Does Competition Law Restrain or Otherwise Safeguard Intellectual Property Rights? A Reflection of Capital and Technology-Importation Efforts to Countenance Manufacture in Special Economic Zones in Lao PDR
By: Xaypaseuth Phomsoupha, Ph.D.
Principal Solicitor-at-Law
Researcher & Author
This abridged article may be appropriate for Laotian legal practitioners practising commercial law and academic staff in Lao universities that offer courses in international business law.
1. Introduction
The free movement of goods and services is central to economic freedoms, where competition has enhanced the production of such goods and services. Innovation leads to a high value of the goods and services for the consumers’ satisfaction while safeguarding intellectual property rights incentivises the rights owners to invent novelty subsequently.[1] The passing-off of other products infringes copyright legislation and undermines the introduction of new products into a new market. Compatibility of locally produced accessories with patent-manufactured products made in other places falls under the international intellectual property rights domain, which importing territories must address painstakingly.[2] Where individuals control the market, price distortion exists, and thereby, the dominant position is abused by those who take command of the production and service processes. Public regulators have legislated intellectual property rights and competition laws to deal with competition for the manufacture of goods while protecting businesses from being detrimental to marketplace distortion.
The host regulating authorities face the daunting task of handling the manufacture and distribution of goods originating in other jurisdictional territories, absent international intellectual property rights norms. Nonetheless, promulgating effective legislation by the host regulatory bodies helps boost investors’ confidence in bringing FDI and technology into a country.[3] The operative legal supervision should ensure benefits for consumers and efficient outcomes for business partners in equal measure.[4] The author intends to retrieve his past research work for a UK academic institution and bring it to the attention of Lao legal practitioners who have practised law in the fields related to developing and operating special economic zones currently on the rise in Lao PDR. Academic teaching staff in the Lao universities may benefit from the analysis of competition versus intellectual property rights protection hereunder.
2. Lessons from the EU
2.1. Intellectual Property Rights
Intellectual property rights exist together with exclusivity owned by the inventors or right holders. The intellectual property rights in intangible property encompass patents, trademarks, and copyrights. A trademark or patent can be protected territorially or nationally, depending upon its registration. According to Susy Frankel and Daniel Gervais,[5] there are a number of EU legal instruments from which the intellectual property rights in tangible and intangible assets emanate. Many countries have signed up for international conventions like the following: [6]
– The Paris Convention.
– The Berne Convention.
– The Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations.
– The WIPO Copyright.
– The WIPO Performances and Programs Treaty.
– The Brussels Convention Relating to the Distribution of the Programme – Carrying Signals Transmitted by Satellites.
– The Geneva Phonograms Convention.
– The Madrid Agreement for Repression of False and Deceptive Indications of Source of Goods.
– The Patent Law Treaty.
– The Trademark Law Treaty.
While intellectual property rights owners attempt to control market functions, right holders tend to dominate the availability of the products or services resulting from the right’s exploitation.[7] As such, rewards must compensate for resources and time, in which an innovator has solely borne risks of failure in the processes of manufacture and distribution.[8] The notion of product protection through legal instruments exists in Lao PDR, which needs to expand accessions to more conventions, as listed above, to protect investment in manufacturing and bring capital into the country.
2.2. Competition Law
Where goods and services come from more than one source, consumers have more choices to utilize them as they prefer. According to John H. Barton,[9] consumers enjoy a reasonable, cheap price for new goods and services through the principles of a free market mechanism. Competition law constitutes the rules whereby public regulators intend to correct restrictive trade practices for goods manufacturing and the provision of services in a particular jurisdiction.[10] The public regulators also enforce competition law to redress abuses of a dominant position, where a specific group of businesses control the manufacturing and distribution of goods and services. The regulation stifles cartels and trade abusive practices, which result in price-fixing, dominating markets, and controlling the flow of technology and physical goods.[11] The abusive trade practices are repugnant to the free movement of goods and services. In the UK, national legislation, including the Competition Act 1998 and the Enterprise Act 2002, [12] has regulated abuses of market power within its jurisdiction. The UK Consumer Act gives consumers the right to challenge a legal action against a breach of the competition law, where the EU directive 93/13 is implemented in the UK’s territory.[13] Articles 101 and 102 of the Treaty on the Functioning of the European Union made the EU’s competition law regulate the free flow of goods and services throughout the EU’s jurisdiction, including the UK.[14] Following the BREXIT, the UK revisited its legislative stance to maintain harmonizing competition vis a vis IPRs with the EU member neighbours.
