IMS Health: A Review of European and Canadian Approaches to the Interface of Competition and Intellectual Property Law
On April 29, 2004, the European Court of Justice (the ECJ) provided guidance on when, under European law, a company could be considered to be abusing its dominant position when it refuses to grant an intellectual property (IP) licence. This article will review the ECJ's decision in IMS Health GmbH & Co. OHG v. NDC Health GmbH & Co. KG, and then consider whether Canadian competition law can be used to compel an IP owner to license its IP to a third party.
The IMS Health case concerns the rights to IMS Health's proprietary system for collecting and distributing drug sales data. In 1988, an IMS Health director left the company to establish a competing business, which eventually adopted a new database structure resembling that used by IMS Health.
A German court prohibited the competitor from using the IMS Health structure, which the court found was a database protected by copyright. However, the German court also noted that IMS Health would not be permitted to refuse the competitor a licence to use the database structure if such a refusal constituted an abuse of a dominant position under European law. Accordingly, the German court referred several questions to the ECJ regarding the circumstances under which such behaviour could be considered an abuse of a dominant position.
In considering the interface between IP and competition laws, the ECJ started from the premise that a refusal of a licence cannot, in itself, constitute an abuse of a dominant position, except in "exceptional circumstances." Such exceptional circumstances would arise where: (1) the requesting firm intends to offer a product that is not offered by the copyright owner and for which there is potential consumer demand; (2) the refusal to grant the licence is not objectively justifiable; and (3) the refusal would reserve the relevant market to the copyright owner by eliminating all competition in that market.
The ECJ started its analysis from the premise that the mere refusal to license IP generally cannot in itself constitute an abuse of a dominant position. A similar starting point exists in Canadian law, but it does so in a unique legislative context. Under the Canadian Competition Act, acts engaged in pursuant to the exercise of statutory IP rights are not anti-competitive for purposes of the abuse of dominance provision (see ss. 79(5)). Section 32, however, deals specifically with the use of IP rights so as to prevent or lessen competition unduly. Upon application by the Attorney-General, the Federal Court can order a variety of relief, including compulsory licences, expungement, etc.
Canada's Competition Bureau (the Bureau) has addressed the distinction in its Intellectual Property Enforcement Guidelines (IPEGs). The IPEGs state that the owner's right to decide to use (or not to use) the IP and the owner's right to unilaterally exclude others from using the IP are considered to be mere exercises of an IP right. Thus, refusal to license IP is part of the "mere exercise" of an IP right, and is beyond the scope of the general provisions of the Competition Act, including abuse of dominance, "no matter to what degree competition is affected."
In contrast, s.32 may apply even where conduct is limited to the mere exercise of an IP right, but will be used only in certain narrowly defined circumstances. Interestingly, the exception crafted by the ECJ in IMS Health is not dissimilar to the analytical framework used by the Bureau to apply s.32. The Bureau regards enforcement under s.32 as being something that will be required only in "certain narrowly defined circumstances," based on criteria that will be satisfied "only in very rare circumstances."
In determining whether it should recommend enforcement action under s.32, the Bureau undertakes a two-part analysis. First, it determines whether the refusal has adversely affected competition to a substantial degree in a relevant market that is "different or significantly larger than the subject matter of the IP or the products which result directly from the exercise of the IP." According to the IPEGs, such a situation will arise only if (1) the IP owner is dominant in the relevant market; and (2) the IP is an essential input or resource for firms participating in the relevant market, such that the refusal prevents other firms from competing in the relevant market. Second, the Bureau will recommend enforcement action against the IP owner only if it is satisfied that such a remedy would not adversely alter the incentives to invest in research and development.
While s.32 of the Competition Act distinguishes Canadian competition law from its European counterpart, the ultimate analysis under the two regimes is not dissimilar. The first step of the Canadian analysis essentially addresses two of the ECJ's three criteria for finding that refusal of a license constitutes abuse. The ECJ's third requirement, that there be no objective justification for the refusal, has no specific counterpart in the Canadian approach. However, the Bureau's concern that a remedy not reduce the incentives to invest in research and development could serve this function - if, for example, the Bureau were to take the position that such incentives would only be adversely affected if s.32 were used against IP owners whose refusals were not justifiable on reasonable commercial grounds.
