When anticompetition spices up competition, greyhounds lose their appeal

Although it was really a competition law decision, the ruling of Mr Justice Morgan in Bookmakers' Afternoon Greyhound Services Ltd and others v Amalgamated Racing Ltd and others [2008] EWHC 1978 (Ch), a decision from the Chancery Division, England and Wales last August (noted here by the IPKat) was deemed to be of note to IP lawyers and owners too. Yesterday, at [2009] EWCA Civ 750, the Court of Appeal (Lords Justices Mummery, Lloyd and Moore-Bick) dismissed the appeal against the trial judge's decision. Here's what it's all about.

Bookmakers' Afternoon Greyhound Services (BAGS), a not-for-profit company, was comprised of 22 of the UK's 680 off-course bookmakers. Its memorandum of association included the duty to promote the interests of all bookmakers operating Licensed Betting Offices (LBOs). The other claimants in this action were some of the largest bookmakers in the UK. In 1986 it became lawful to show live pictures of horse-racing in LBOs and, in 1987, LBO operators began to pay a distributor, Satellite Information Services Limited (SIS), for the right to show those pictures; in turn, SIS made payments to the racecourses for those rights.

Eventually just over half the 60 British racecourses decided to participate in a joint venture company, the first defendant Amalgamated Racing (AR), which would serve as their new distributor, setting up the Turf TV channel. Around January 2007 those racecourses licensed their own LBO media rights to AR. The second defendant, Racing UK (RUK), was incorporated in 2004 to exploit the media rights of some 30 racecourses, which accounted between them for about 54% of total off-course LBO betting turnover. The seventh to twenty-third defendants were operators of 17 separate racecourses. The other 29 racecourses licensed their LBO media rights so that they were available to SIS. Both AR's and SIS's services were essential services so far as the LBOs were concerned.

As a result of those new arrangements, the 31 racecourses that participated in the joint venture received more revenue for their LBO media rights, since the LBOs were required to pay more in order to show the races in their premises. BAGS argued that the emergence of AR and its entry into the market was anticompetitive, being the result of an agreement which had as its object or effect the prevention, restriction or distortion of competition under Article 81 of the EC Treaty and the corresponding provision of the Competition Act 1998. On this basis they maintained that the agreements in question, including the agreements by racecourses to grant LBO rights to AR, were void under Article 81(2).

The defendants disagreed. In their view, before the arrangements in question were entered into, the market for LBO rights from racecourses was controlled by a monopsony composed of BAGS and SIS. As a result of its position of control of the upstream market, this monopsony paid racecourses a price that was less than that which their rights were worth. The whole point of making the new arrangements with AR was to allow it to be a new entrant into the upstream market -- this not have the object of restricting competition or of fixing prices but, on the contrary, had the object of enhancing competition. Although the result was that prices paid by LBOs went up, that was the result of enhancing competition in the upstream market, was not a restriction on competition.

In a mammoth judgment of 523 paragraphs Morgan J dismissed the action of BAGS and the other bookmakers. In his view

* There was no legal principle that a vertical supply contract was void when the supplier under that contract was a party to a horizontal price-fixing agreement that was itself void. Thus if a consumer under the vertical agreement wanted to complain that the price charged by the price-fixer was excessive, that consumer had a claim for damages for breach of Article 81. There was no need for the law to enable the consumer to have that contract ruled to be void.

* Here the pre-existing market was one of a monopoly purchaser from racecourses and the objects of the challenged agreement did not have the potential of restricting competition. As the defendants contended, the new arrangements actually had the potential to increase competition in the upstream market.

* The increased prices paid by LBOs did not result from the anticompetitive behaviour of sellers fixing prices but rather from the procompetitive entry of a second purchaser into a market formerly occupied by a monopsonist.

* On the evidence, the objective aim of the cooperation between the defendants was to sponsor the entry of AR into the market. The racecourses wanted it to exist and to have LBO media rights which would differentiate it from SIS.

The Court of Appeal agreed. In its view

* Article 81 only applied if the arrangements made here were intended to restrict competition or had that effect. If they were so intended, it was unnecessary to consider their effect. If the object of an agreement was to promote competition, for example by strengthening competition in a market, opening up a market or allowing a new competitor access to a market, some consequent elements of restriction could, taking a broad view of things, be seen as aiming to promote competition.