2.3. Relationship Between IPRs and Competition Law
One must implement effective rules to secure fair competition in producing goods and services amongst producers domiciled in each member state in the single EU market.[15] Prohibition of price-fixing by businesses is the fundamental law for the free market. The competition policy extracted from Article 101-TFEU gives rise to incompatibility with the EU’s national market.[16] All agreements, decisions, and concerted practices made by undertakings in the member states that hinder, restrict, or impair competition shall be annulled. Where contradiction exists, provisions of the TFEU shall prevail over those in the national law.[17] However, the foregoing policy is exempt from the prohibition, where such policy aims to improve the production and distribution of goods and enhance technology transfer.[18] Article 102 of the TFEU restrains undertakings from abusing in whole or part a dominant position within the national and territorial market.[19] The policy enshrined under Article 102 concerns the application of low trading prices imposed with inadequate conditions, quota setting for the production and distribution of the goods regardless of the supply and demand thereof, differentiating of requirements for similar transactions, making contracts conditional upon unreasonable requirements of the third parties, and other acts alike.[20] Provisions regarding the competition under the TFEU predecessor, like the TEEC, were complemented by EC Regulation No 1/2003,[21] which abrogated unfair control over the free movement of goods and services.
Later, Regulation 1/2003 systematically introduced changes to enhance effective competition, bringing about innovative production and service processes.[22] The EC subsequently applied a pro-competition policy, namely Block Exemption Regulations (BERs), which strengthened provisions in Article 101(3) of the TFEU. BERs helped address abusive practices in technology transfer, research, and development contracts. Regulation (EC) No 1215/1999 formed the legal basis for the BERs application.[23] The EC also introduced licensing systems, which were contained in a special Directive for multi-territorial businesses dealing with copyright and musical works.
3. Competition Law Regulating IPRs
Since the 1960s, IPRs and the national competition laws of the EU member states seemed to exist sporadically.[24] Previously, each jurisdiction thereof had exercised the right independently. Abstractedly, IPR law and competition principles tended to function to attain goals at a different end. Each IPR and competition law existed and was enacted by different legislative systems.[25] While the IPRs concern an exclusive right to innovation, competition nullifies perquisites or domination in the same marketplace. Despite being paradoxical, the two pieces of law have been adjusted to serve society consistently. In other words, exclusive rights go in parallel with open access to the unfettered markets within the area of the same undertakings.[26] However, the dichotomy between the IPRs and competition law may result in legal ramifications if both legislation pieces are unjustified. Legally, an IPR holder needs to ensure that his conferred exclusive right is not infringed while benefitting from the exploitation by others without being detrimental to his undertakings.[27] The EU had addressed the two seemingly conflicting views with a theory of immunity of IPRs from competition law under the circumstances where the IPRs exercising goes without impairing the competition principles. [28] So, the freedom of goods and services movement and regulation balance out, and so do the regulation and supervision.
In order to address the contradiction between the IPRs and competition law principles, the Court Justice of the EU earlier tested the immunity theory in Etablissements Consten and Grundig v Commission.[29] Etablissements Consten signed an agreement with a German-based company, Grundig, who had manufactured GINT TV sets in Germany. Consten, acting as the distributor, registered the trademark “GINT” in France. Upon signing the agreement with Grundig and registering the trademark “GINT” in France, Consten believed that it had held an exclusive right to the TV sets “GINT” distribution in France and no parallel importation of the TV sets with the trademark “GINT” from Germany would take place without obtaining a proper agreement of Consten.[30] Upon an appeal filed by the EU, the CJEU granted an injunction to prevent exercising the exclusive right under French national law. The CJEU decision did not retroactively rescind the granted rights; however, the injunction stifled the exercise of the right to a certain degree where prohibition could be in effect only.[31] Hence, the law enforcement process went on in the EU market mutatis mutandis.
Competition law has been enforced strictly in the EU jurisdiction over the past decades. Regulations, as embedded in Articles 101 and 102 of the TFEU, have been observed in various commercial and industrial fields.[32] The Commission has the full authority to impose fines on business actors who violate EU competition law. In Courage v Bernard Crehan and Crehan v Bernard,[33] those in the breach were subject to liquidated management to a great extent.
To date, competition law has taken control over IPRs more consistently. Organizations functioning under the EU administration have improved pertinent legislation from time to time in responding to the advent of new technology; intellectual property rights holders must allow patented products compatible with parts and/or accessories produced locally.[34] The EU jurisdiction is in the advanced stage; nonetheless, it must still readjust to a new environment continuously.
