WTO Competition Law Revisited

TRIPS Competition Flexibilities

by Tu Thanh Nguyen & Hans Henrik Lidgard *

Abstract

International trade legislation and TRIPS in particulate contain elements of a competition law system. Flexibilities in the system leave substantial discretion to developing countries, which can apply these rules to counterbalance demands imposed on them by the TRIPS system. The risk of both over- and under-enforcement should not be overlooked. Precise standards regarding competition law interpretation and enforcement for building an efficient structure is required. In spite of the mishaps with the Singapore issues in the Doha round, it still appears clear that the WTO provides the right forum for such discussions. Post-Doha it must be possible to re-establish the discussion. The way forward may well be a new Fair Trade Agreement under the WTO “umbrella”.

* Faculty of Law, Lund University, Sweden. An earlier outline of this article was presented by Hans Henrik Lidgard at the Conference “Competition Law in a Global Perspective - Challenges and Trends” in Copenhagen, Denmark, 27 Feb. 2009 and developed in Nguyen, T. T. (2009), Competition Law in Technology Transfer under TRIPS Agreement - Implications for Developing Countries. Lund: Lund University.

1 1. Introduction Competition law has for long been an important tool in the developed world for fostering economic development.1 An international legal framework for competition, especially for technology transfer-related competition, is endorsed by the international community. Notwithstanding that fact, the existing framework in primarily the TRIPS Agreement, is still rather general and does not provide clear guidance. Improved rules were the subject of WTO discussions under the Doha round in Singapore, but the subject was shelved in Cancun for obscure reasons. Based on the flexibilities in the TRIPS Agreement, developing countries – tired of technology transfer promises, which never seem to materialize - are taking action. Over sixty developing countries have now enacted competition rules as tools to support a dynamic economic development.2 Others are currently preparing to introduce legislation. The need for international coordination at the WTO level remains high. Pascal Lamy recently paved the way for a reopening of the discussions once the Doha round has come to an end: “ Looking beyond Doha, there are many new ideas floating around on potential areas for future work"; issues relating to competition, among other things, … These issues do not belong in the current agenda. Obviously nothing prevents us from thinking about the future but I believe serious work on any future topic should commence when the finish line of the Doha Round is firmly in sight”.3 The question we pose is whether competition rules serve the same purpose in developing countries as they do in the developed world, and to what extent the World Trade organization (WTO) is the right forum for supporting the international development. We focus on the impact of competition rules on technology transfer between developed and developing countries. Our aim is to investigate if, properly construed, competition law is a good response to the general globalization and sometimes excessive application of intellectual property protection, at least from the perspective of the developing countries.

2. Competition Law in the WTO

2.1. TRIPS Competition Flexibilities Trade barriers have long been under international review. Unification of national laws on restrictive business practices was proposed as long ago as 1926 at the World 1 Canada became the first country to enact competition legislation in 1889. The US passed the Sherman Act in 1890. EU competition rules were enacted in 1957 as part of the Treaty of Rome. 2 Mehta, P. S. (Ed.) (2006) Competition Regimes in the World - A Civil Society Report. Jaipur: Jaipur Printers at xxviii-xxxi. 3 Lamy, P. (2009), Strengthening the WTO as the Global Body, Presentation to the WTO General Council, 29 April. Available from: http://www.wto.org/english/news_e/news09_e/tnc_chair_report_29apr09_e.htm.

2 Economic Conference.4 After World War II the Havana Charter for an International Trade Organization (ITO), contained a separate chapter dealing with restrictive business practices but it was never ratified.5 In 1980 the United Nations established a “Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices”. The objective was to “ensure that restrictive business practices do not impede or negate the realization of benefits” arising from trade liberalization, particularly practices affecting trade and development in developing countries.6 It was followed in 1985 by a proposed International Code of Conduct on the Transfer of Technology, which listed fourteen restrictive practices which would have been forbidden in technology transfer agreements.7 Due to dissension between developed and developing countries, as well as changes in the world economic and political situation, the ToT Code never came into force.8. Although there is no coherent body of competition rules, a number of provisions in the WTO agreements are closely related to competition issues.9 WTO competition provisions regarding private anti-competitive practices can currently be divided into three categories: (i) mandatory provisions preventing anti-competitive practices, (ii) pro- competitive provisions, and (iii) discretionary provisions preventing anti-competitive

4 Furnish, D. B. (1970) ‘A Transnational Approach to Restrictive Business Practices’. International Lawyer, 4:317-351 at 318-319. 5 Final Act of the United Nations Conference on Trade and Employment: Havana Charter for an International Trade Organization. Available from: http://www.worldtradelaw.net/misc/havana.pdf [Accessed 1 May 2009]. 6 UNCTAD (2000) The United Nations Set of Principles and Rules on Competition. TD/RBP/CONF/10/Rev.2. Geneva at 8. 7 The 1985 version of the ToT Code listed fourteen restrictive practices, which were to be forbidden in technology transfer agreements. See Chapter 4 of the 1985 version of the ToT Code, in UNCTAD (2001) Compendium of International Arrangements on Technology Transfer: Selected Instruments. Geneva at 266- 269. 8 See Patel, S. et al. (eds.) (2001) International Technology Transfer: The Origins and Aftermath of the United Nations Negotiations on a Draft Code of Conduct. The Hague: Kluwer Law International; Sell, S. K. (1998) Power and Ideas: North South Politics of Intellectual Property and Antitrust. New York: State University of New York Press. In 1993, a draft of an International Antitrust Code (Munich Code) was submitted to the General Director of the General Agreement on Tariffs and Trade (GATT) by a group of distinguished scholars. The Munich Code’s aim was to establish competition rules by way of a plurilateral trade agreement in a post-GATT organization. The Munich Code was built upon five principles, namely application of substantive national law for the solution of international cases, national treatment, minimum standards for national laws, international procedural initiatives (establishing an international antitrust agency), and cross border situations. International Antitrust Code Working Group (1993) ‘Draft International Antitrust Code’. Antitrust & Trade Regulation Report, Special Supplement, Issue No. 1628. 9 Such provisions are contained in Article VIII of GATS relating to monopoly and exclusive service suppliers and Section 1 of the Reference Paper on Basic Telecommunications (www.wto.org/english/tratop_e/serv_e/telecom_e/tel23_e.htm) concerning the prevention of anti-competitive practices in telecommunications. See also Section 5 of the GATS Annex on Telecommunications, (www.wto.org/english/tratop_e/serv_e/12-tel_e.htm) relating to foreign suppliers’ access to and use of public telecommunications transport networks and services on reasonable and non-discriminatory terms and conditions. For a summary of competition rules existing in WTO agreements, see Noonan, C. (2008) The Emerging Principles of International Competition Law. Oxford: Oxford University Press at 405-461; Taylor, M. (2006) International Competition Law- A New Dimension for the WTO. Cambridge: Cambridge University Press at 160-162; Marsden, P. (2003) A Competition Policy for the WTO. London: Cameron May at 53-55.

