Ecuador: Crossroad: Competition And IP

Last Updated: 26 July 2017
Article by Diego Ramírez

Whereas intellectual property laws protect the investment, effort and ingenuity in a specific creation of the intellect by giving an exclusive right to benefit from it, thus excluding others (even actual or potential competitors), competition policy and laws aim at increasing welfare by promoting vigorous competition and limiting exclusionary practices. 

This creates a tension, although now it is generally accepted that both legal regimes do in fact spur innovation that ensures a healthy competition and foster new technologies, products and services at lower prices.

However, the need to navigate through these two very different legal regimes does raise some concerns about the potential conflict, particularly in a jurisdiction like Ecuador where the current formulations of both are relatively new.  We offer in this article a glance at the crossroad between intellectual property law and competition law.

Laws for competition and IP

The Ley Orgánica para la Regulación y Control del Poder de Mercado (Law for Regulation and Control of Market Power, "LORCPM")  is the main legal statute in Ecuador regarding protection and promotion of competition (also known as antitrust in several jurisdictions). LORCPM prohibits abuse of market power (akin to dominant position in some jurisdictions), anticompetitive agreements and unfair competition, and establishes the Superintendencia de Control del Poder de Mercado (Superintendence for Control of Market Power, "SCPM") as the supervising agency that investigates and imposes penalties for violations under LORCPM.

Intellectual property ("IP") is regulated by the recently enacted Código Orgánico de la Economía Social de los Conocimientos, Creatividad e Innovación, also known as Código Ingenios (Organic Code of the Social Economy of Knowledges, Creativity and Innovation, also known as Ingenuity Code, the "IP Code"), which replaced the Intellectual Property Act of 2006 and confirmed the Instituto Ecuatoriano de Propiedad Intelectual (Ecuadorian Institute for Intellectual Property, "IEPI") as the supervising agency that regulates and controls IP in Ecuador.   However, Decision 486 of the Andean Community ("Decision 486") establishes the legal framework for IP in the countries that are members of the Andean Community (comprised of Bolivia, Colombia, Ecuador and Peru). 

LORCPM contains specific provisions regarding the abuse of intellectual property rights ("IPR") as an abuse of market power; it is unclear if SCPM will require a prior determination by IEPI of abuse of IPR to conclude that there is an abuse of market power pursuant to LORCPM, or the burden to establish itself that a use of IPR constitutes an abuse that violates LORCPM.  In general, it seems that doctrine and international precedents may help define the burden.

LORCPM also establishes that use of IPR may constitute unfair competition when it affects economic efficiency, consumers, general welfare or competition in the marketplace.

Decision 486 contains several provisions referring to unfair competition related to IP, mostly as acts to generate confusion, misappropriation of trade secrets and false statements regarding the quality or characteristics of products.

In addition, the IP Code contains some provisions regarding the grant of compulsory licences as a remedy for anticompetitive practices and also stressing that the exercise of IPRs must not unlawfully restrict competition.

Investigations by the Competition Authority with a strong IP component

Most of the antitrust cases involving IP that have been filed before SCPM are regarding unfair competition, and many of them have been dismissed on the grounds that there is not sufficient evidence of potential violation of LORCPM and involve exclusively  IP law.

A reduced amount of cases involving IP are investigated for alleged abuse of market power, and to the best of our knowledge there has not been a single investigation for alleged anticompetitive agreement involving IP. 

Although SCPM has not directly addressed the issue of IP and competition, it has been very active investigating the pharmaceutical sector which relies heavily on IP protection. The final outcome of these investigations will allow a better assessment of standards applied by SCPM in regard to IP rights and competition law, and in the event of judicial review of the decisions, how much will judges be willing to accept those standards or impose different ones.

The IP Code aims at promoting wider dissemination of IP (although perhaps at the expense of reducing protection to IP owners), and also seeks to enhance competition by promoting cross-licensing, compulsory licensing and other measures that would limit exclusionary enforcement of IP.

Anticompetitive IP conducts

Any limitation on trading imposed by a licensing agreement could be considered an anticompetitive limitation either as an abuse of market power or an anticompetitive agreement, if unjustified from a perspective of economic efficiency or welfare; for the first case a determination of actual market power would be required, whereas for the latter the agreement imposing the limitation may be sufficient.

It is important to take into consideration that the simple exercise of an IP right is far from being an infringement of the LORCPM; a test should be applied to determine if the exercise of this right produces an anticompetitive effect, such as facilitating price fixing (an anticompetitive practice per se), foreclosing access to an important input, reducing output or dividing the market among undertakings that would otherwise have competed. The relevant test is therefore if the restraints in a licensing agreement would be anticompetitive or affect the general welfare or that of consumers.

i Refusals to license

Under LORCPM, refusals to license could be considered under the broader category of refusals to deal or supply. Either as an abuse of market power or as an anticompetitive agreement, refusals to deal or supply are considered an infringement to LORCPM if they are deemed unjustifiable from a competition perspective. To date there has not been a case where the limits between justifiable and unjustifiable refusals to deal or supply have been established, although such a violation has been alleged (regarding precisely IP rights) but the allegation was considered baseless as the IP owner did offer a licence on fair, reasonable and non-discriminatory terms whereas the claimant insisted on its own terms. 

