Advocate-General Antonio Tizzano’s eagerly anticipated opinion in the IMS Health case was published on 2 October 2003. It considers the situations under which an intellectual property right (IPR) may be subject to compulsory licensing under Article 82 of the EC Treaty.

This EC Treaty provision – which prohibits companies from abusing a position of dominance in a particular market – is also the vehicle for the European Commission’s recently announced investigation in August into AstraZeneca for anti-competitive practices relating to its blockbuster drug Losec.¹ The interpretation of Article 82 is therefore of significant interest and importance to companies in the pharmaceutical industry.

Both IMS Health and NDC Health Corporation collect data on pharmaceutical sales in Germany. Each then supplies the data to its customers, the pharmaceutical companies, in a format which enables the companies to analyse it and use it for tasks such as rewarding the sales force. IMS sued NDC in Germany in 2000, complaining that the way in which NDC presented its data infringed IMS’s copyright on its database known as the “1860 brick structure”. NDC has denied this claim, and claimed that in any event the brick structure is an “industry standard” and that customers will not accept data except in that format. NDC has argued that, in those circumstances, IMS is not entitled to enforce its rights to prevent NDC from entering the market, as to do so will infringe Article 82. The German court hearing the dispute referred a number of questions about the application of Article 82 to the ECJ by way of preliminary reference. The Advocate General’s opinion responds to the questions of the national court and:

• re-examines the criteria for granting a compulsory licence;

• makes it clear that direct competitors of an IP owner may seek a compulsory licence in certain circumstances; and

• confirms that compulsory licences may be sought where a market is covered by a de-facto standard.

Article 82 of the EC Treaty does not generally oblige a dominant company to license its IPRs. Nevertheless, the ECJ held in Magill² that it was an abuse to prohibit the use of copyrighted information about TV programme timings where this information was essential to allow competition in the market for TV listings magazines.

In the more recent Oscar Bronner³ case the ECJ explained the position following Magill:

“refusal by the owner of an intellectual property right to grant a license, even if it is the act of an undertaking holding a dominant position, cannot in itself constitute abuse of a dominant position, but that the exercise of an exclusive right by the proprietor may, in exceptional circumstances, involve an abuse”.³

The ECJ went on to summarise the “exceptional circumstances” that could render the exercise of an IPR abusive:

• the refusal to licence is not objectively justified;

• the IPR to which access is sought is indispensable or essential for carrying on the business in question;

• the refusal to license prevents the appearance of a new product for which there is potential customer demand;

• the refusal is likely to exclude all competition in a secondary/ancillary market.

Following those two cases, (and a couple of further cases, addressing similar issues) there was some uncertainty about the situations in which compulsory access to IPRs could be mandated under Article 82. This arose, in part, from the different formulations of the test used by the European Courts on different occasions. In addition, some commentators argued that it would only be possible to oblige a company to grant a compulsory licence if all of the conditions identified in earlier case law were satisfied, whilst others were of the view that Article 82 was not so limited, and that its scope could not be fettered to such an extent.

Advocate General Tizzano’s opinion in IMS Health seeks to simplify the analysis of the circumstances in which a compulsory licence may be granted, whilst making it clear that Article 82 is a flexible instrument, designed to deal with complex factual scenarios and to intervene where the conduct of dominant companies has an effect on competition which is contrary to the Treaty. It seems clear that he is of the view that the application of Article 82 cannot be reduced to a checklist, but that a careful analysis of the circumstances and effects of behaviour will always be necessary to assess its likely application.

According to the Advocate General, the test under Article 82 should be primarily concerned with whether:

• the refusal to licence is objectively justified; and whether

• the use of the IPR as an “input” is essential to carry on business on a market where the IPR owner is able to exclude virtually all competition by exercising his IPR.

The Advocate General acknowledged that this evaluation will require a balancing exercise. The IPR owner’s right to refuse a licence (and by implication the incentives for R&D arising from the grant of an IPR) must be weighed against the possible detrimental effect on consumers if a licence is not granted. The Advocate General suggests that the balance will favour the grant of a compulsory licence where there is the likelihood of detrimental effect on market development and where the potential licensee will introduce a good or service with “different characteristics” for which there is customer demand.

One key consequence of the Advocate General’s interpretation is that it clarifies the possibility that direct competitors may, in certain circumstances, use Article 82 to enable them to compete on the same market as the IPR owner. In this case, for example, both IMS and NDC are active on the same market. NDC wanted to use the IMS brick structure to supply the same customers as IMS with a product differing (to some extent) from that offered by IMS.

This is interesting when juxtaposed with views expressed by the European Commission in the mid-1990’s. For example, in one case of direct relevance to the pharmaceutical industry, the Commission received a complaint from Lederle-Praxis Biologicals alleging that a number of pharmaceutical companies were abusing their dominant positions by not licensing the registration documents of Hep B vaccine to Lederle for incorporation in products (multivalents) to be developed by Lederle. The Commission rejected the complaint, commenting:

"...at the current stage of EC competition law, it is highly doubtful whether one could impose an obligation on a dominant firm … as a remedy to ensure the maintenance of effective competition … to share its intellectual property rights with third parties to allow them to develop, produce and market the same products … which the alleged dominant firm was also seeking to develop, produce and market. This was judged to be all the more precarious in sectors such as the vaccine sector where R&D required high levels of investment”.⁴

The Commission acknowledgement of the relevance of the value of R&D in a particular sector, may give pharmaceutical companies some comfort when considering the implications of the Advocate-General’s opinion for their businesses. In addition, the brief comments in the Competition Policy Report do not make it clear whether the products that Lederle sought to develop would have been exactly the same as those of the IPR owners, or whether there might have been the possibility of differences. If there would have been no differences, then the case would not be decided any differently today. If, on the other hand, there might have been the possibility of differences of interest to users then perhaps the approach might now be different, following the Advocate-General’s comments.