3 practices.10 The provisions do not include a precise set of obligations, but they confer considerable discretion on WTO Members when deciding which practices are anti- competitive and how to sanction them under their domestic competition laws. The current competition rules, which are dispersed throughout various WTO agreements, are, however, not sufficiently precise to form a complete system and they cannot satisfactorily address fundamental relationships between trade law and competition law even though they do include an efficient dispute settlement mechanism (DSU). Competition law still remains a domestic/regional issue while cross-border private anti- competitive practices multiply. As analysed below, it is only TRIPS in the WTO package that clearly recognises the adverse effects of anti-competitive practices on trade, technology transfer and development. The question is, however, to what extent the competition rules in TRIPS create positive law or if they merely serve as non-binding references. The negotiating history of TRIPS reflects the concerns of developing countries regarding the adverse effects of IPR-related anti-competitive practices. In contrast, developed countries with established rules for control of these practices initially showed little interest in having such rules in the TRIPS.11 As a result of mutual concessions, TRIPS does contain in Articles 8.2, 31(k), and 40 provisions akin to competition rules.12 Under the heading “principles”, Article 8.2 states: Appropriate measures, provided that they are consistent with the provision of this Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology. This article recognises WTO Members’ competence to formulate or amend their domestic legislation and to adopt appropriate measures in order to prevent three inter- dependent kinds of IPR-related practices: (i) abuses of IPRs by right holders; (ii) practices that unreasonably restrain trade; and (iii) practices that adversely affect international technology transfer. Such restrictive practices cover both unilateral abuses by companies and contractual restraints on IPR-related trade. Article 8.2, read in conjunction with Article 48.1 (regulating compensation for the injury of a third party caused by abuses of IPR enforcement procedure),13 can also apply to anti-competitive abuse of IPR enforcement such as sham litigation.14 However, due to the scope of TRIPS,

10 See Alvarez-Jimenez, A (2004) ‘Emerging WTO Competition Jurisprudence and its Possibilities for Future Development’. Nw. J. Int’l L. Bus., 24: 488-492. 11 See further Nguyen, T. T. and Lidgard, H. H. (2008) ‘The CFI Microsoft Judgment and TRIPS Competition’. Currents International Trade Law Journal, 16(3):41-51; UNCTAD-ICTSD (2005) Resource Book on TRIPS and Development. Cambridge: Cambridge University Press at 543-546. 12 Articles 6, 31(c), and 37.2 of TRIPS Agreement, to some extent, may be also regarded as part of TRIPS competition rules. 13 Article 48.1 of TRIPS Agreement says that “[t]he judicial authorities shall have the authority to order a party at whose request measures were taken and who has abused enforcement procedures to provide to a party wrongfully enjoined or restrained adequate compensation for the injury suffered because of such abuse”. 14 Regarding sham litigation, according to Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 144 (1961) and its progeny (the Noerr Pennington Doctrine), if the patent holder maintains a lawsuit (i) which is objective baseless, in the sense that no reasonable litigant could realistically expect success on the merits, (ii) with a subjective attempt to interfere directly with the business relationships of a competitor, raising the competitor’s costs or hindering competitor’s market entry for instance, such conduct violates antitrust law. In the EU, the Commission recently gave a decision relating to sham litigation in Case COMP/A.37.507/F3, AstraZeneca, OJ 2006 L 332/24 (pending Case T-321/05). It is worth noting that in CFI,

4 Article 8.2 does not apply to other potentially anti-competitive arrangements with a primary object that does not directly relate to IPRs, such as of mergers and acquisitions.15 Article 40, as a lex specialis provision to Article 8.2 regarding anti-competitive practices in contractual licenses, provides: 1. Members agree that some licensing practices or conditions pertaining to intellectual property rights which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology. 2. Nothing in this Agreement shall prevent Members from specifying in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market. As provided above, a Member may adopt, consistently with the other provisions of this Agreement, appropriate measures to prevent or control such practices, which may include for example exclusive grantback conditions, conditions preventing challenges to validity and coercive package licensing, in the light of the relevant laws and regulations of that Member.16 Articles 40.3 and 40.4 contain procedural rules concerning consultation and cooperation between a WTO Member enforcing its measures regarding licensing-related competition control and another Member whose national or domiciliary is alleged, under the former’s competition law, to engage in licensing-related anti-competitive practices. Article 31(k), regarding unilateral abuses of IPRs, acknowledges that the remedy of compulsory licensing is available to correct such unilateral anti-competitive practices. It waives certain conditions in cases of compulsory patent licensing used to remedy anti- competitive practices. Article 31(k) reads: Members are not obliged to apply the conditions set forth in subparagraphs (b) and (f) where such use is permitted to remedy a practice determined after judicial or administrative process to be anti-competitive. The need to correct anti-competitive practices may be taken into account in determining the amount of remuneration in such cases. Competent authorities shall have the authority to refuse termination of authorization if and when the conditions which led to such authorization are likely to recur;17 Accordingly, if the conduct of a patent holder is held in judicial or administrative proceedings to involve anti-competitive practices, the competent authorities of a WTO Member may authorise a compulsory license without (i) prior negotiations with the patent holder and (ii) any requirement to predominantly supply the patent-embodied products to the domestic market. Furthermore, the amount of remuneration payable in such a case may be less than in the case of a commercial license transaction. These remedies are often applied under domestic legislation.