* In this case the object of the joint venture was to establish a second broadcaster which could compete both in the upstream and in the downstream markets. To be effective, such a broadcaster needed (i) to acquire media rights for a minimum number of racecourses on an exclusive basis, (ii) to have been promoted by or in association with a number of racecourses, and (iii) to be sufficiently protected at the birth of the venture to enable it to off the ground. This being so, Morgan J was right to reject the argument that the agreement had as an object the restriction of competition.

* Where an agreement did not have as its object a restriction of competition, its effects then fell to be considered. To be caught by the Article 81 prohibition the agreement had to be shown in fact to prevent, restrict or distort competition to an appreciable extent. However, cooperation between competitors in markets closely related to the market directly concerned by the cooperation could not be defined as restricting competition, if that cooperation was the only commercially justifiable possible way to enter a new market, to launch a new product or service or to carry out a specific project, Accordingly there was no reason to interfere with the conclusion of Morgan J that the overall effect of the joint venture was procompetitive.

The IPKat thinks this is right; he likes the idea that a little bit of anticompetition can actually promote competition -- after all, isn't that what the concept of the limited monopoly for inventions, copyright and designs is all about? Merpel says, the balance betweeen the subjective state of the alleged anticompetitors' minds and the objective consequences of their actions is an interesting one: lawyers are probably more comfortable than economists in dealing with the former, while the measurable nature of the latter must surely appeal to the skills of economists more than those of to lawyers. Tufty adds, I just love the word "anticompetitor" -- it's much more funky than grey and malevolent terms like "monopolist".

Afternoon Greyhound here
Dog Day Afternoon here
Cat races here and here

End of the road for a great trade mark licence as Grüne Punkt loses again

The Court of Justice of the European Communities handed down its decision in Case C-385/07 P Der Grüne Punkt-Duales System Deutschland GmbH v European Commission, supported by Vfw AG, Landbell AG and BellandVision GmbH, nearly 26 months after the ruling of the Court of First Instance which this 198 paragraph decision upholds.

For those whose memory may not instantly recall the decision of 24 May 2007 or the facts that led to it, let the IPKat recap ...

The German government passed a law to reduce the impact of packaging waste on the environment. This law required manufacturers and distributors to take back and recover used sales packaging outside the public waste disposal system in one of two ways: (i) they could take back the used sales packaging free of charge at or near the point of sale and recover it ('self-management') or (ii) they could guarantee the regular collection of used sales packaging from the final consumer or in the vicinity of the final consumer (an 'exemption system').

Grüne Punkt was the only undertaking which operated a Germany-wide exemption system, although other undertakings did so regionally. By an agreement with contracting manufacturers and distributors it was provided that (i) those participating undertakings should affix Grüne Punkt's logo on all pieces of packaging that were notified as being capable of recovery under the system and intended for domestic consumption in Germany and (ii) a fee would be charged for all packaging bearing its logo. This fee, which served to cover the costs of collecting, sorting and recovering the packaging, was charged irrespective of whether the packaging was in fact recovered through Grüne Punkt's system, through some other exemption system or through a self-management solution.

The Commission ruled that Grüne Punkt had abused its dominant position in the market by requiring payment of a fee for the total quantity of packaging bearing its logo and put into circulation in Germany, even though there was evidence that other exemption systems or self-management solutions were used. In the Commission's opinion Grüne Punkt was exploiting its customers by (i) charging for services that were not provided and (ii) obstructing the entry on to the market of competitors, in the light of the costs related to the linked use of a system other than Grüne Punkt's. The Commission decision did not criticise the fact that Grüne Punkt's customers were required to affix its logo to each piece of packaging intended for domestic consumption, but it did object to the requirement of payment for the total quantity of packaging carrying that logo. In its view no fee could be required, despite the affixing of the Grüne Punkt logo, where the customer had shown it had fulfilled its obligations under domestic law through some other exemption system or self-management solution.

Grüne Punkt brought an action before the CFI to annul that decision, arguing that the decision was disproportionate in preventing it from levying a fee on each package bearing its logo. In any event, it claimed, the abuse could be remedied through the selective marking of packages to signify which exemption system or self-management solution they were intended for. The CFI dismissed the action. In its opinion

* the Commission's measures were not disproportionate. They only required Grüne Punkt not to charge a fee on the total amount of packaging marked with its logo where it was shown that some of that packaging had been taken back and recovered through another system.

* Competition between systems took place on the basis of the quantities of material to be recovered and not on the basis of predetermined quantities of packaging which fell exclusively, in particular by means of selective marking, within one or other of the systems used.