3.2.1. Agreements and Concerted Practices Under Article 101- TFEU
Article 1(1) of Regulation (EC) No 1/2003 rescinded exemption on a case-by-case or agreement-by-agreement basis.[35] Instead of deferring to judgment on the cases by the CJEU, market participants proposed to have the exemption signed into substantive legislation. As such, the EU has amended several sets of EU legislation in response to the needs of its member states’ commercial actors.[36] Businesses determined they should have benefitted from having a legal arrangement and concerted actions embedded in Article 101(3) of the TFEU.
The Commission introduced the Technology Transfer Block Exemption Regulation (TTBER),[37] Regulation No 1217/2010 on research and development agreements (R&DBER), and Regulation No 330/2010 on vertical agreements and concerted agreements (VBER).[38] Block exemption regulations (BERs) typically concern technology transfer and research development between different processes therein. BERs enshrined in the EU legislation outline numerous provisions exempt from the anti-competitive agreements, such as exemption from Article 101(1) of the TFEU.[39] It has been provided that in entering into contracts, market actors are entitled to benefit from the BERs only when they share a market at some threshold, beyond which no exemption is granted. Also, hardcore clauses are set outside the exemption herein. However, in Hoffmann – La Roche v Commission,[40] the CJEU found abuse of the dominant position even though the license agreement qualified the TTBER under Article 101(3) -TFEU.
Where several firms have cooperatively entered a research and development project, the agreement on BERs to pool the required patent is even more complicated.[41] A patent pool provides several participants with a collective licensing scheme, which typically applies to the information and communication technology (ICT) sector. By pooling technology, the participants abide by pro-competitive effects on the one hand and achieve a cost reduction on the other.[42] BERs help regulate concerted practices, which tend to turn a pooling patent into an exclusive right inadvertently.[43] For the participants’ convenience, the EU has created a one-stop service centre in a member state for providing licenses.
Standardization agreements define technicality and quality with respect to the specifications of goods and services for current and future applications. Standardization includes but is not limited to grades, sizes, colours, and even material composition, where compatibility and interoperability with other products are indispensable.[44] In the EU, three standardization organizations are currently active. Those standardization agencies include Cenelec, ETSI, and CEN. Where the relevant technology is found sub-standard or without a proper license, its holder is in breach of the patent or must lose it as required by the standardization agreements.[45] Under any circumstances, the state legal supervision must monitor the licensors and licensees concurrently.
Licensing agreements are the legal instruments whereby an IPR holder should have been legitimately granted on the principles of his national law. However, utilising the licensing agreements on a pro-competitive effect shall be of great care to the parties thereto, and assessment shall be done on a case-by-case basis.[46] Otherwise, it could be counter-productive; hence, the users drift towards the anti-competitive end. In Nungesser v Commission,[47] a France-based agriculture research institute, namely INRA, signed a contract with the German firm Nungesser, represented by Mr. Eisele, who registered maize seeds in Germany. Under the signed contract, Mr Nungesser was entitled to sell the maize seeds in Germany, of which one-third came from his farming facilities, and the rest were imported from France.[48] The parties also agreed that Mr. Eisele was the sole importer who could bring the maize seeds from France to Germany.
Nonetheless, INRA was entitled to freely move its products to the EU in accordance with the provisions of EEC legislation being in force at the time.[49] The agreement, as so signed by Nungesser and INRA, conflicted with the EEC legislation. The CJEU ordered the parties to have the restriction on the importation of the seeds justified by deferring to the principles under Article 101 – TFEU being currently in force.[50] In the absence of exclusivity concerning a capital-intensive research-based product like the newly bred maize seeds, open access to the effects would be detrimental to the new technology and damage competition for leveraging recent developments in the Community.
3.2.2. Dominant Market Power Under Article 102 -TFEU
Refusal to license generally concerns the exclusive right holder’s abuse of a dominant market position. The abuse of market power relates to a situation where the existence and exercise of the right are distinctive.[51] Nonetheless, the right holder’s action reasonably withheld granting a license protects this exclusive right in the subject matter in question. The exclusive rights protection was reflected in Volvo v Veng,[52] where the owner of an industrial design refused to grant a license to the third parties to deal in the car spare parts; even a reasonable fee was offered to the rights proprietor in exchange for the license. Volvo’s prevention to protect its exclusive right from third parties to produce, sell, and import car spare parts by refusing to grant the permit did not constitute an abuse of Volvo’s market power because it acted reasonably.[53] One must note to what extent the action of Volvo was considered reasonable so long as its country of domicile has signed several conventions as afore listed.
