Monday, August 3, 2009
Beyond 'Essential Facilities': Innovation, Intellectual Property and Competition Policy Across the Atlantic
Posted by D. Daniel Sokol
ABSTRACT: In September 2007, the Court of First Instance (CFI) affirmed the European Commission's 2004 decision finding that Microsoft has abused its dominant position by refusing to supply interoperability information to its competitors, and affirmed that in addition to the imposition of a fine, forcing Microsoft to disclose such information is an appropriate remedy even if this information is protected by intellectual property rights. In this decision the CFI continued a line drawn in several previous decisions, which found that a refusal to license intellectual property may amount to an abuse of a dominant position in violation of the EU competition law, and that a duty to license such intellectual property may be an appropriate remedy. Doctrinally, these decisions developed and implemented the â€œEssential Facility Doctrineâ€. Although controversial in the EU itself, these decisions seem to be even more controversial in the eyes of many American antitrust scholars and commentators. Generally, these decisions have been seen as undercutting the very basic principle underlying IP rights: the right to exclude others. Thus, in response to the decision in the Microsoft case, the US Assistant Attorney General for Antitrust has taken the unusual step of issuing a same-day press release criticizing the decision of the CFI, expressing the concern that â€œthe standard applied ... by the CFI, rather than helping consumers, may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition.â€ For many critics, on both sides of the Atlantic, the decisions signal an unhealthy European appetite for interventionist regulation, disrespect for property rights in general and IP rights in particular or at least a short-sighted approach with respect to the harmful long-term effects of such decisions on innovation. Under this account, these decisions reflect serious divergence, perhaps a chasm, between the EU and the US. According to this view, the US supposedly protects IP rights more vigorously, does not exhibit the same regulatory appetite as the EU, and embraces a better long-term pro-IP and pro-innovation approach. Even commentators who approve of applying the essential facilities doctrine to intellectual property in appropriate cases share the view that on this point the EU and the US clearly diverge.
While these commentators have correctly identified a doctrinal difference in the way the essential facility doctrine is applied on both sides of the Atlantic, this proposed research will argue that this perceived divergence between the two jurisdictions is quite simplistic. It overlooks various other facets of convergence and divergence, the understanding of which is equally no less important in evaluating how each of the jurisdictions effectively treats the interface between competition law and intellectual property. For example, the focus on essential facility doctrine ignores the fact that in many of the cases applying the doctrine, the IP rights covered subject matter that would not be protected by IP rights in the US in the first place. Naturally, this complicates attempts to determine which jurisdiction protects intellectual property rights more strongly. I will demonstrate how US copyright law, more radically than any other copyright system in the world, has traditionally incorporated pro-competition, pro-innovation and pro-compatibility rules that address many of the concerns which EU law sporadically attempts to address by applying the essential facilities doctrine. Thus, for example, the Fair Use defense and its wide and flexible application in the US, the way US courts have applied the distinction between ideas, facts, and expressions, or applied the merger doctrine, all reflect a systematic attempt by US copyright law to prevent the abuse of copyrights to stifle competition and innovation. Moreover, I will suggest that these unique features of US copyright law, together with the prevalence of private antitrust litigation in the US, and coupled with the IP misuse doctrine, represent much more profound divergence, which made the US simultaneously both less â€œrespectfulâ€ to IP ownersâ€™ interests, more aggressive in applying antitrust to IP-related conduct, but also more conducive to innovation.
Generally, the proposed research will aim to advance two main arguments: a general and a specific one. The general argument will maintain that apprehension of the substantive rules in the areas of IP law and competition law (i.e., the rules defining IP rights and the grounds for competition law liability) is a necessary condition for a meaningful analysis of the cross-Atlantic differences with regard to innovation, intellectual property, and competition policy but not a sufficient one. In addition to understanding the substantive rules and how they respond to each other, it is also crucial to understand how they work within a larger legal and institutional matrix. In order to fully understand and evaluate each jurisdictionâ€™s rules and performance, it is also important to grasp how the substantive IP and antitrust rules interact with other procedural and evidentiary rules, how they frame and are framed by the available remedies, and how they are situated within other aspects of institutional design, such as the division of rule-making authority between state and federal courts in the US, or between member states and EU institutions in Europe. Therefore, focusing on one substantive rule, how the essential facility doctrine is applied in the two jurisdictions, is likely to reveal only a partial aspect of the relevant divergences and convergences. As a result, policy recommendations based on such limited analyses risk being misguided. The proposed research will contribute to the debate by highlighting various other aspects which comprise the larger matrix in order to move beyond essential facilities and towards better understanding of the two jurisdictions and their respective strengths and weaknesses.
The specific argument, perhaps a more contentious one, posits that examining these larger matrices may reveal that overall, driven by pro-innovation and pro-competition impetus, the US system has tended to circumscribe IP rights (at least copyright) more closely and to subject them to competition law scrutiny more aggressively than the EU. Contrary to frequently held views, I will suggest that this is one of the factors that have made the US more conducive to innovation. In essence and despite appearances to the contrary, the US has followed the principle of "less is more". If this observation is correct, its insights may be useful for the EU (and other countries such as Canada) in choosing the optimal rules relating to the IP/competition interface. It may also be useful for the US in evaluating whether it is interested in adhering to or moving away from its historical course.