* The requirement that Grüne Punkt not charge a fee based on all packaging marked with its logo did not disproportionately impair its interests, since it was still remunerated for the service which it provided - the taking back and recovery of quantities of material entrusted to it by the manufacturers and distributors of packaging which participated in its system.

* Even if it were theoretically possible to affix the logo to packaging selectively, that solution was more expensive and difficult for manufacturers and distributors of packaging to implement than limiting Grüne Punkt's the remuneration to cover only the service actually provided by its system.

* For the Commission to accept the principle of selective marking would be akin to permitting Grüne Punkt to continue to abuse its dominant position: the costs related to selective marketing and the practical difficulties involved in its implementation were likely to dissuade Grüne Punkt customers from using any alternative system to take back and recover some or all of their packaging in Germany.

Today the Court of Justice dismissed all eight grounds of appeal, of which the second and fourth specifically addressed trade mark issues. Dismissing the second ground of appeal (distortion of the meaning of the trade mark agreement) the Court said:

"87 ... the object of the Trade Mark Agreement is to allow DSD’s contractual partners to be relieved of their obligation to collect and recover packaging which they notify to DSD. The agreement provides that undertakings participating in the DSD system must affix the DGP logo to all packaging notified to DSD and intended for domestic consumption in Germany.

88 It follows that the Trade Mark Agreement which DSD’s customers entered into concerns the affixing of the DGP logo to all packaging notified to DSD and intended for domestic consumption in Germany.

89 ... the abuse of a dominant position established by the Commission arises from the fact that the Trade Mark Agreement requires DSD’s customers to pay a fee in respect of all packaging notified to DSD, even where it is proved that some of it has been taken back and recovered through competing exemption systems or self-management solutions.

90 It is clear that the Court of First Instance did not distort that part of the evidence on the file.

91 ... the Court of First Instance correctly stated that ‘only the provisions of the Trade Mark Agreement concerning the fee are regarded as abusive in [the decision at issue] [and], thus, [the decision at issue] does not criticise the fact that … the [Trade Mark Agreement] requires the manufacturer or distributor wishing to use the DSD system to affix the [DGP logo] to each piece of notified packaging which is intended for domestic consumption’.

92 As regards, specifically, the extent of the licence granted under the Trade Mark Agreement, DSD has been unable to identify the passages of the judgment under appeal in which the Court of First Instance incorrectly referred to the scope of that licence. ..".

As to the fourth ground, infringement of Community trade mark law, the Court had this to say:

"125 As regards, next, the alleged failure by the Court of First Instance to have regard to Article 5 of Directive 89/104, ... by virtue of Article 5(1)(a), a registered trade mark confers on the proprietor exclusive rights therein, entitling the proprietor to prevent all third parties not having his consent from using in the course of trade any sign which is identical with the trade mark in relation to goods or services which are identical with those for which the trade mark is registered.

126 It follows that, by claiming that ... the Court of First Instance failed to have regard to the exclusive right to the use of the logo of which it is the proprietor and by invoking Article 5 of Directive 89/104 in that context, DSD is arguing that the Court of First Instance should have held that the decision at issue had unlawfully stopped it preventing third parties from using a sign which was identical with its logo. DSD placed considerable emphasis on this argument at the hearing and claimed that the result of the obligations laid down by the decision at issue and of their approval by the Court of First Instance is that the DGP logo has, in practice, become available to be used by all.

127 In order to respond to that line of argument, it is necessary to draw a distinction between the use of the DGP logo by DSD’s contractual partners and the possible use of that logo by other third parties.

128 As regards the use of the DGP logo by DSD’s contractual partners, it is apparent from the wording itself of Article 5 of Directive 89/104 that that provision does not cover circumstances in which a third party uses a trade mark with the consent of its proprietor. That is the case, in particular, where the proprietor has authorised its contractual partners to use its mark under the terms of a licence agreement.

129 It follows that DSD cannot validly rely on the exclusive right conferred on it by the DGP logo as regards the use of that logo by manufacturers and distributors who have entered into the Trade Mark Agreement with it. It is true that Article 8(2) of Directive 89/104 provides that a proprietor of a trade mark may invoke the rights conferred by that mark against a licensee who contravenes any of the terms in his licensing contract referred to in that provision. However,... in the present case, DSD itself set up a system which requires that the DGP logo be affixed to all packaging, even where some of the packaging is not taken back by the system. It is accordingly a matter of agreement between the parties that the use of the DGP logo on all packaging notified to DSD is required by the Trade Mark Agreement and is therefore compatible with it.