Another CJEU case law was introduced in Magill, in which TV stations in Ireland and the UK did not grant licenses to produce program listings to a third party.[54] The CJEU found that the broadcasting companies, who rejected proposals filed by third parties, held a dominant position in making TV programs.[55] The CJEU concluded that the broadcasting companies had prevented a new product like the listings, which were unavailable in Ireland and the UK at the time.[56] In addition, the broadcasting companies prevented other participants from entering the market and, at the same time, reserved the undertaking to benefit themselves and their associates.
Standard Essential Patents (SEPs) concern a set of documents that outline requirements for a particular item, part, and system indispensable for a specific operation method or provision of services — the function of the document as guidelines to support compatibility and interoperability for interfacing one manufacturing process with another. [57] Standard-setting organizations (SSOs) govern various types of standards. Both SSOs and ETSI, functioning in the EU jurisdiction, have served as operative units providing guidelines emanating from the legislation the undertakings have utilized for transparent, fair access to the market. Samsung and Motorola’s decisions reflected the SEPs influence on rights enforcement.[58] The Commission needed to seek an explanation of the SEPs holder’s commitment. The Commission advised the SEPs holders to obtain injunctions from the CJEU should they have wished to provide their licensee with a FRAND terms license.
4. Conclusion
The intellectual property rights and competition law in force in the EU’s jurisdiction existed in the EU and its member states. While the IPRs concern an exclusive right for the right holder, the competition law has provided free, fair access to the market without the right holders taking advantage of the other participants and without the third parties depriving benefits of the IPRs holders.[59] The EU has long been tasked with addressing the conflicting dichotomy and introducing compatibility between the two sets of legislation.[60] Abiding by the national and EU legislation, businesses domiciled in each member state have promoted a free movement of goods and services within the Community territory.
At the outset of the European Community era, conflicts between national laws and various treaties were spotted in many manufacturing and service fields. In fostering the single market operating in the EU, the Commission granted individual exemptions and notifications on provisions of the separate agreements.[61] Since the second half of the last century, the EU has enforced several treaties in compatibility with the laws of the member states. Supplementing the treaties, organizations functioning under the EU administration have developed several secondary laws, including guidelines, directives, and instructions, to name a few, to support the EU functioning.[62] As aforementioned, all the pieces of legislation have aimed at pro-competitive effects and free movement of goods and services within the EU territory.
The Treaty on the Functioning of the European Union (TFEU), which succeeded the Treaty on the European Economic Community (TEEC), was notably legislated for the IPRs and competition law for the EU. [63] Article 101 -TFEU provides that all agreements and concerted practices signed and entered into by parties thereof to impair and diminish competition vis a vis distribution of goods and services shall be abolished. Likewise, Article 102 – TFEU prohibits dominating a position or market by undertakings by way of imposing unfair conditions, setting quotas, double standards, and other abusive actions for the market actors.[64] Violating the foregoing rules shall result in a CJEU action and thereby be subject to paying fines and removal from the market.[65] The advent of new technology coupled with a dynamic change to the EU composition has required legislators to revisit the principles of IPRs and competition law evolving from time to time so that the two pieces of legislation benefit society in all member states and counterparties.
For Lao PDR, in the wake of SEZ development happening in many parts of the country, the Lao regulatory body responsible for legal instruments supervision that aims to promote the production of goods and services and to market them in the Lao territory and other jurisdictions, where such goods and services are sellable, will need to tweak national legal instruments in parallel with adequate supervision to go in line with international norms and practices. The supportive national legislation enforced with effective supervision results in effectively fair competition and, thereby, a lower production cost for manufacturers but higher state tax incomes accrued from the excellent business profit margins and other monetary profits and social benefits for the locals.
