Thank you for sharing!

Your article was successfully shared with the contacts you provided.
More and more news stories have recentlyappeared about U.S. companies facing antitrust scrutiny for their actions inboth the United States and Europe. This, in itself, would not be remarkable, inthat both U.S. and European antitrust officials have traditionally maintainedtheir right jointly to challenge conduct of U.S. companies that affects theirrespective economies. What is more remarkable, however, is thegrowing frequency with which U.S. companies have passed muster under U.S.antitrust laws only to be challenged anew by the European Union for the sameconduct and with different results. Notable recent examples are the proposedmergers of General Electric/Honeywell and Boeing/McDonnell Douglas, both ofwhich were approved in the United States but either died in the European Unionor were substantially affected by E.U. premerger conditions. One thing seems clear: U.S. companies withbusinesses in both the U.S. and European markets cannot assume that activitythat would pass antitrust muster here will automatically pass muster in theEuropean Union as well. RECENT CASE IS A CAUTIONARY TALE FOR U.S. COMPANIES The recent case between two U.S. companies,IMS Health and NDC Health, is illustrative of the point. The case is acautionary tale for U.S. companies seeking to protect their intellectualproperty rights in the European Union in the face of E.U. antitrust principles. IMS Health, an American company, is animportant international supplier of information on sales and prescriptions ofpharmaceutical products. IMS had a first-mover advantage in Germany, where ithad spent years developing a copyrighted format for collecting and distributingpharmacy sales data using the “1860 brick structure,” a segmentation of Germanyinto 1,860 geographical areas that track the German postal codes known as”bricks;” each brick contains at least four pharmacies. (German data protectionlaw prohibits the provision of sales information for individual pharmacies.)This copyrighted format made it the principal provider of such data and relatedservices in Germany. In 1999, NDC Germany, a company created byformer senior personnel of IMS and a subsidiary of NDC Health, an American anda Belgian firm, attempted to sell its regional sales data in a structure thatsimulated the 1860 brick structure. Data presented in this structure, however,was largely not marketable to potential customers because of the acceptance ofthe 1860 structure within the industry. When this approach failed, NDC beganoffering a competing product that IMS alleged infringed its copyrights in the1860 brick structure software. On May 26, 2000, IMS filed a lawsuit in theFrankfurt, Germany, district court against NDC, alleging copyrightinfringement. After a hearing and briefing, the Frankfurt court upheld thevalidity of IMS’ copyright and found that it had been infringed by NDC. Thecourt, accordingly, enjoined NDC from using the 1860 brick structure or anystructure derived from it and leveled a fine by virtue of the infringement.Following this ruling, NDC sought a license from IMS to use the 1860 brickstructure format, which IMS refused. NDC then filed a complaint with theEuropean Commission (E.C.) in December 2000, alleging that IMS’ refusal was anabuse of a dominant position, and asked the E.C. to grant “interim measures,”including a compulsory license, pending the outcome of a full proceeding on themerits. After a preliminary investigation of NDC’scomplaint, the E.C. concluded that IMS’ rivals were unlikely to come up withand sell an alternative structure without at some point infringing IMS’copyrighted materials. The E.C., accordingly, went on to enter an interim orderholding that because the 1860 structure was indispensable for NDC to carry onits business in Germany, IMS’ refusal to license was a violation of E.U.antitrust principles and contrary to Art. 82 of the Treaty of Rome. The E.C. also concluded that the risk ofserious and irreparable harm to NDC established the need to grant immediaterelief. Without a license to the 1860 brick structure, there was a serious riskthat NDC’s German company would withdraw from the German market. As a result,the E.C. ordered IMS to license its copyrighted format to NDC on commerciallyreasonable terms of the parties, and further provided that if the parties couldnot themselves come to terms on a reasonable royalty, the E.C. could select aneutral third party to set the fee. (This was the first case of interimmeasures, a power given to the E.C. by the European Court of Justice, since1995. The E.C. acknowledged the “exceptional circumstances” required forinterim relief.) On Oct. 26, 2001, on appeal by IMS, the Courtof First Instance of the European Communities suspended the E.C.’s interimdecision. Notably, the court left the possibility open that compulsorylicensing might still be an appropriate remedy at the end of the proceedings. WHAT IS DIFFERENT ABOUT COMPETITION IN THEE.U. The E.U. rules addressing competition arefound at arts. 85-90 of the Treaty of Rome. Arts. 