The Advocate General’s opinion also confirms that Article 82 gives rise to obligations on a dominant company where it has IPRs relating to a standard. The obligations apply only where compliance with, or use of, a standard is necessary to enter the market and where the IPRs interfere. However, Article 82 applies even where the standard is not “official” or recognised by a standards body, but has come to exist and is protected or bolstered by an IPR. This will not be uncommon in some industries, in particular the IT industry, where de-facto standards are increasingly ubiquitous.

Replying to a specific question from the referring Court, the Advocate General suggests that the degree of user lock-in will be relevant in determining how essential a standard may be for market entry. User lock-in occurs where users, because of cost or logistical difficulties, are unable to switch to other products or services not complying with the standard. The Advocate General indicated that the following points should be considered in assessing whether the IMS brick structure was a de-facto standard that was essential:

• the extent to which the customers had helped develop the IMS brick structure; and

• the outlay that those companies would have to incur in order to be able to use data based on another structure.

Although the Advocate General’s opinion is likely to be greeted with dismay by certain IPR owners, it is unlikely to result in a “free for all”. The ECJ has emphasised in its case law that compulsory licences are available under only in “exceptional circumstances”. There is no reason to believe that this will change even if the ECJ decides to follow the Advocate General’s opinion.

Essentially, the Advocate General’s opinion is likely to have primary application to industries where de-facto standards and interfaces are important. This may mean that companies active, for example, in diagnostics/screening or manufacturing of certain medical devices where a particular machine is required to interact with other products (e.g. chemicals or a database) or to operate as part of a system, may need to exercise caution where a company – even a competitor – wants to compete by offering products with “different characteristics” but requires access to one element of the system, covered by IPRs, in order to do so. Indeed, where there have been complaints that a “standard” is preventing certain companies from entering or competing in a market, it is possible that a compulsory licence could be imposed.

However, although Article 82 is flexible in nature, it will only be applied where on the specific facts it is necessary to do so in the interest of consumers. Not all refusals to supply, or refusals to license even by dominant companies will entail a competition law risk. For example, in the UK, the Office of Fair Trading (OFT) recently declined to pursue a complaint against KeyMed Ltd., a company active in the supply of endoscopes, for its refusal to supply spare parts to a distributor selling competing endoscopes. The OFT concluded that the spare parts could not be considered “indispensable” to allow the distributor to carry on its business.

It is also unlikely that the Advocate General’s opinion will affect the main business of pharmaceutical companies with patents covering specific active ingredients. Patents in such circumstances cover the very core of the product required by “consumers” and do not constitute a gateway, or a facility, in any meaningful sense. This may also explain why in a case like Lederle-Praxis Biologicals, referred to above, the authorities were unwilling to intervene⁴. Nevertheless, as discussed below, the way in which the Advocate-General has expressed his opinion does leave some room for uncertainty, even for pharmaceutical companies.

While the opinion re-emphasises the essentially flexible nature of Article 82 it also raises the concern that the Advocate General is taking a narrow view of IPRs, regarding them essentially as “inputs” to be approached in the same way as other raw materials. This may not be altogether justifiable. It might be preferable to regard IPRs as open to the prospect of compulsory licensing only when they are genuinely “gateways” or create a bottleneck preventing the development of genuine alternatives.

The opinion suggests that a dominant company which owns IPRs necessarily infringed by the use of a standard may be at risk of intervention by the competition authorities if it exercises those IPRs to prevent the sale of a competing product with “different characteristics” of interest to consumers. The Advocate General has given little guidance on the degree of difference, or the number of “differing characteristics” that must be present before this obligation may arise. This criterion, on which the Advocate-General appears to rest the entire “balance” between the protection of IPRs and the protection or encouragement of competition, is likely to be critical. For example, as raised above in relation to the Lederle-Praxis case, would the Commission’s answer now differ if, in fact, the would-be licensee intended to offer products in the same market as the IPR owner but differing to some extent such as in relation to dosage, the precise combination of vaccines offered or even the delivery mechanism. These are questions of real relevance to the pharmaceutical industry.

In any event, the IMS Health case, together with the European Commission’s investigation of AstraZeneca, sends a strong signal that EC competition law is an area in which companies in general (including those in the pharmaceutical sector) must be alert. When combined with other recent judgments on Article 82 cases, such as Michelin II⁵ it is apparent that companies that have genuine market power must be aware of the potential consequence of that position, and the special obligations it may impose. This will be even more true once EU enlargement is completed in May 2004 and the EU will number 25 States, each with a competition authority empowered to enforce Article 82 directly.

The European Court is likely to deliver its judgment in the next six months. Generally, but not always, the Court follows the opinion of the Advocate General.

© Bristows 2003 Pat Treacy and Tom Heide

Case C-418/01 IMS Health GmbH & Co. OHG v NDC Health GmbH & Co. KG, opinion of 2 October 2003 (not yet available in English): www.curia.eu.int/

1. European Commission Press Release IP/ 03/1136 from 31 July 2003.

2. Joined Cases C-241/91 and C-242.91P Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v Commission [1995] ECR 743

3. Case C-7/97 Oscar Bronner GmbH & Co. KG v Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co. KG and Others [1998] ECR I-7791

4. 24th Competition Policy Report (1994) at page 353 (Lederle-Praxis Biologicals)

5. Case T-203/01 Manufacture française des pneumatiques Michelin v Commission, judgment of 30 September 2003 (not yet available in English): www.curia.eu.int.

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