A refusal to license, if the IP content or supply is deemed "must have" in order to compete, could result in an exclusionary effect that would more likely be found to be in violation of LORCPM.

ii Unfair and discriminatory licensing

Just like refusals to license, any unfair (i.e., exploitative) and discriminatory licensing could be in violation of LORCPM if  it puts third parties on equivalent transactions in an uneven position in a market downstream.

iii Standard-Essential Patents

In general terms, all actions to obtain an increased revenue or advantage by one undertaking that is dominant in a relevant market ("unjustified extraction of consumer surplus"), whether they involve an IP right or not, could result in liability for abuse of dominance under LORCPM.

In particular, LORCPM addresses the misuse or abuse of intellectual property rights as a separate, specific violation. 

The main national standard-setting organisation is a public agency (INEN) that does take into account the recommendations of the industry, and therefore may decline to include in a standard a patent held by one undertaking that would be detrimental to others, although there is no requirement or precedent for demanding licensing of Standard-Essential Patents by INEN. These standards are voluntary unless referenced in technical regulation, which is mandatory (a mandatory nature would not exempt from compliance with LORCPM so this would not be available as an effective defence).

Owning an SEP does not automatically result in dominance in the relevant market pursuant to the law, statutes or (limited) case law in Ecuador. However, it could be alleged that the owner of the SEP is in the position to impose entry-barriers and to limit access to technology, and that there are no acceptable substitutes (precisely due to the fact that it is an SEP), which are some of the criteria to determine dominance.

The owner of an SEP may seek injunctive relief, and once infringement is proven, it should ordinarily be granted unless there is an overriding public interest; an obligation to license under FRAND terms is not a viable defence at this stage.

Any potential violation of antitrust provisions in the LORCPM should be brought in a separate claim that would be initially adjudicated administratively by the SCPM, whose decision is subject to judicial review.  Unfortunately, there is no established policy or concurring precedents to determine whether seeking an injunction by the owner of an SEP would incur a violation of antitrust law.

Licensing under fair, reasonable and non-discriminatory (FRAND) terms of an SEP is not mandatory nor ruled out by Ecuadorian law. Private standard-setting organisations may contractually demand licensing under FRAND terms, although an agreement to regulate quality, when not pursuant to a national or international standard, may also be a violation of antitrust regulations (Article 11.10 of the LORCPM).

However, unjustified refusal to deal (i.e., to license an IP right), demanding exploitative prices (i.e., outsized royalties) or establishing different conditions for similar considerations (i.e., discriminating) are violations of antitrust provisions pursuant to the LORCPM, and would apply to the owner of the SEP if deemed to be dominant in the relevant market, or if it is the result of an agreement with other undertakings.

iv Anticompetitive or exclusionary royalties

There are general provisions that prohibit 'exploitative prices', 'exploitative practices', 'exclusionary practices', and the abuse of IP rights that may be invoked against anticompetitive or exclusionary royalties regarding any IP right, but little guidance as to how and when a price (i.e. royalty) may be deemed exploitative, or a 'safe harbour' or threshold for prices to be established without concern.

v Other Abuses

v.a) Sham or vexatious IP litigation

Vexatious litigation regarding IP rights can be considered a violation of the LORCPM both as an abuse of IP rights (Article 9.17) or the abuse of legal proceedings that limit the access or permanence in the market of competitors (Article 9.18), if the claimant enjoys dominance ('market power') in the relevant market.

Furthermore, sham or vexatious IP litigation could also be considered an unfair practice that also violates antitrust law because it constitutes an abuse of the legal or administrative proceedings to prevail in the market (Article 27.9 of the LORCPM).

v.b) Anticompetitive settlements of IP disputes

There are no special provisions regarding settlement agreements terminating an IP infringement dispute; consequently, any settlement agreement would be reviewed under the general provisions of the LORCPM, especially if the IP owner has dominance in the relevant market.

Any settlement agreement of IP disputes that limits market entry (i.e., generic producers in the pharmaceutical sector) could violate LORCPM as it may be deemed to constitute incitement to refuse selling or delivering goods (Article 9.10), the conditioning of acts or agreements to acceptance of terms that according to their nature or commercial use are not related thereto (Article 9.13), an exclusionary practice (Article 9.15), abuse of an IP right (Article 9.17), unjustified implementation of legal actions that result in restricting access to the market of actual or potential competitors (Article 9.18), or finally preventing or impairing market access to actual or potential competitors for reasons other than economic efficiency (Article 9.22).

Furthermore, even if the owner of IP rights does not enjoy dominance, the settlement agreement could breach LORCPM if it imposes entry barriers (Article 11.18) or prevents or impairs market access to actual or potential competitors for reasons other than economic efficiency (Article 11.20).

Conclusions

There are few cases with final rulings that address the crossroad between the IP Code and LORCPM. Therefore, doctrine and international case law has continued to be used as a reference both by the authority and private parties, to help better understand the interplay, and we would recommend careful analysis of the risks involved with aggressive IP measures, to ensure that it does not run afoul of competition law (LORCPM).

The promotion and protection of generic drugs will continue to be an important focus of SCPM, which has warned patent or brand drugs owners to refrain from using their IP rights in order to stop or delay the entrance of generic drugs. 

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions