is spare capacity (or where the nature of the essential facility is such that new entrants can always be supplied), new entrants must be given access. Where there is no or insufficient spare capacity, the legal position will depend on existing contractual commitments. Provided that these are of reasonable duration (a question discussed below), the new entrant must be given an opportunity to compete with other users or potential users for access when the contracts expire, at least when this is necessary to ensure effective competition. Where, as in the case of airports or harbours, access may require the allocation of arrival and departure times and periods in berths, the owner of the essential facility is (subject to specific measures e.g. on railways or airport slots) obliged to behave as an independent company would behave and to allocate or arrange slots without any discrimination in favour of its own activities or those of the existing users.
The dominant company is obliged to provide goods, services or information only for the new entrant's own use. A company cannot claim the rights of a new entrant user to sell them to others. A proposed dealer is not fulfilling the same function as a buyer who buys essential raw materials or components for its own use. A new entrant dealer or middleman is entitled to buy only if there are other companies similar placed to whom the dominant company sells. In any case, access to even a dominant company's products is rarely essential for a distributor or dealer, and a distributor has not got the same rights to be supplied as a competitor. Nor is a dealer usually as important a competitive force as a producer.
Any new entrant, and any user of a facility which wishes to change its arrangements, must give whatever notice is reasonable in all the circumstances in order to give time for discussion and negotiations of the new or revised arrangements.
A new entrant who only wishes to provide the most profitable services at peak periods could not claim equal rights with already established companies willing to operate throughout the year. If the practice of the industry is, for sound reasons, to provide a single service which includes highly profitable and less profitable times, there is no justification for allowing a new entrant to insist on that practice being changed. Of course the owner of the facility could choose to auction the right to provide the service at the most profitable times separately from the right to provide it at other times, but it could not be compelled to do so.
The owner of an essential facility cannot be obliged to invest in new capacity to provide facilities for more competitors. If extra capital investment is made to provide access to a new entrant, after whatever period of amortisation and notice is appropriate, the cost of the new investment should be charged in a non-discriminatory way to all the users. After a specially constructed new facility is amortised, it would be discrimination to make the new entrant bear a disproportionate share of the cost merely because of the time at which it obtained access. But it seems reasonable that a user should have to pay, directly or indirectly, the cost of a new facility constructed for its use even if this means that it has initially higher costs than its competitors: the different treatment is justified.
New entrants can of course be required to accept all reasonable technical requirements to ensure the safe and efficient use of the facility by all users, and to provide reasonable creditworthiness guarantees. However they cannot be required to provide e.g. bank guarantees for sums clearly greater than any that they might be obliged to pay, or other onerous or unjustifiable conditions. * * *
An economics-based approach is also appropriate to the question when a dominant company is obliged to grant licences of intellectual property rights to competitors.
A dominant company is normally free to acquire and retain for its own exclusive use intellectual property rights which give it advantages. However, if the rights in question give control of something without which competitors are not able to compete at all, there can be a duty to licence: the right is an essential facility. But this is true only if the licence is essential to produce any goods to compete in a whole market. An intellectual property right does not normally or necessarily create a monopoly in a whole product market. Licences in general need not be given merely to produce specific design of goods such as components which would otherwise infringe the dominant company's designs, copymark or trademark rights: if licences are needed only for such purposes, there is a duty to licence only if there is some related exploitative or exclusionary behaviour in addition to the refusal to licence, and for which the granting of a licence is an appropriate competition law remedy.
In fact the law will be unclear until the Court gives judgment in RTE-Magill, and the following comments can only be tentative. No doubt the final result of the RTE-Magill case will considerably clarify the law. A detailed analysis of the long opinion of the Advocate General in RTE would not be appropriate here. But some points can be made:
- if the Advocate General is right, it would follow that the legal result would be radically different depending on whether Article 85 or Article 86 applies. Nothing that the Advocate General has said would suggest that compulsory licensing could not be ordered in the case of a patent pool or any other arrangement under Article 85, in cases such as IGR-Stereo Television. But the Court in Continental Can said that Articles 85 and 86 should be applied consistently with one another.
When is ordering a compulsory licence an appropriate remedy? At first sight, a remedy ought to fit the abuse as well as possible: if refusing a licence is not an abuse, a compulsory licence is prima facie not the right remedy. On this basis, the remedy should be to order the dominant company to end the additional exploitative or exclusionary behaviour which makes the refusal to licence unlawful.
This theory is not necessarily correct, for the following reasons:
Of course, competition law does not authorise the authorities to put an end to dominance, but only to abuses. But the licence should not seek to end the dominance, but merely to create some competition in the market other than that in respect of which the intellectual property right originated.
The dominance may not be (and in most cases is not) due to the intellectual property right, (even if the dominance exists in the market to which that right primarily relates) and so a licence will not put an end to the dominance.
It may also be objected that compulsory licences effectively put an end to the monopoly conferred by the intellectual property right. However, that is the reason why licences are ordered only if there is some related abuse other than mere refusal to licence. Also, licences would not be ordered generally to all competitors: they would be given only as far as the circumstances made them necessary, e.g. only insofar as was needed to create competition in the second market.
It would be an impossibly long task to compare fully the Community law discussed here with the US law, but it is worthwhile to look at the Community law in the light of the views of Professor Areeda. In a recent paper he made several points which are relevant to this paper:
The conclusions to be drawn from all this seem to be: