Can a Refusal to License Intellectual Property Rights Constitute an Abuse of a Dominant Position?

IMS Health GmbH & Co v NDC Health GmbH & Co KG

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

IMS Health GmbH (IMS) 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.

In October 2000 NDC Health GmbH (NDC) began to offer services using a data structure based on the IMS structure. When sued by IMS in Germany, NDC offered to take a licence of the IMS structure, which IMS 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 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.

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.

In the infringement 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 questions to the ECJ.

In response to the questions raised by the Landgericht, the Advocate General has concluded that if an intellectual property right 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.

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 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 right holders. Of course the potential licensee must offer something different to the right 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.

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.