85 and 86 are similar inoutline to the basic Sherman Act principles. Art. 86 prohibits “the abuse of adominant position” within the European Union and gives general definitions ofsuch abuse. Art. 85(1) bars agreements that may affect trade between memberstates and are intended to restrict, or have the effect of restricting,competition within the European Union. These competition rules apply to the enforcementof IP rights and reflect the European Union’s general view that competition isa means to an end in community law, not an end in itself. As a result, EuropeanIP law has not always privileged IP rights to the extent that American lawdoes. One case, Radio Telefis Eireann (RTE)& Anor v. Commission of the Eur. Communities, 1 CEC (CCH) � 400 (1995)( Magill) exemplifies this difference. In Magill, the EuropeanCourt of Justice held that a TV station owning a valid Irish copyright on itsown program listings had a duty to license the copyrighted information tocompetitors in the market for publishing program guides. The refusal to allowaccess to this information protected by the copyright-but available from noother source-was deemed an abuse of dominant position under Art. 86 of theTreaty of Rome. In Europe, where compulsory licensing is permissible,antitrust-based restrictions on the freedom of an IP owner are thus clearlyfeasible. The doctrinal difference between European andU.S. antitrust law is also underscored with reference to the differentapplication of the “essential facilities” doctrine, which precludes a firm orgroup of firms with control over a facility essential to competing in a marketfrom preventing competition by denying access to that facility. See U.S. v.Terminal Railroad Assn., 224 U.S. 383 (1912). Even though the prima facieelements to finding antitrust liability under this doctrine are similar in theEuropean Union and United States, the elements have been applied differently.American courts have not yet applied an “essential facilities” analysis tointellectual property or recognized a duty to license, whereas the E.C.apparently views the existence of essential facilities as justification forimposing a duty to license. This has substantial ramifications for companiespossessing a dominant position in the market, even if they have achieved thatposition lawfully by way of copyright. From an antitrust perspective, the E.C.’sdecision in IMS is troubling for U.S. businesses that have both U.S. andEuropean operations. It represents a substantially different prioritizing ofthe interests of IP in the context of antitrust law than U.S. law generallyasserts. Because U.S. antitrust law is concerned with harm to competition, notindividual competitors, the enforcement of IP rights is usually not viewed asproblematic even if it means that a particular competitor cannot effectivelycompete: Compulsory licensing is a potential remedy for a proven antitrustviolation, not for enforcing one’s IP rights in the first instance. Although the E.C. noted that refusal tolicense an IP right is not considered in normal circumstances to be an abuse ofArt. 82, it seems clear that the E.C. will, at times, strike the balancedifferently than U.S. courts. The E.C., without any proof of prior antitrustmisconduct by IMS, found that NDC had a right to gain access to IMS’copyrighted format in order to remain a viable competitor in Germany. Theemphasis was on protecting an individual competitor, a concept not generallyembraced by U.S. courts. What this increasing difference means forAmerican companies subject to antitrust scrutiny and doing business both inAmerica and in Europe is unclear, except that it seems inevitable that it willfurther complicate international business decisions. Companies asserting IP rights in Europeshould be aware that, to the degree such rights disadvantage individualcompetitors, they may face increased E.U. antitrust scrutiny. Licensing or refusal-to-license decisionsthat are likely to be permissible under U.S. law may not be approved by theE.C., which then presents the difficult question of how to proceed-indeed,whether to proceed at all-in light of the different legal status of the samelicensing action. This is particularly true for information technologybusinesses with copyrights that are arguably the de facto standard in aparticular market. For now, it seems clear that internationalcompanies making IP licensing decisions that may raise antitrust concerns shouldtake extra steps to ensure that their actions will meet with the divergingstandards of both U.S. and European antitrust law. While this extra review willadd a layer to what is likely already an expensive and complex transaction, thecurrent approach of the E.C leaves companies with no other real choice. Robert G. Badal is a shareholder in the LosAngeles office of Heller Ehrman White & McAuliffe, and Hilary E. Ware is anassociate in the firm’s San Francisco office. They specialize in antitrust andintellectual property litigation. They can be reached, respectively, at [email protected]and [email protected]

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.