Case T-111/96, ITT Promedia NV v. Commission, [1998] ECR II- 111/96, the Commission laid down two cumulative criteria (but the Court of First Instance (CFI) did not rule on their correctness) to condemn legal proceedings implemented by an dominant undertaking against its competitor as an abuse under Article 82 EC, namely (i) the action “cannot reasonably be considered as an attempt to establish the rights of the undertaking concerned and can therefore only serve to harass the opposite party”; and (ii) “it is conceived in the framework of a plan whose goal is to eliminate competition”. See also Negrinotti, M. (2008) ‘Abuse of the Regulatory Procedures in the Intellectual Property Context: The AstraZeneca Case’. E.C.L.R., 29(8):446-459. 15 UNCTAD-ICTSD (2005), supra note Error: Reference source not found, at 547. 16 Articles 40.1 and 40.2 of TRIPS Agreement (emphasis added). 17 Article 31(k) of TRIPS Agreement (emphasis added).

5 2.2 Open-ended Nature TRIPS competition rules are of an open-ended nature, as the result of concessions between developed and developing countries.18 They do not stipulate precise obligations making the exercise of IPRs subject to the application of competition law principles. They merely provide WTO Members with substantial discretion to enact and enforce domestic competition legislation. In sum, Articles 8.2, 31(k), and 40 of TRIPS recognise the interventionist power of Members to control IPR-related anti-competitive practices. Article 40.1 acknowledges that some licensing practices or conditions are anti- competitive. Article 40.2 lists exclusive grant backs, no-challenge provisions and coercive package licensing as anti-competitive practices in contractual licensing. The list is not exhaustive as Article 40.2 expressly states that these practices are only examples.19 As WTO law should not be “read in clinical isolation from public international law”,20 TRIPS “shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose”. Thus, the term “anti-competitive practices” in TRIPS may be interpreted very broadly. If similarly interpreted, Articles 8.2, 31(k), 40.1, and 40.2, taken together, may be largely applicable to any anti-competitive practices relating to all of the IPRs covered by the TRIPS. This view is supported by the fact that Article 37.2 recognises that Article 31(k) can be applied mutatis mutandis to layout-designs, while Article 8.2 establishes principles, and Article 40 applies to all contractual licenses. TRIPS provides grounds for compulsory licensing as a remedy correcting anti- competitive practices in general and IPR-related anti-competitive practices in particular. Nothing in the Agreements prevent WTO Members from enacting their own laws allowing the grant of compulsory licensing together with injunctions, damages, fines, etc provided that due process is respected. TRIPS establishes minimum standards for intellectual property protection and the competition provisions are (as a concession) an exception.21 If minimum IPR standards are ensured, no affirmative obligation exists to introduce competition rules to promote trade or dissemination of technology.22 A complaining Member must prove that a private firms’ anti-competitive conduct is the effect of an action, i.e. direct involvement, rather than a non-action by another Member.23 Article 40.1 is only a non-committal, non-

18 UNCTAD-ICTSD (2005), supra note Error: Reference source not found, at 546. 19 The negotiating history of TRIPS shows that the parties initially listed the same 14 practices that had previously been listed in the 1985 version of the ToT Code. See also Article 43.2B of the Brussels Draft of TRIPS Agreement, MTN.TNC/W/35/Rev.1, 3 Dec. 1990, with Chapter 4 of the 1985 version of the ToT Code, supra note Error: Reference source not found. 20 WTO Appellate Body Report, United States-Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, circulated on 29 April 1996. 21 Ullrich, H. (2005) ‘Expansionist Intellectual Property Protection and Reductionist Competition Rules: A TRIPS Perspective’. In Markus, K. E. and Reichman, J. H. eds. International Public Goods and Transfer of Technology under a Globalized Intellectual Property Regime. Cambridge: Cambridge University Press at 733-734. 22 For instance regarding the restriction of outflows or inflows of technology transfer. 23 This can be inferred from WTO panel reports in Japan-Measures Affecting Consumer Photographic Film and Paper, WT/DS44/R, adopted on 22 April 1998, par. 10.41; and Argentina-Measures Affecting the Export of Bovine Hide and the Import of Finished Leather, WT/DS155/R, adopted on 16 Feb. 2001, paras. 11.49 and 11.51.

6 binding chapeau.24 It is left to Members’ domestic law to determine which practices are forbidden as anti-competitive. When a country introduces competition rules Articles 8.2 and 40.2 require that the measures must be “consistent” with TRIPS (consistency requirement), and “appropriate” (appropriateness requirement).

2.3. International Support Subsequent activities in different international fora confirm that competition rules, especially in the area of technology transfer, are believed to be important to developing countries’ socio-economic development. Developing countries have been urged in different ways to take action in this field in order to protect their national interests and consumer welfare. The Resolution adopted by the United Nations General Assembly on international trade and development in 2005 states: [It is important to strengthen and enable] trade, investment and business environments through the adoption of appropriate domestic measures and conditions to encourage local, regional and international investment and efforts to prevent and dismantle anti-competitive practices and promote responsibility and accountability of corporate actors at both the international and the national levels, thereby enabling developing countries’ producers, enterprises and consumers to take advantage of trade liberalization, and encourages developing countries to consider establishing competition laws and frameworks best suited to their development needs, complemented by technical and financial assistance for capacity-building, taking fully into account national policy objectives and capacity constraints.25 The resolution underscores the principle that domestic competition laws and regulations in developing countries should not be enacted as mere copies of western countries’ laws, but rather must suit the development needs of the developing world. What works in developed economies is not necessarily the right “medicine” for the developing world. This reflects the gradual changes in focus of antitrust/competition legislation over time, especially in the US and the EU. The transition from developing to developed country status with a full-fledged market economy requires time and gradual adaptation. Developing countries also need time to gradually tailor and enforce their domestic competition law to meet their particular socio-economic contexts. UNCTAD,26 WIPO, and WHO also strongly support the application of TRIPS competition flexibilities in developing countries so as to promote access to technology. The objective is to ensure that technology transfer takes place under fair and reasonable conditions. Domestic laws should be used by developing countries to eliminate any anti-competitive conduct in technology transfer. The 2007 session of the WIPO General Assembly adopted the WIPO Development Agenda consisting of 45 recommendations, organised into six clusters, which have been under discussion in the WIPO Committee on Development and Intellectual Property. The interface of IPRs and competition is addressed by four recommendations. WIPO supports

24 Correa, C. M. (2007) Trade Related Aspects of Intellectual Property Rights- A Commentary on TRIPS Agreement. Oxford: Oxford University Press at 399. 25 UN General Assembly Resolution on international trade and development, A/RES/59/221, 11 Feb. 2005, para. 30. Available from: www.undemocracy.com/A-RES-59-221.pdf [Accessed 1 May 2009]. 26 UNCTAD (2008) Capacity-building on Competition Law and Policy for Development. Geneva at 1-5.

7 (i) measures helping developing countries curb IPR-related anti-competitive practices through providing technical assistance and cooperation to those countries; (ii) norm- setting activities relating to competition and IPR-related competition flexibilities; (iii) pro-competitive IPR licensing practices; and (iv) opportunities within the WIPO for exchanges of information and experience on IPR-related competition issues27. During the 2008 World Health Assembly held by the WHO, various proposals were considered for assisting developing countries in adopting and implementing domestic competition law/policy to prevent or remedy anti-competitive practices in the use of pharmaceutical patents. The WHO highlighted the importance of promoting competition to improve the availability and affordability of health products in its global strategy and plan of action on public health, innovation, and intellectual property. One of the actions to be taken to achieve this purpose is “taking appropriate measures [consistent with TRIPS Agreement] to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology, in the field of health products.28

2.5. Remarks Technology transfer-related competition law matters may also be the subject of the so-called TRIPS-plus agreements. These agreements have been deployed to create stringent obligations regarding intellectual property protection on developing countries in return for trade concessions. The US has recently introduced stipulations in free trade/investment agreements, limiting compulsory licensing as a perceived threat to US interests. This may also extend to compulsory licensing as a competition law remedy. Under the US model Bilateral Investment Treaty of 2004, intellectual property rights and intellectual property licenses are regarded as forms of investment subject to wider protection than the protection accorded under the TRIPS.29 Such a commitment made to a developed country would clearly affect regulations on technology transfer-related anti- competitive conduct and enforcement in developing countries.

27 See WIPO Development Agenda, adopted by the WIPO General Assembly in 2007,. www.wipo.int/ip- development/en/agenda 28 WHO Global Strategy and Plan of Action on Public Health, Innovation and Intellectual Property, WHA61.21, 24 May 2008, Element 6.3(f). Available from: www.who.int/gb/ebwha/pdf_files/A61/A61_R21- en.pdf [Accesses 1 May 2009] 29 US model Bilateral Investment Treaty of 2004. Available from: www.state.gov/documents/organization/38710.pdf [Accessed 1 May 2009]. See also Barton, J. H. (2008) ‘Antitrust, Patents, and Developing Nations’. In: Netanel, N. W. ed. The Development Agenda: Global Intellectual Property and Developing Countries. New York: Oxford University Press at 408-409.

8 3. Few DSU Competition Disputes Competition law disputes between WTO Members are subject to the dispute settlement mechanism in the WTO package.30 However, Mexico-Telecoms31 was the first competition case heard out of the 392 disputes brought. The case relates to the Telecoms Reference Paper32 rather than TRIPS competition rules, but implications may still be drawn on the application of these rules at the national level. The Telecoms Reference Paper stipulates that it is a Member’s duty to ensure interconnection with a major supplier at any technically feasible point in the network under non-discriminatory, reasonable, and cost-oriented terms and conditions. Article 11.3 of the Agreement on Safeguards requires any Member not to encourage or support the adoption or maintenance by public and private enterprises of non-governmental measures equivalent to voluntary export restraints, orderly marketing arrangements, compulsory import cartels, etc. There is no definition of anti-competitive practices or abuse of a dominant position in WTO law. However, the Panel in Mexico-Telecoms based its reasoning on the open- ended language and the object and purpose of the Telecoms Reference Paper33 and upon international and national practices. The Panel observed that the list of anti-competitive practices in Section 1.2 of the Telecoms Reference Paper is not exhaustive; and that it should include horizontal price fixing and market sharing agreements.34 Practices vary from one country to another. In particular, there is a difference between developed countries favouring innovation-oriented competition law and developing countries, which seem to promote development/dissemination-oriented competition policies.35 If a

30 See, e.g., Yerxa, R and Wilson, B. (eds.) (2005) Key Issues in WTO Dispute Settlement- The First Ten Years. Cambridge: Cambridge University Press. at 3 and 15; Keck, A. and Schropp, S. (2007) ‘Indisputably Essential: The Economics of Dispute Settlement Institutions in Trade Agreements’. WTO Staff Working Paper, ERSD-2007-02, at 5. Available from: www.wto.org/english/res_e/reser_e/ersd200702_e.pdf [Accessed 1 May 2009]. 31 WTO Panel Report, Mexico-Measures Affecting Telecommunication Services, WT/DS204/R, adopted on 1 June 2004. 32 For detailed analyses relating to this case, see, e.g., Nguyen, T. T. (2007) ‘The WTO Telmex Case- Implications for Vietnam”. CUTS C-CIER Briefing Paper, No. 1/2007. Available from: www.cuts- international.org/pdf/C-CIER-WTO_Telmex07.pdf [Accessed 1 May 2009]; Fox, E. M. (2006) ‘The WTO’s First Antitrust Case- Mexican Telecom: A Sleeping Victory for Trade and Competition’. J. Int’l Econ. L. 9(2):271-292; Neven, D. J. (2006). ‘El mess in Telmex: a Comment on Mexico- Measures Affecting Telecommunications Services’. World Trade Review, 5(2):271-296; Sidak, J. G. and Singer, H. J. (2004). ‘Überregulation without Economics: The World Trade Organization’s Decision in the US-Mexico Arbitration on Telecommunications Services’. Fed. Comm. L. J., 57:1-47; Marsden, P. (2004) ‘WTO Decides First Competition Case- with Disappointing Results’. Competition Law Insight, May:3-9. 33 Section 1.2 of the Telecoms Reference Paper, which aims at preventing anti-competitive practices by a major supplier in telecommunications, reads “the anti-competitive practices … shall include in particular: (i) engaging in anti-competitive cross-subsidization, (ii) using information obtained from competitors with anti- competitive results, and (iii) not making available to other services suppliers on a timely basis technical information about essential facilities and commercially relevant information which are necessary for them to provide services” (emphasis added). 34 Mexico-Telecoms, supra note Error: Reference source not found, para. 7.237. As Marsden observes, supra note Error: Reference source not found, at 3, the WTO Members in signing the Telecoms Reference Paper did not agree that a cartel ban is a WTO commitment. It appears then, that the WTO DSB may create new commitments to open markets. 35 There are three perspectives of competition laws/policies, namely the development, innovation, and system perspectives. The development-oriented perspective “focuses on the ability of the competition rules to further