BIBLIOGRAPHY AND SOURCES
Primary Sources
Legislation
Commission Regulation (EU) No 316/2014
Commission Regulation (EU) No 330/2010
Consolidated Version of the Treaty on the Functioning of European Union [2012]
Council Regulation 1/2003
Council Regulation No 19/65/EEC
Guidelines on the application of Article 101 TFEU, [2014] OJ C 89/3, 4.4 (“Technology”)
Regulation (EU) No 1025/2012 on European standardization, [2010] OJ L316/12
The UK Competition Act 1998
The UK Consumer Act 2015
The UK Enterprise Act 2002
Cases
Case AT 39985-Motorola and Case AT 39939
CJEU Case 238/87, Volvo v Veng, [1988] ECR 6211
CJEU Case 258/78, Nungesser v Commission, [1982] ECR 2015, 2069
CJEU Case C-170/130, Huawei v ZTE, ECLI-EU:C:2015:477
CJEU Case C-453/99, Courage v Bernard Crehan and Crehan v Bernard and Others, [2001] ECR I-6297, and in Joined Cases C-295/04, C-296/04, C-297/04, and C-298/04, Manfredi, [2006] ECR I-6619
CJEU joined Cases C-241/91 and C-242/91, RTE and ITP v Commission (Magill), [1995] ECR 1-743
Etablissements Consten and Grundig v Commission, [1966] ECR 299
Hoffmann – La Roche v Commission, [1979] ECR 461, ECLI:EU:C:1937-36
Secondary Sources
Books
Frankel S, Gervais Daniel J, Advanced Introduction to International Intellectual Property, (Edward Elgar Publishing, Cheltenham, UK 2016)
Kur A, Dreier T, Luginbuehl S, European Intellectual Property Law (Edward Elgar Publishing, Cheltenham, UK 2019)
Websites
John H. Barton, ‘European Competition Law Review (1997) 1
[1] Susy Frankel, Daniel J. Gervais, Advanced Introduction to International Intellectual Property, (Edward Elgar Publishing, Cheltenham, UK 2016) 42-45
[2] ibid
[3] John H. Barton, (1997), European Competition Law Review, 1-18
[4] ibid
[5] ibid (n 1)
[6] Ibid (n 1), 16-17
[7] Ibid (n1)
[8] Ibid (n 1)
[9] 1 ibid (n 3)
[10] Ibid (n3)
[11] Ibid (n 3)
[12] UK Competition Act 1998
[13] UK Enterprise Act 2002
[14] TFEU, arts 101,102
[15] ibid
[16] ibid
[17] ibid
[18] TFEU, art 101
[19] ibid
[20] ibid
[21] Council Regulation 1/2003
[22] Ibid (n 18)
[23] Council Regulation No 19/65/EEC
[24] Annette Kur, Thomas Dreier, Stefan Luginbuehl, European Intellectual Property Law, (Edward Elgar Publishing, Cheltenham, UK 2019) 480
[25] ibid
[26] ibid
[27] ibid
[28] Ibid, p 480
[29] Etablissements Consten and Grundig v Commission, [1966] ECR 299
[30] ibid
[31] Ibid, [1966]
[32] Ibid (n 12)
[33] CJEU Case C-453/99, Courage v Bernard Crehan and Crehan v Bernard and Others, [2001] ECR I-6297, and in Joined Cases C-295/04, C-296/04, C-297/04, and C-298/04, Manfredi, [2006] ECR I-6619
[34] Ibid (n 12)
[35] Ibid (n 18)
[36] Ibid (n 18)
[37] Commission Regulation (EU) No 316/2014
[38] Commission Regulation (EU) No 330/2010
[39] ibid
[40] Hoffmann – La Roche v Commission, [1979] ECR 461, ECLI:EU:C:1937-36
[41] ibid
[42] Guidelines on the application of Article 101 TFEU, [2014] OJ C 89/3, 4.4 (“Technology”)
[43] ibid
[44] Regulation (EU) No 1025/2012 on European standardization, [2010] OJ L316/12
[45] CJEU Case C-170/130, Huawei v ZTE, ECLI-EU:C:2015:477
[46] ibid
[47] CJEU Case 258/78, Nungesser v Commission, [1982] ECR 2015, 2069
[48] ibid
[49] ibid
[50] Ibid, [1982]
[51] ibid
[52] CJEU Case 238/87, Volvo v Veng, [1988] ECR 6211
[53] ibid
[54] CJEU joined Cases C-241/91 and C-242/91, RTE and ITP v Commission (Magill), [1995] ECR 1-743
[55] ibid
[56] Ibid, para 54-56
[57] Annette Kur, Thomas Dreier, Stefan Luginbuhl, 2019. European Intellectual Property Law, (Edward Elgar Publishing, Cheltenham, UK 2019) 510-512
[58] Case AT 39985-Motorola and Case AT 39939
[59] Ibid (n 52)
[60] ibid
[61] Ibid (n 37), (n 38)
[62] Ibid (n37), (n 38)
[63] TFEU, art 101. Art 102
[64] ibid
[65] ibid