130 In so far as DSD argues that the measures imposed by the Commission have the effect that the use of the DGP logo by its licensees is, in part, to be free of charge, suffice it to note that the sole object and sole effect of the decision at issue is to prevent DSD from receiving payment for collection and recovery services where it is proved that they have not been provided by that company. Such measures are not incompatible with the rules laid down by Directive 89/104.

131 Furthermore, ... the possibility cannot be ruled out that the affixing of the DGP logo to packaging, whether part of the DSD system or not, may have a price which, even if it cannot represent the actual price of the collection and recovery service, should be able to be paid to DSD in consideration for the use of the mark alone.

132 As regards the possible use of the DGP logo by third parties other than DSD’s contractual partners, neither the decision at issue nor the judgment under appeal state that such use would be permitted under trade mark law. In that regard, the Court of First Instance correctly found ... that the obligations laid down by the decision at issue concerned only relations between DSD and ‘manufacturers and distributors of packaging which are either contractual partners of DSD in the context of the Trade Mark Agreement …, or holders of a licence to use the [DGP] mark in another Member State in the context of a take-back and recovery system using the logo corresponding to that mark …’.

133 Therefore, any use of the DGP logo by third parties other than DSD’s contractual partners is not a matter for which either the Commission or the Court of First Instance bear any responsibility. Moreover, there is nothing to prevent DSD from bringing proceedings against such third parties before the national courts having jurisdiction in that regard".

For those who like statistics, the word "logo" appeared in the judgment no fewer than 124 times and "trade mark" featured 86 times.

The IPKat notes that Grüne Punkt is owned by investment firm Kohlberg Kravis Roberts, who as modern financial alchemists had clearly done too good a job at turning rubbish into gold. Merpel notes that today's ruling is unlikely to make further ripples since the Commission's decision was implemented as long ago as 2001. This suggests that perhaps, in the legal profession too, there are some people who know how to turn unpromising material into gold.

CLA pharma sector enquiry event

The IPKat has received notice of a forthcoming Competition Law Association event discussing the EU's Pharma Report.

'The Pharmaceutical Sector Inquiry: implications for the sector and beyond' will take place on 27 July at 6pm at the offices of Simmons & Simmons, CityPoint, One Ropemaker St, London EC2Y 9SS.

In the hotseat are Rowan Freeland (Simmons & Simmons) and Stephen Kon (SJ Berwin). The cost is £25 for non-members, £20 for members and £10 for associate members. CPD points are available.

If you're interested in going along send your name, address, any dietary requirement and an appropriate cheque to Sharon Horwitz, CLA Secretary, c/o Glynda Gabriel, Linklaters LLP, One Silk St, London EC2Y 8HQ.

STOP PRESS: this event will now take place a day earlier than originally publicised on 27 July. All other details remain the same.

ECJ allows limits on supply intended to stop parallel trade

Yesterday the ECJ delivered its judgment in Case C-468/06 Lelos v GSK, a reference from the Greek competition authorities concerning a failure by GSK to fully meet orders submitted to it by Greek wholesales which GSK deemed to be well in excess of demand on the Greek market.

Although it is an abuse of a dominant position under Art.82 of the EC Treaty for an undertaking to refuse to supply wholesalers in order to put a stop to parallel importation, an undertaking can stop supplying if orders are placed which are out of all proportion to those previously sold by the same wholesalers to meet the needs of the market in that Member State. It is for Member States' courts to determine whether orders are not 'ordinary', i.e. if they are out of proportion to the needs of that Member State's market. The court stressed that such supplies can only be limited to protect the undertaking's economic interests. It is for the Member State's authorities, and not for pharma companies to crack down on parallel imports which are so extensive that the exporting market finds itself within sufficient supplies of the drug in question.

The IPKat notes that the ECJ wiggled out of commenting on a couple of issues of particular interest to IP lawyers:

1. The argument was raised that consumers wouldn't ultimately benefit from parallel importation because any price differential between the importing country and the country of origin would be eaten up by parallel importers are resellers. No matter, said the ECJ - price competition would still result in the shape of 'financial benefits not only for the social health insurance funds, but equally for the patients concerned, for whom the proportion of the price of medicines for which they are responsible will be lower. At the same time... parallel trade in medicines from one Member State to another is likely to increase the choice available to entities in the latter Member State which obtain supplies of medicines by means of a public procurement procedure, in which the parallel importers can offer medicines at lower prices.' The IPKat says that this reasoning is limited to industries like pharma, where there is massive public procurement, backed by social funds. He also notes that this reasoning assumed that patients are responsible for a proportion of the cost, unlike the NHS, where a flat rate applies.
   