9 dispute relating to the application of competition law to technology transfer is brought it is difficult to reconcile the differences and the appropriateness of the TRIPS remedies. Further rules or guidelines have to be established. In Mexico-Telecoms the WTO Panel had to determine whether practices mandated by a national law could constitute unlawful practices under WTO law. Article 27 of the Vienna Convention on the Law of Treaties states that “a party may not invoke the provisions of its internal law as justification for its failure to perform a treaty”; and the Appellate Body in US-Gasoline held that WTO law is not “to be read in clinical isolation from public international law”.36 The Mexico-Telecoms Panel concluded that acts required by governments could constitute prohibited anti-competitive practices. This follows the so-called “state action” doctrine in the US37.

4. The Singapore Issues The technology transfer-related competition rules in the TRIPS Agreement do not provide any detailed guidance for WTO Members. Discussion on how to apply them in international technology transfer situations has thus continued. In 1996 the WTO Ministerial Conference in Singapore established a WTO Working Group on the Interaction between Trade and Competition Policy to address trade facilitation, transparency in government procurement, investment and competition.38 The relationship between trade-related aspects, and those of IPRs in particular, and competition

the special interests of developing countries”. The innovation-oriented one “focuses on whether traditional competition law is relevant and adequate to deal with the challenges from new patterns of innovation notably in the component industries (IT, biotech, etc.)”. And the system one “focuses on the interrelationship between the competition rules and the IPR rules and discusses whether competition law can be used to “soften up” the substantive IPR obligations in TRIPS”. Schovsbo, J. (2009) ‘Fire and Water Make Stream- Redefining the Role of Competition Law in TRIPS’ at 24 (and references quoted). Available from: http://ssrn.com/abstract=1339346 [Accessed 1 May 2009]. 36 WTO Appellate Body Report, United States-Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, circulated on 29 April 1996. 37 The ECJ considers that Articles 81 and 82 EC “apply only to anti-competitive conduct engaged in by undertakings on their own initiative… If anti-competitive conduct is required of undertakings by national legislation or if the latter creates a legal framework which itself eliminates any possibility of competitive activity on their part, Articles [81 and 82 EC] do not apply. In such a situation, the restriction of competition is not attributable, as those provisions implicitly require, to the autonomous conduct of the undertakings”. ECJ, Joined Cases C-359/95 P and C-379/95 P, Commission and France v. Ladbroke Racing, [1997] ECR I- 6265, para. 33 and the case law cited; CFI, Case T-271/03, Deutsche Telekom v. Commission, Judgment of 10 April 2008, n.y.r., para. 85. 38 Para. 20 of the WTO Singapore Ministerial Declaration, WT/MIN(96)/DEC, 18 Dec. 1996, reads “[h]aving regard to the existing WTO provisions on matters related to… competition policy and the built-in agenda in [this area]… and on the understanding that the work undertaken shall not prejudge whether negotiations will be initiated in the future, we… agree to… establish a working group to study issues raised by Members relating to the interaction between trade and competition policy, including anti-competitive practices, in order to identify any areas that may merit further consideration in the WTO framework. [This group] shall… draw upon and be without prejudice to the work in UNCTAD and other appropriate intergovernmental fora… It is clearly understood that future negotiations, if any, regarding multilateral disciplines in [this area] will take place only after an explicit consensus decision is taken among WTO Members regarding such negotiations”.

10 law/policy was discussed in this WTO working group.39 These discussions led to a general consensus on the following points:40  competition law can be an important factor in balancing IPR rights and their abusive exploitation.;41  IPRs in themselves do not confer market power on the right holder. Licensing is generally pro-competitive. IPR-related anti-competitive conduct should be considered under a rule of reason standard under which “pro-competitive-benefits would be weighed against anti-competitive effects”;42  application of competition law to the exercise of IPRs should avoid two extreme approaches: too strict application which could lessen innovation or too lax application which could result in underdeterrence;43  IPR already internalizes a proper balancing of interests. Competition law, as a second layer, provides additional measures without abridging the level of protection afforded under TRIPS;44  the enactment and enforcement of IPR-related competition laws should be predictable and transparent.45 The European Commission proposed a WTO multilateral framework agreement on competition law comprising (i) core principles on domestic competition law and policy, including transparency, non- discrimination, procedural fairness (due process), special and differential treatment, as well as commitments to treat hardcore cartels as a serious breach of competition law and to endow competition authorities with sufficient enforcement power; (ii) cooperation modalities for case-specific cooperation, including principles of negative comity, and general exchanges of information and experience and joint analyses; (iii) technical assistance and enforcement support to developing countries.46 Somewhat surprisingly, the proposal was turned down by the developing world. The apparent reason was the lack of balance in negotiations in other fields of the Doha agenda and a fear that the Singapore issues would end up being used as a tool to increase market access for the benefit of multinational companies. With the failure of the Cancun Ministerial Conference in 2003, which among other matters was to review and, it was hoped, agree the issues discussed in Singapore, came deep divergence relating to the relaunching of negotiations on a multilateral framework on competition policy.47

39 See the Checklist of Issues Suggested for Study of 1997 Report of the Working Group of the Interaction between Trade and Competition Policy to the General Council, WT/WGTCP/1, 28 Nov. 1997 40 1998 Report of the Working Group on the Interaction between Trade and Competition Policy to the General Council, WT/WGTCP/2, 8 Dec. 1998. See also Anderson, R. D. (2008) ‘Competition Policy and Intellectual Property in the WTO: More Guidance Needed?’. In Drexl, Josef ed. Research Handbook on Intellectual Property and Competition Law. Cheltenham: Edward Elgar at 451-473. 41 Ibid., para. 113. 42 Ibid., paras. 115-116. 43 Ibid., para. 117. 44 Ibid., para. 118. 45 Ibid., para. 116. 46 WTO (2000) Communication from the European Community and Its Member States. WT/WGTCP/W/152. Cf. Evenett, S. J. (2003) Study on Issues Relating to a Possible Multilateral Framework on Competition Policy. Study commissioned by the WTO, WT/WGTCP/W/228. 47 Regarding the failure of the Cancun Ministerial Conference in 2003 with respect to the competition issue, see, e.g., Jenny, F. (2004) ‘Competition, Trade and Development Before and After Cancun’. In Hwang, T. and Chen, C. eds. The Future Development of Competition Framework, The Hague: Kluwer Law

11 Subsequently, on 1 August 2004, the WTO General Council decided that no further work toward negotiations on competition policy would be undertaken within the WTO during the Doha Round.48 Since then, the WTO Working Group on the Interaction between Trade and Competition Policy has been inactive. The future of competition law in the WTO remains uncertain. However, at the TRIPS Council meeting on 17 July 2008, Brazil presented a communication re-introducing issues relating to technical assistance and capacity building including: measures that will help countries deal with intellectual property-related anti-competitive practices, by providing technical cooperation to developing countries, especially LDCs, at their request, in order to better understand the interface between IPRs and competition policies. 49 Technical assistance from developed country Members under Article 67 should be demand-driven, transparent, neutral, and accountable taking into account the special needs of developing country Members in the light of the objectives and principles under Articles 7 and 8. Developing country Members should learn to “make legitimate use of the flexibilities of TRIPS agreement, as well as of its provisions related to transfer of technology and the prevention and mitigation of abuse of [IPRs]”.50 Still, considering the present difficulties of the Doha Round negotiations, it is unlikely that the competition issues will be reintroduced into the agenda any time soon.

5. National Enforcement: Microsoft Cases National case law development confirms that actions can and will be taken. Competition cases relating to Microsoft’s allegedly anti-competitive conduct in both developed and developing countries may illustrate this. Microsoft’s practice of tying and refusing to license its inter-operability information has been the subject of extensive legal scrutiny.51 The superdominant

International. at 26-35; Stewart, T. (2004) ‘The Fate of Competition Policy in Cancun: Politics or Substance’. Legal Issues of Economic Integration, 31(1):7-11. 48 See Doha Work Program- Decision Adopted by the General Council on 1 August 2004, WT/L/579, 2 Aug. 2004. In addition to the competition issue, the issues relating to transparency in government procurement and investment, except the trade facilitation issue, were also out of the Doha Round negotiations. Regarding the failure of the negotiations of four Singapore issues, Evenett has identified five “wrongs”, namely wrong tactics, wrong proponent, wrong timing, wrong proposals, and wrong institution. Evenett, S. J. (2007) ‘Five Hypotheses Concerning the Fate of the Singapore Issues in the Doha Round’. Oxford Review of Economic Policy, 23(3):392-414. 49 WTO (2008) Technical Cooperation and Capacity Building- “Cluster A” of the Development Agenda. Communication from Brazil, IP/C/W/513. These issues are also included in Cluster A of the WIPO Development Agenda. 50 Ibid. 51 See, e.g., in the US: United States v. Microsoft Corp., 56 F.3d 1448 (DC Cir. 1995) (Microsoft I); United States v. Microsoft Corp., 147 F.3d 935 (DC Cir. 1998) (Microsoft II); United States v. Microsoft Corp., 253 F.3d 34 (DC Cir 2001) (Microsoft III); in the EU: CFI, Case T-201/04, Microsoft v. Commission, [2007] ECR II-3601; In the beginning of 2009, the European Commission sent a Statement of Objections to Microsoft on the tying of Internet Explorer to Windows. Available from: http://europa.eu/rapid/pressReleasesAction.do? reference=MEMO/09/15 [Accessed 1 May 2009].

12 company invoked its IPRs to justify its conduct. Although US and EU competition authorities agree that both competition law and intellectual property law share the common purpose of promoting innovation and competition and enhancing consumer welfare, they concur on the principles that neither prevails over the other, and that intellectual property law does not confer an unfettered privilege to violate competition law.52 If a right holder has a dominant position in the relevant market, the exercise of IPRs accompanied by exceptional circumstances may violate either US or EU competition law.53 Generally, such conduct will be scrutinized under a rule of reason, with a focus on the possibility of eliminating competition not only in the relevant market (the upstream market) but also in any secondary market (the downstream market). Interestingly, Microsoft v. Commission in the EU is, to the best of our knowledge, the first judgment by a WTO Member where a court invoked TRIPS competition flexibilities to justify the enforcement of domestic competition law. Although the CFI in this case did not accept the direct effect of the TRIPS Agreement, the court recognized the right of WTO Members to make their own interpretations by stating that: In any event, there is nothing in the provisions of TRIPS Agreement to prevent the competition authorities of the members of the WTO from imposing remedies which limit or regulate the exploitation of intellectual property rights held by an undertaking in a dominant position where that undertaking exercises those rights in an anti-competitive manner. Thus, as the Commission correctly observes, it follows expressly from Article 40(2) of TRIPS Agreement that the members of the WTO are entitled to regulate the abusive use of such rights in order to avoid effects which harm competition.54 Will this language encourage competition authorities in developing countries to enact and apply domestic competition law to cover technology transfer activities? Microsoft cases in developing countries, such as South Korea, Taiwan, and Croatia suggest the start of a new trend.55

