UK: Can a Refusal to License IP Rights be an Abuse of a Dominant Position?

IMS Health GmbH & Co v NDC Health GmbH & Co KG
Last Updated: 20 November 2003

By Nick Cunningham and Mark Daniels

Advocate General Tizzano’s opinion in the IMS case delivered on 2 October 2003 could mean that an intellectual property rights holder in a dominant position may have to grant licences to its competitors.

The facts

This case concerns two large US companies which operate in Germany. IMS Health GmbH compiles, interprets and sells medical prescription and sales information for pharmaceutical products in Germany. Its presentation and analysis is based on a brick structure, which combines geographical parameters with structural factors such as the proximity of pharmacies to hospitals and medical practices, the areas covered by medical visitors, and so on. The principal structure has 1,860 bricks, each containing a minimum of five pharmacies (any fewer would pose data protection problems). The IMS data structure has become the industry norm for businesses supplying services and goods to the sector. In particular it is relied upon by the pharmaceutical manufacturers to record sales, reward salesmen, and plan marketing efforts. Although the data structure was devised over many years, with the co-operation and input of the manufacturers, IMS asserts copyright in it.

In October 2000 NDC Health GmbH began to offer services using a data structure based on the IMS structure, although arguing that it offers a better product because its data is more accurate and can be made available online. NDC says that it was obliged to use a structure that is very similar to the IMS structure, because the industry will not accept any other on economic grounds. Some manufacturers have supported NDC in its efforts to launch its competing service.

When sued by IMS in Germany NDC offered to take a licence of the IMS structure, which was refused. NDC then filed a complaint of abuse of dominant position under Article 82 EC with the European Commission (Case Comp D3/38.044) in December 2000.

The Article 82 complaint

The Commission gave its preliminary view and, as an interim measure, ordered a compulsory licence on terms to be determined if not agreed. IMS appealed to the Court of First Instance (CFI), which found that IMS’ prima facie case was stronger than NDC’s, and so suspended the Commission’s interim measure.

The CFI found that the Commission’s decision had turned "upon a non-cumulative interpretation of the conditions regarded as constituting exceptional circumstances in Magill" (RTE and ITP v Commission [1995] All ER (EC) 416). The Commission tended to agree with IMS that the existing jurisprudence required at least the establishment of a secondary market before Article 82 could be held to override fundamental intellectual property rights. NDC appealed unsuccessfully to the ECJ against the CFI’s ruling.

The position under the Article 82 complaint remains unresolved; the Commission’s final decision is awaited.

The German proceedings

In the case before it, the Landgericht has proceeded on the basis that copyright subsists in the structure, although this remains to be determined. It has referred three questions to the ECJ:

  • Should Article 82 EC be interpreted as meaning that the conduct of an undertaking with a dominant position in the market is abusive if it refuses to license the use of a data structure protected by copyright to an undertaking seeking access to the same market, if the potential purchasers reject any product not using that data structure because they already rely on products which are based upon it?
  • Is it relevant that the potential customers have been involved in the development of the data structure?
  • Is it relevant that the potential customers would have to incur material costs if they were to switch to a competing product which does not make use of the data structure?

Opinion of Advocate General Tizzano

The Advocate General has now concluded that if an intellectual property rights holder in a dominant position in a secondary market refuses to grant a licence to a third party this constitutes abuse where:

  • there is no objective justification for such a refusal;
  • the third party’s use of the intellectual property is indispensable for it to operate on the secondary market;
  • the refusal of licences eliminates all other competition in that market;
  • the product to be offered by the third party has different characteristics to the product of the right holder;
  • the third party product meets a need in the market which is unsatisfied.

He has also concluded that when assessing whether use of the protected data structure is necessary to compete in Germany, the participation of the pharmaceutical manufacturers in developing the data structure and the effort necessary to devise an alternative data structure to achieve the same analysis should be taken into account.

Comment

The Advocate General’s opinion follows existing ECJ law, but may identify a way in which the difference between the Commission and the CFI in the Article 82 Complaint may be reconciled.

The ECJ has already decided that the owner of an intellectual property right may have to license use of that right rather than use it to reserve a secondary market to itself (as, for example, in the Magill TV Guide case). This analysis depends on identifying separate primary and secondary markets. In Magill there were held to be two separate markets: one for the TV programming itself, and the second for the publication of TV guides.

The Advocate General says that it is sufficient that one can identify a theoretical primary market; there is no need for the rights holder to be active in the primary market for the analysis to apply. In this case the Advocate General has concluded that there is a market for the data structure itself and a market for provision of information using the data structure to the pharmaceutical industry. Arguably this is a truism for intellectual property rights, which generally only have commercial value when they are embodied in other goods or services. The Commission has made that point more forcefully and takes the line that there is no need to rely upon a primary/secondary market analysis at all.

On the Advocate General’s analysis, where an undertaking has an intellectual property right in a development tool (for example innovative software), two markets are created: the first for the tool itself, and the second for the goods and services created by using the tool. The rights holder will then be at risk of having to grant a licence to a competitor who wishes to use the tool to provide different, but competing, goods and services, unless the rights holder has objective reasons for refusing a licence.

On the Commission’s analysis to date (in its interim measure), exceptional circumstances surrounding the creation and use of an IP right in the market may in any event justify a finding of abuse where there is a refusal to license.

Both analyses are potentially damaging for IP rights holders.

Of course, the potential licensee must offer something different to the rights holder’s product - a licence will not be granted only on the basis that competition has been excluded. However the Advocate General does not give guidance on how different the licensee’s goods or services must be. Another area of uncertainty (and one which is particularly important in this case) is whether the reasons why use of a right appears to be indispensable to compete have any bearing on the question whether it is in fact indispensable. For instance, where the market is united in its insistence on an alternative product is that sufficient to overcome the IP rights of the dominant supplier?

A possible practical solution for businesses which are too successful for their own good may be to license a select few competitors (rather than none) using criteria which are arguably objective (for instance as to how different the competitor’s products are from the licensor’s).

The ECJ generally follows the Advocate General’s opinion in intellectual property and competition cases, but on the reference from the German court it will only answer questions, not determine the matter. The Advocate General has pointed out to the German court that under EC Treaty principles it may not contradict the Commission (even its preliminary view) and has suggested that it should therefore wait until the Commission’s final decision is known.

In May next year the Commission will gain new powers to intervene directly where it finds abuse (under the "Modernisation Regulation"). The Commission may therefore wait until then before giving its final decision in the Article 82 Complaint; the German proceedings are likely to be suspended in the meantime

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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