2. The court felt it unnecessary to consider the argument that undertakings might need to limit parallel importation to recoup their R & D costs.

The Kat also detects a whisker of the court's old IP-scepticisim in para.64:

On the other hand, it should be recalled that, where a medicine is protected by a patent which confers a temporary monopoly on its holder, the price competition which may exist between a producer and its distributors, or between parallel traders and national distributors, is, until the expiry of that patent, the only form of competition which can be envisaged.

Bookies lose the Turf TV war

Although it is really a competition law decision, last week's ruling of Mr Justice Morgan in Bookmakers' Afternoon Greyhound Services Ltd and others v Amalgamated Racing Ltd and others [2008] EWHC 1978 (Ch), a decision from the Chancery Division, England and Wales, should be of note to IP lawyers and owners too.

Right: putting the cat before the horse? (Illustration from Gunsmoke Cattery)

Bookmakers' Afternoon Greyhound Services (BAGS), a not-for-profit company, was comprised of 22 of the UK's 680 off-course bookmakers. Its memorandum of association included the duty to promote the interests of all bookmakers operating Licensed Betting Offices (LBOs). The other claimants in this action were some of the largest bookmakers in the UK. In 1986 it became lawful to show live pictures of horse-racing in LBOs and, in 1987, LBO operators began to pay a distributor, Satellite Information Services Limited (SIS), for the right to show those pictures; in turn, SIS made payments to the racecourses for those rights.

Eventually just over half the 60 British racecourses decided to participate in a joint venture company, the first defendant Amalgamated Racing (AR), which would serve as their new distributor, setting up the Turf TV channel. Around January 2007 those racecourses licensed their own LBO media rights to AR. The second defendant, Racing UK (RUK), was incorporated in 2004 to exploit the media rights of some 30 racecourses, which accounted between them for about 54% of total off-course LBO betting turnover. The seventh to twenty-third defendants were operators of 17 separate racecourses. The other 29 racecourses licensed their LBO media rights so that they were available to SIS. Both AR's and SIS's services were essential services so far as the LBOs were concerned.

As a result of those new arrangements, the 31 racecourses that participated in the joint venture received more revenue for their LBO media rights, since the LBOs were required to pay more in order to show the races in their premises. BAGS argued that the emergence of AR and its entry into the market was anticompetitive, being the result of an agreement which had as its object or effect the prevention, restriction or distortion of competition under Article 81 of the EC Treaty and the corresponding provision of the Competition Act 1998. On this basis they maintained that the agreements in question, including the agreements by racecourses to grant LBO rights to AR, were void under Article 81(2).

The defendants disagreed. In their view, before the arrangements in question were entered into, the market for LBO rights from racecourses was controlled by a monopsony composed of BAGS and SIS. As a result of its position of control of the upstream market, this monopsony paid racecourses a price that was less than that which their rights were worth. The whole point of making the new arrangements with AR was to allow it to be a new entrant into the upstream market -- this not have the object of restricting competition or of fixing prices but, on the contrary, had the object of enhancing competition. Although the result was that prices pait by LBOs went up, that was the result of enhancing competition in the upstream market, was not a restriction on competition.

In a mammoth judgment of 523 paragraphs Morgan J dismissed the action of BAGS and the other bookmakers. In his view

* There was no legal principle that a vertical supply contract was void when the supplier under that contract was a party to a horizontal price-fixing agreement that was itself void. Accordingly, if a consumer under the vertical agreement wanted to complain that the price charged by the price-fixer was excessive, that consumer had a claim for damages for breach of Article 81. There was no need for the law to enable the consumer to have that contract ruled to be void.

* In this case the pre-existing market was one of a monopoly purchaser from racecourses and the objects of the challenged agreement did not have the potential of restricting competition. As the defendants contended, the new arrangements actually had the potential to increase competition in the upstream market.

* The increased prices paid by LBOs did not result from the anticompetitive behaviour of sellers fixing prices but rather from the procompetitive entry of a second purchaser into a market formerly occupied by a monopsonist.