52 United States v. Microsoft Corp., 253 F.3d 34, 63 (DC Cir. 2001); Antitrust Guidelines for the Licensing of Intellectual Property, issued by the US Department of Justice and the Federal Trade Commission, 6 April 1995; CFI, Case T-201/04, Microsoft v. Commission, [2007] ECR II-3601, para. 690; European Commission Guidelines on the application of Article 81 of the EC Treaty to technology transfer agreements, OJ 2004 C 101/2, para. 7. 53 Regarding refusal to license, for instance, the CFI, by following EU case law, ruled that the cumulative exceptional circumstances of refusal to license by a dominant firm that may lead to an abuse where the refusal to license: (i) relates to a product (or service) indispensable to the exercise of a particular activity in the downstream market; (ii) prevents the emergence of a new product for which there is a potential customer demand; (iii) excludes all competition in the downstream market; and (iv) is not justified. CFI, Case T- 201/04, Microsoft v. Commission, [2007] ECR II-3601, para. 332. See also ECJ, Joined Cases C-241/91 P and 242/91 P, Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v. Commission (Magill), [1995] ECR I-743, paras. 53-56; ECJ, Case C-418/01, IMS Health GmbH & Co. OHG v. NDC Health GmbH & Co. KG., [2004] ECR I-5039, paras. 38-52. In the US, although the US Supreme Court is very cautious in condemning refusal to deal/license as antitrust violation, it held that under “certain circumstances”, such refusal can constitute anti-competitive conduct. Verizon Communications Inc v. Law Offices of Curtis V. Trinko, 540 U.S. 398, 407-408 and 411 (2004); The Federal Circuit identified at least three exceptions to the legality of refusal to license under antitrust law, namely illegal tying, fraud in the Patent and Trademark Office, or sham litigation. In re Independent Service Organisations Antitrust Litigation, 203 F.3d 1322, 1327 (Fed. Cir. 2000). 54 CFI, Case T-201/04, Microsoft v. Commission, [2007] ECR II-3601, para. 1192 (emphasis added). 55 See Nguyen, T. T. (2009) Competition Law in Technology Transfer under TRIPS Agreement - Implications for Developing Countries. Lund: Lund University.

13 In Microsoft-South Korea,56 the Fair Trade Commission of South Korea (KFTC) decided, after an investigation, that Microsoft’s tying conduct was in breach of South Korean competition law. The KFTC used a three-criterion test, together with the evidence of a dominant position, for judging the tying illegality, namely (i) a tying product and a tied product are separate products, (ii) there is coercion relating to tying, and (iii) there are anti-competitive effects and exclusion of competitors in the tied product market.57 Microsoft appealed the KFCT’s decision to the Seoul High Court. However, after its failure before the CFI in Europe, Microsoft dropped its appeal at the end of 2007. In Microsoft-Taiwan, Microsoft was accused of abusing its monopoly power in Taiwan by engaging in improper product tying of its Microsoft Office software package and charging excessive prices.58 In 2003, the Fair Trading Commission approved an administrative settlement agreement proposed by Microsoft. The settlement agreement inter alia required Microsoft to implement related decisions and/or settlements of US courts or competition authorities in Taiwan. In Microsoft Croatia,59 no formal competition proceeding was initiated before the Croatian Competition Agency. However, at the end of 2007, based upon the European Commission decision as upheld by the CFI, the Croatian Competition Agency requested that Microsoft comply with obligations imposed on Microsoft by the European Commission’s decision. In response, Microsoft voluntary undertook to keep its business practices within the parameters of the Commission’s decision with respect to the disclosure of interoperability information and unbundling of Windows Media Players with Windows so as to respect the key principles of Croatian competition law. Microsoft Croatia supports the observation that competition authorities may reasonably apply IPR- related competition decisions or judgments from developed country jurisdictions to their own jurisdiction’s advantage.60 In other words, developing countries can “piggy-back” on the legal analyses and the power of larger jurisdictions.61

56 2008 Annual Report of South Korea’s Fair Trade Commission, at 42-47. 57 It seems that the KFTC followed the US and EU approach with respect to the scrutiny of tying under a rule of reason, using the following five-pronged test: (i) that the company imposing tying has market power/dominant position in the tying product market; (ii) that the tying and tied products are two separate products from the consumer perspective; (iii) that the company does not give customers a choice to obtain the tying product without the tied product; (iv) that tying forecloses competition; and, (v) that tying is not objectively justified. 58 TFTC (2003) The FTC Approved an Administrative Settlement Proposed by Microsoft Taiwan and Its Affiliates; Microsoft Taiwan (2003) Administrative Settlement Offer. Available from: www.ftc.gov.tw/internet/english/doc/docList.aspx?uid=775 [Accessed 1 May 2009]; UNCTAD (2004) Recent Competition Cases. TD/B/COM.2/CLP/47, at 6. 59 UNCTAD (2008) Competition Policy and the Exercise of Intellectual Property Rights. TD/B/COM.2/CLP/68. 60 It is worth noting that Croatia is a candidate country for EU membership; but at the moment, it is still regarded as a developing country. See UNCTAD (2008) Trade and Development Report 2008. Geneva. at xi (according to this report, developed countries include the members of the OECD (other than Mexico, South Korea, and Turkey) plus the new EU member states and Israel). 61 UNCTAD (2008), supra note Error: Reference source not found, at 7.

