IP As Property / IP Rights Licensing / International Licensing

7. The Intellectual Property/Antitrust Interface

Although, as noted in the preceding section this is an issue which needs to be resolved in almost all countries, in this paper we will focus on the situation in the European community and in Japan.

Over the last 20 years or so there has been an ongoing debate as to whether intellectual property rights should strictly be regarded as being monopolies and whether there is in fact any conflict with antitrust laws. A good argument can be made for the view that since both seek to develop industry there is no underlying conflict. Others would reach back to the underpinning of the first French Patent Law that regarded intellectual property as being clearly a species of property to which the originator was entitled to absolute rights. On the other hand most economists today take the view that the grant of intellectual property rights is premised on some form of contract between society and the inventor or an author whereby in return for the state granting rights to prevent others from using the intellectual property right, the author/inventor himself undertakes certain obligations. In the patent field the fundamental obligation is that of disclosure of the invention. However, at different times different societies have added further obligations to this. The most common is that the owner of the rights should not "abuse his monopoly". The definition of what constitutes an abuse of monopoly tends to vary over the years but an underlying theme is that the owner of the rights should not by virtue of those rights unduly inhibit the development of new inventions or works by others or use the legitimate intellectual property rights to leverage additional (unjustified) rights. At its most extreme this thinking can be seen in the Japanese law which requires that the owner of a dominant patent should grant a cross-license to the owner of any improvement patent which falls within the scope of the dominant patent. The TRIPS agreement referred to previously seeks to limit this to situations wherein the second patent relates to something which is more than average technological significance. The Japanese have long been criticized for their practice (referred to as patent flooding) as providing a means for eroding the value of master patents obtained by foreigners.

At the other extreme in this country we have seen the courts start to reign in unduly broad interpretation of patents and even in a couple of instances ordering the patentee to grant licensees to correct perceived misuses of an intellectual property right.

At the policy level probably the three most important issues which arise are: exclusivity, tie-ins and grant backs.[1]

The grant of an exclusive license has potentially anti-competitive effects because such licenses effectively remove the possibility that the patentee could permit another to enter the field while not necessarily transferring the right to the licensee. Of course in many instances, the prospective licensee will demand exclusivity if it is to expend substantial effort and capital to develop a market. Most competition authorities recognize this. However, it is a point of tension.

A requirement imposed on a licensee to purchase particular materials from a specified source as part of its obligations under an intellectual property license is known as a tie-in. Although problems with tie-ins arise outside the field of intellectual property licensing, they are of particular concern in this area. Clearly there is a potential here for the IP rights owner to use IP rights to leverage those rights to obtain more than some would regard as being proper. By restricting the sources from which the licensee can obtain, for example unpatented materials to be used in a patented process, one is limiting competition in supply of such unpatented materials. On the other hand, the IP owner has a legitimate interest in seeing that, for example the licensee uses materials of an appropriate quality when producing a licensed product. One way to do this is to require that they be obtained from a specified source.

Intellectual property license agreements commonly include provisions relating to improvements. When such provisions require the licensee to provide any improvements it makes to the licensor, these are referred to as grant-backs. One could argue that since any improvement made by the licensee stems directly from the licensed rights, requiring the licensee to transfer the improvement to the licensor is just as justified as is the requirement to pay a royalty. On the other hand, if the licensor secures exclusive rights in the licensee's improvement, this can have the effect of extending the licensor's monopoly term and of inhibiting the development of potential competitors in the industry, both of which may have long term anti-competitive effects.

1. Other antitrust type issues such as price-fixing and inhibitions on dealing with competitors, are of course also relevant to intellectual property licensing but do not present many issues that are specific to intellectual property licenses.