* On the evidence, the objective aim of the cooperation between the defendants was to sponsor the entry of AR into the market. The racecourses wanted it to exist and to have LBO media rights which would differentiate it from SIS.

The IPKat wonders whether this decision will encourage operators of sports venues in other sectors to examine closely the terms on which they allow live coverage of events and see whether they have scope for non-anticompetitive cooperation. Merpel is pondering on whether the LBOs could get a better deal if they paid to watch the same races a few minutes after they finished.

Horse racing here
Dog racing here
Cat racing here

Satellite TV case to go to ECJ

In a judgment of over 45,000 words and 98 pages, handed down this morning in the case of the Football Association Premier League & others v QC Leisure & others [2008] EWHC 1411 (Ch), the Honourable Mr Justice Kitchin has delivered a tentative blow against the rights of satellite broadcasters such as BSkyB to protect their exclusive rights to broadcast football games to subscribers in individual EU countries. The IPKat thanks James Wilmore of The Publican for letting him have a copy. Interested readers can find a copy on the IPKat's Google Groups site until the judgment becomes available on BAILII.

The three combined actions involved in this case concerned the use of foreign decoder cards in the UK to access foreign transmissions of live Premier League football matches. The claimants complained that the dealing in and use of such cards in the UK involved an infringement of their rights under s.298 of the CDPA 1988, as amended, and of the copyrights in various artistic and musical works, films and sound recordings embodied in the Premier League match coverage.

The defendants argued that the use of copyright law to effectively prevent them from using decoder cards in the UK which had been legitimately bought in other EU states was contrary to EC law. Several Directives were cited, the key one being 98/84/EC, also known as the Conditional Access Directive. The main issue (of many) appeared to be whether the decoder cards (bought in Greece, imported and used in the UK) were to be regarded as "illicit devices" under the terms of this Directive.

Both sides put their arguments at length, and yet Kitchin J felt that he was unable to come to a definite conclusion, considering that a proper interpretation was not clear and that this was an issue that should be referred to the European Court of Justice. He did, however, offer a 'provisional' view that the defendants' arguments should be preferred, providing the following reasons (at paragraphs 79-84):

"First, the Recitals do recognise the need for legal protection of broadcasting and information society services whose remuneration relies upon conditional access. For example, Recital (6) expressly acknowledges the development of a wide range of such services has the potential for increasing consumer choice and contributing to cultural pluralism but that the viability of such services often depends upon the use of conditional access in order to obtain the remuneration of the service provider. Moreover, the Recitals make clear that disparity between national rules concerning the legal protection of services based upon, or consisting of, conditional access was considered liable to create obstacles to the free movement of goods and services and that a Directive was needed to provide for an equivalent level of protection between Member States. Further, the use of the word necessary in Recital 13 indicates that appropriate legal protection against illicit devices was considered a proportionate measure and that no less a restrictive measure would suffice to protect this legitimate policy object. However, I do not believe these considerations, of themselves, assist in determining the scope of definition because the protection of the service provider against pirate cards would seem to meet all these policy objectives.

I believe some indication of the intention behind this measure can, however, be derived from Recitals (13) and (15), read as a whole. The former refers to protection against the placing on the market of a device which enables or facilitates without authority the circumvention of any technological measures designed to protect the remuneration of a legally provided service. The latter explains that commercial activities in relation to such devices are detrimental to consumers who are misled about the origin of illicit devices. Both Recitals suggest to me that the Directive is concerned with the production and placing on the market of devices which do not have their origin in a legitimate service provider rather than the unauthorised use of devices which do originate from a legitimate service provider.

Second, Article 1 makes clear that the objective of the Directive is to approximate provisions in Member States concerning measures against illicit devices which give unauthorised access. However, I do not think it can be inferred the Directive is concerned only with effect, as the claimants contend. To the contrary, it seems to me that if this were the position then there would have been no need to limit its scope to illicit devices. Rather, it would have been directed to all devices which are used give unauthorised access.

Third, this impression is reinforced by the definitions of Article 2. A “conditional access device” means equipment or software designed or adapted to give access to a protected service. This suggests to me that it is concerned with the physical nature of the device or, as the defendants say, with its inherent nature. Similarly, an “illicit device” is a conditional access device which is designed or adapted to give such access without the authorisation of the service provider. Once again, it is the physical or inherent nature of the device which must confer this characteristic. This is the natural interpretation of the words used.

Fourth, and as the defendants submit, any reading of this definition which means that a device is “illicit” or “not illicit” depending upon where it is intended to be used is wholly unworkable given the infringing acts defined in Article 4 and the Community wide scope of the prohibitions. These are acts performed by manufacturers and dealers, not end users, and no mens rea or mental element is involved. Equipment becomes an “illicit device” upon its manufacture in any Member State of the Community; a device which is not illicit to begin with cannot change its status by reason of the subjective intention of a dealer as to the place where it is to be used. Indeed, a dealer may not even know where an end user intends to use a device which is supplied by a dealer to another dealer or to an end user.

Fifth, I agree with the defendants that it is very hard to see what substance there can be to Article 3(2)(b) if the interpretation for which they contend is not correct."

There were a whole raft of issues considered in much detail, which the IPKat will leave for other readers to delve into for themselves, including of course the central issue of the applicability of Article 81 EC. Kitchin J concluded as follows (at paragraph 385):

"The issues in this case have at their heart the proper interpretation of a number of instruments of Community legislation concerning the cross-border broadcasting of television programmes by satellite. There can be no doubt that recent years have seen a proliferation of encrypted television channels which are accessible only on payment of a fee. Yet the broadcasting organisations responsible for the transmissions are often prohibited from permitting viewers in other Member States to access the encrypted programming; and this is so even when such viewers are prepared to make the requisite payment. This prohibition stems from the desire of rightholders to extract what they perceive to be the fair remuneration to which they are entitled. However, it creates a tension with the concept of a Community audiovisual area and the principles of an internal market without frontiers, and it is this tension which is reflected in the multitude of claims and defences deployed in this case. I have made such findings as I can. But I believe the issues which I have identified and upon which the assistance of the Court of Justice is sought are so fundamental that they should be considered as a whole by the Court at the earliest opportunity. I therefore invite the parties to make submissions on the precise wording of the questions to be referred and to suggest, if so advised, any additional questions for this court’s consideration."

The IPKat is pleased on the one hand that this important issue is getting the attention it deserves. BSkyB have for years been able to charge several thousand pounds to UK pubs for the right to show football matches on their premises to paying customers, when similar rights in Greece cost only a few hundred pounds. Many pubs across the country have been complaining bitterly that this is daylight robbery (see, for example, the Morning Advertiser to find out more). If Community legislation on free movement of goods and services is to mean anything, this surely must be an issue that goes to the heart of the matter. Is the current decoder card market a legitimate sub-division of the common market, allowing consumers a fair share of the benefit, or is it contrary to the principles of Article 81 EC? On the other hand, however, the IPKat is slightly disappointed (although not in the least surprised) that the issue has been so clouded with Directive after Directive, when the fundamental issue appears to be quite clear: are these devices "illicit" or not (the IPKat thinks not)? We will now have to wait an indeterminate amount of time for the issue to be considered, via the process of Chinese whispers that is the ECJ referral procedure, and then finally decided by the High Court (although even then the issue will almost certainly not stay there).

Last night at UCL: IP vs Competition

Yesterday the IPKat attended the first of the UCL / Howrey LLP Competition Law & Intellectual Property Lecture Series, entitled 'The Role of Economic Analysis in Intellectual Property Law: Implications for Competition Law'. In the hotseat were Professor Bruno van Pottelsberghe de la Potterie (Université Libre de Bruxelles, former Chief Economist of the European Patent Office) and Professor Michael Meurer (Boston University School of Law) with Trevor Soames (Howrey) and Professor Damien Geradin (Tilburg University & Howrey) providing commentary.

The big underlying question was whether antitrust law should be regulating IP, or whether IP needs to 'get its own house in order'. Both speakers identified points where IP should be sorting itself out, though there was no indication of how competition law might step in to help with the process.

Both speakers pointed to major systemic problems with the patent systems in Europe and the US. Prof van Pottelsberghe pointed to the fragmentation of the European patent system, and the costs involved in obtaining a patent before the EPO. Moreover, in the US, it appears to be easier to get a patent (raising possible quality concerns regarding examination). All this makes it more attractive to apply for a US patent, than to use the EPO route initially. At the same time, although the value of patents are going up, the number of filings and the number of claims per application are going up. Also, applicants are finding ways to play the system to maximize the strategic benefits from their patents, filing divisionals being a favourite.