14 6. Competition Law Prospect in a Post-Doha Round Since countries are primarily concerned with effects occurring within their border, they may have economic incentives to either under- or over-enforce their competition law. Net importing countries would tend to strive to apply stricter competition standards to force foreign companies to reduce prices, or to increase the quantity and/or quality of imported products/services. Net exporting countries on the other hand are likely to employ laxer competition standards so as to encourage exports. Developing countries are still net importers of technology. In spite of all efforts the technology gap has indeed been growing larger over the years.62 Even if not voiced publicly, developed countries tend to fear that developing countries may over-regulate and over-enforce domestic competition law in order to externalise the costs of R&D and internalise the benefits of innovation. However most developing countries are under- regulating and under-enforcing their laws simply because of the lack of a competition law enforcement infrastructure. Technology transfer-related competition issues are receiving much attention from international fora such as the WIPO and WHO. The EU and CARIFORUM63 have reached a reasonable solution in an economic partnership agreement: The EC Party and the Signatory CARIFORUM States shall take measures, as appropriate, to prevent or control licensing practices or conditions pertaining to intellectual property rights which may adversely affect the international transfer of technology and that constitute an abuse of intellectual property rights by right holders or an abuse of obvious information asymmetries in the negotiation of licenses.64 Even if the provision is still general in nature it is a substantial step forward by using the term “shall” rather than “may”, which appears in Articles 8.2 and 40.2 of the TRIPS Agreement. It creates a mandatory regime for the control of anti-competitive practices in technology transfer in the CARIFORUM states. This provision, together with the chapter on competition in the economic partnership agreement,65 which does not have any equivalent in the current WTO law, indicates a willingness to work towards a solution to the present impasse. In negotiating and signing the TRIPS, developing countries expected that global intellectual property protection would increase technology transfer. Not much has happened and technology only comes at a high cost.66 Other flexibilities in the TRIPS Agreement have been used successfully to protect local needs, public health, the environment and other fundamental interests of the developing countries. The adoption 62 World Bank (2008) Global Economic Prospects 2008: Technology Diffusion in the Developing World. Washington DC at 92; UNCTAD (2007) The Least Developed Countries Report 2007: Knowledge, Technological Learning and Innovation for Development. Geneva at 3 63 Including Antigua and Barbuda, the Commonwealth of the Bahamas, Barbados, Belize, the Commonwealth of Dominica, the Dominican Republic, Grenada, the Republic of Guyana, the Republic of Haiti, Jamaica, Saint Christopher and Nevis, Saint Lucia, Saint Vincent and the Grenadines, the Republic of Suriname, the Republic of Trinidad and Tobago. 64 Article 142.2 of the EPA between the EU and the CARIFORUM states, OJ 2008 L 289/I/3 (emphasis added). 65 Articles 125-130 of the EPA between the EU and the CARIFORUM states. 66 Barton, J. et al. (2007) View on the Future of the Intellectual Property System. Geneva: ICTSD at 6.

15 of the important Doha Declaration on TRIPS Agreement and Public Health recognised that “each Member has the right to grant compulsory licenses and the freedom to determine the grounds upon which such licenses are granted”.67 After the Doha Declaration, several developing countries granted public health-related compulsory licenses.68 Recently, the Thai government issued compulsory licenses with respect to drugs for the treatment of AIDS and cancer without any direct, unfavourable reaction from developed countries.69 These developments also mark a willingness to find solutions and what applies in the health sector should also apply in other areas. The failure in Cancun to address competition flexibilities must not remain a negative precedent for the future. Developing countries opposed the incorporation of the competition issue into the WTO negotiating agenda for obscure reasons.70 The US did not support the EU proposal but preferred continued discussion in the International Competition Network (ICN). Lack of communality in the norms and operations of the WTO and uncertainty about the form and potential consequences of WTO competition law must be addressed.71 Future negotiations will have to focus on finding a solution to the over- and under-enforcement dilemma. The WTO, as a “living organism”, should “rapidly react to global challenges” and “contribute to devising solutions”.72 Competition issues in general and IPR-related ones in particular are one of the global challenges of the near future. However, implementing legal provisions in a national system is one thing, enforcing them in an international environment is a totally different matter. Competition law is a complex system, requiring skilled enforcement agencies, and must be introduced step-by-step. Rushing its development may prove counterproductive.

67 Para. 5(b) of the Doha Declaration on TRIPS Agreement and public health (WT/MIN(01)/DEC/2); Decision of the WTO General Council of 30 August 2003 on implementation of para. 6 of the Doha Declaration (WT/L/540); Decision of the WTO General Council of 6 Dec 2005 on Amendment of TRIPS Agreement (WT/L/641). 68 See Love, J. P. (2007) ‘Recent Examples of the Use of Compulsory Licences on Patents’. KEI Research Note 2. Available from: www.keionline.org/misc-docs/recent_cls_8mar07.pdf [Accessed 1 May 2009]; Oh, C. (2006) ‘Compulsory Licences: Recent Experiences in Developing Countries’. Int. J. Intell. Prop. Management, 1(1/2):22. 69 See Thai Ministry of Public Health and National Health Security Office (2007) Facts and Evidences on the 10 Burning Issues Related to the Government Use of Patents on Three Patented Essential Drugs in Thailand; Thai Ministry of Public Health and National Health Security Office (2008), The 10 Burning Questions on the Government Use of Patents on the Four Anti-cancer Drugs in Thailand. WHO Mission (2008) Improving Access to Medicines in Thailand. Available from: http://eng.moph.go.th [Accessed 1 May 2009]. 70 See Drexl, J. (2004) ‘International Competition Policy after Cancun: Placing a Singapore Issue on the WTO Development Agenda’. World Competition, 27(3):435-437; Jenny, F. (2004), supra note Error: Reference source not found, at 26-35. 71 Gerber, D. J. (2007) ‘Competition Law and the WTO: Rethinking the Relationship’. J. Int’l Econ. L., 10(3):724. 72 Lamy, P. (2009), Strengthening the WTO as the Global Body, Presentation to the WTO General Council, 29 April. Available from: http://www.wto.org/english/news_e/news09_e/tnc_chair_report_29apr09_e.htm [Accessed 1 May 2009].

16 7. Concluding Remarks We conclude that international trade legislation and especially TRIPS contain the elements of a competition law system. Developing countries have been encouraged to apply these rules to counterbalance the strong IPR protection system mandated by TRIPS. The road ahead is bumpy as international competition rules lack precision and require some form of guiding interpretation. Some advantage lies in the fact that the present flexibilities create substantial discretion for any implementing country. The likelihood that the WTO dispute mechanism will preclude a country from taking action against anti-competitive practices affecting technology transfer themselves thus far appears remote. Still, discretion has its limits. Developing countries may lack experience or be subject to pressure that may prevent balanced and consistent handling of the available competition law opportunities. The risk of both over- and under-enforcement should not be overlooked. Either may prove harmful to developing countries. The need for more precise standards for competition law enforcement as well as support for building efficient structures is obvious. In spite of the mishaps with the Singapore issues, it appears equally clear that WTO provides the right forum for such discussions. Post-Doha it must be possible to reestablish them. Considering the difficulties in changing existing international agreements - as evidenced by the protracted discussion on Article 31f of TRIPS and the TRIPS amendment - the way forward is more likely to be a wholly new multilateral agreement on fair trade issues under the general WTO “umbrella”.