According to Prof Meurer, the US patent system doesn't seem to be doing too much better. He argued that, except for in the chemical and pharma industry, patents appears to be imposing greater costs on businesses than they confer benefits, meaning that they effectively act as a form of tax on business. He compared patents to tangible property and identified notice as a big difference. One seldom accidentally builds on other people's land because one checks the rights out before starting building. This is a far more difficult exercise with patent law, thanks to 'fuzzy' claims in previous patents, the difficulty of accessing information, the facts that patents aren't 'possessed' in the way that tangible property is and the search costs involved in verifying that one is not infringing other people's patents. In many industries, there's just too much prior art to make a search cost-effective, and in the US, the willfulness doctrine (which leads to treble damages) means that it's better to just not know about previous inventions.

The IPKat says that it all makes for a sorry tale. He takes a crumb of comfort from the fact that the speakers appeared to be condemning the patent system, rather than patent law itself. The Kat wonders who's in the best position to sort out such structural failures. He suspects it's not IP lawyers alone. He also notes that attempts to sort out some of the problems (take the European patent as a way of solving fragmentation) are scuppered not by IP-related concerns, but rather greater political concerns, such as language. On the wider issue of the IP/competition law interface, the Kat wonders how much of a role there is for competition law to play. Of course there will always be individual cases of abusive behaviour involving IP, but equally well, there are cases of abusive behaviour involving tangible property and other resources. In general, IP law is alert to the needs of the market, competitors and consumers, and has in-built limits that kick in at a point where antitrust wouldn't even get involves because the effect is limited to individual actors rather than the market as a whole.

Learn more about the Microsoft case

UCL's Centre for Law and Governance in Europe, together with the Competition Law and Regulatory Forum (CLRF) are holding a seminar this Thursday entitled 'Refusal to License IP: are we closer to an optimal legal standard after Microsoft v. Commission?' In the hotseat is Professor Yannis Katsoulacos (Professor of Economics at the Department of Economic Science of the Athens University of Economics and Business; Vice Rector, Athens University of Economics and Business). The event runs from 5 to 6pm in the UCL Faculty of Laws (Bentham House) in sunny Bloomsbury. All are welcome.


On ths same subject, Birmingham University are hosting an event entitled 'The Microsoft Case:The IT industry and the Future of EC Competition Law' on 16 May. Further information can be obtained here.

European Commission launches pharma sector enquiry

Some IPKat readers (at least those who do not also read Class 46) may yet be unaware that the European Commission has recently been carrying out 'dawn raids' on some well-known large pharmaceutical companies, including
GlaxoSmithKline, AstraZeneca, Sanofi-Aventis, Pfizer, Wyeth, Teva, Merck Sharp & Dohme, Johnson & Johnson, Sandoz and Bayer Schering Pharma (according to PharmaTimes). The raids are a precursor to the Commission's new sector enquiry into the European pharmaceutical industry, as announced recently (and, of course, shortly after the raids themselves) in a press release.

(top right: Commission officers politely ask GSK executives to come out with their secret papers)

Competition Commissioner Neelie Kroes (right) says:

"Individuals and governments want a strong pharmaceuticals sector that delivers better products and value for money. But if innovative products are not being produced, and cheaper generic alternatives to existing products are in some cases being delayed, then we need to find out why and, if necessary, take action."

The Commission points out that, unlike in cartel cases, where the Commission carries out inspections when it has indications that specific companies have committed competition law infringements, these inspections are not aimed at investigating practices of companies which the Commission has already positive indications of wrong-doing. They are just the starting point of this general sector inquiry and aim to ensure that the Commission has immediate access to relevant information that will guide the next steps in the inquiry. The kind of information the Commission will be examining, such as the use of intellectual property rights, litigation and settlement agreements covering the EU, is by its nature information that companies tend to consider highly confidential. Such information may also be easily withheld, concealed or destroyed. This is why inspections have been considered appropriate.

What appears to have prompted the enquiry is a general suspicion that some patent-heavy pharmaceutical companies may be attempting to extend their monopolies beyond patent lifetimes by, amongst other things, the practice of 'evergreening', backed up with expensive court cases relating to (arguably very slim) inventions and making deals with (some may say "paying off") generic drug producers. This follows the decision in 2005 (see here, and IPKat comments here) to fine AstraZeneca 60 million euros for attempting to block the entry of generic producers into the proton pump inhibitor market (monopolised for a time by the blockbuster drug Losec) after expiry of their main patent.

Clearly this is the start of what is likely to be a very long and drawn out process. The IPKat does not expect to see much public information coming out in the next couple of years. What could happen after that, however, is anyone's guess.