Extensive interpretation

The unclear interpretation of new product condition has become even more complicated since the General Court in Microsoft and the Commission in its Commission Guidance (first in Discussion Paper), deviating from the new product requirement adopted in Magill/IMS Health, added follow-on innovation into the ‘exceptional circumstances test’ and replaced the new product condition by a broader notion of consumer harm.65

Prior to the Microsoft judgment, the Discussion Paper already proposed to introduce the concept ‘follow-on innovation’, which undermines the original new product condition. It has been criticised that almost all the technologies could, slightly or significantly, be improved by the follow-on innovative activities. If these activities could qualify as follow-on innovation, the new product condition would be satisfied automatically in the sectors involving technologies and dominant firms would then be forced to license their IPR to the competitors.66

The General Court in Microsoft considered that the conditions in the ‘exceptional circumstances test’ were not exhaustive, asserting that the prevention of the appearance of a new product in refusal to license cases might merely be one example of possible criteria to determine whether the refusal may cause disadvantages for the customers. Such a prejudice might also be caused by the impediment of technical development.67 _{The General Court}

64 _{Considering the licensing cost paying to IPR holders into account, the price of the comprehensive weekly TV}

guide could be expected to be much higher than a single weekly TV guide, but may be lower than the total amount of several single weekly TV guides.

65 _{Judgment in Microsoft v Commission, ECLI: EU: T: 2007: 289, Para 643-665; DG Competition discussion paper}

on the application of Article 82 of the Treaty to exclusionary abuses. (Hereinafter ‘Discussion Paper’), available at

http://ec.europa.eu/competition/antitrust/art82/discpaper2005.pdf, last visited on 10 Sep 2011, Para 237-240; Communication from the Commission – Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings, [2009] OJ C45/7 (Hereinafter ‘Commission Guidance’), Para 86-88.

66 _{Christian Ahlborn, Vincenzo Denicolò, Damien Geradin and A Jorge Padilla, ‘DG Comp's Discussion Paper on}

Article 82: Implications of the proposed Framework and Antitrust Rules for Dynamically Competitive Industries’

http://ec.europa.eu/competition/antitrust/art82/057.pdf, last visited on 20 July 2014, p49. 67

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maintained that Article 102 TFEU would be infringed not only by practices which prejudice consumers directly, but also by those which indirectly harm their interests.68 _{On the one hand, a}

large group of consumers of Microsoft were locked into Microsoft products owing to the lack of interoperability;69 _{on the other hand, the advantage that Microsoft retained discouraged its}

competitors from developing and marketing workgroup server systems, which ultimately would force other non-Microsoft users to switch to Microsoft.70 _{Therefore, such a limitation on}

technical development of the entire industry deriving from the dominant undertaking’s refusal is also within the meaning of Article 102 TFEU. The broader interpretation in Microsoft by the General Court, may be due to the facts that: (1) defining precisely the threshold of being a new product is problematic in practice;71 _{(2) Microsoft disrupted prior levels of supply and entered}

into the workgroup server system market, rather than refused to start to supply, which gave rise to that (3) the rivals were not capable of demonstrating their ability to create new products with breakthrough innovations but merely being able to provide value-added competition on the basis of product quality if the interoperability information could be accessed;72 _{(4) the}

characteristic of interoperability information determines that the products offered by the competitors directly compete with the product offered by Microsoft.

Following the Court’s judgment, the Commission Guidance introduces a much broader concept

consumer harm to replace the new product condition. The Commission Guidance seemingly

includes two different interpretations of the new product condition - the original new product condition and the follow-on innovation condition -by stating:

“The Commission considers that consumer harm may, for instance, arise where the competitors that the dominant undertaking forecloses are, as a result of the refusal, prevented from bringing innovative goods or services to market and/or where follow-on innovation is likely to be stifled. This may be particularly the case if the undertaking which requests supply does not intend to limit itself essentially to duplicating the goods or services already offered by the dominant undertaking on the downstream market, but intends to produce new or improved goods or services for which there is a potential consumer demand or is likely to

European Microsoft Case at the Crossroads of Competition Policy and Innovation: Comment on Ahlborn and Evans’ (2009) 75 Antitrust Law Journal 933, p945.

68 _{Judgment in Microsoft v Commission, ECLI: EU: T: 2007: 289, Para 664.} 69 _{ibid, Para 650-651.}

70 _{ibid, Para 653.}

71 _{See Damien Geradin, ‘Limiting the Scope of Article 82 EC: What Can the EU Learn from the U.S. Supreme}

Court’s Judgment in Trinko in the Wake of Microsoft, IMS, and Deutsche Telekom’ 41 (2004) Common Market Law

Review 1519, pp.1537-1539. 72 _{ibid, pp.1533-1536, 1538.}

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contribute to technical development.”73

The original interpretation of the new product condition, which imposes a higher standard burden of proof on the competition authorities, aims to protect the legitimate exercise of IPR held by a dominant undertaking so as to reward its previous innovatory efforts. It requires proof of novelty of the new product and evidence of unmet consumer demand, making the refusal behaviour abusive only in exceptional situations. Nevertheless, the practical difficulty of such an interpretation has given way to the extensive interpretation of the new product condition. The extensive interpretation is based on the belief that consumer welfare is the ultimate objective and it would be better served by protecting competition for innovations, especially in the dynamically competitive industries. From this point of view, this broader interpretation may be positively assessed.74

However, the burden of proof in this extensive interpretation is much lower than the narrow one. According to the follow-on innovation approach, it is sufficient for the competitors to demonstrate their “intellectual and financial resources to develop the market in some way”75

and some “degree of novelty of a product which the competitor was not yet in a position to produce”.76 _{It might be even not necessary to define the proposed product in detail which the}

technology development would bring about.77 _{If the technology development is very likely}

once the essential IPR were accessible for the requesting rivals, the dominant firm may not able to unilaterally turn down the request. Then this test would be apparently satisfied in almost every IPR case – it goes without saying that the essential technology information disclosed from a dominant undertaking on the market would be valuable for its competitors, directly or indirectly, to improve their competing products.78 _{The aim of Article 102 TFEU, which should}

73 _{Commission Guidance, supra note 65, Para 87.}

74 _{Claudia Schmidt and Wolfgang Kerber, ‘Microsoft, refusal to license intellectual property rights, and the}

incentives balance test of the EU Commission’ (12th _{Annual Conference at the University of Toronto held by the}

International Society for New Institutional Economics, Toronto, June 2008), available at

http://ssrn.com/abstract=1297939, last visited on 20 July 2014, p14.

75 _{Ekaterina Rousseva, Rethinking Exclusionary Abuses in EU Competition Law (Hart Publishing, 2010), p123.} 76 _{John Temple Lang, ‘Mandating access: the principles and the problems in Intellectual Property and competition}

policy’, (2004) 15(5) European Business Law Review 1087, p1111.

77 _{Ekaterina Rousseva, Rethinking Exclusionary Abuses in EU Competition Law (Hart Publishing, 2010), p123;}

Christian Ahlborn and David S. Evans, ‘The Microsoft Judgment and Its Implications for Competition Policy Towards Dominant Firms in Europe’ (2009) 75 Antitrust Law Journal 887, p902.

78 _{See e.g. James Killick, ‘IMS and Microsoft Judged in the Cold Light of IMS’ (2004) 1(2) The Competition Law} Review 23, p43; Christian Ahlborn and David S. Evans, ‘The Microsoft Judgment and Its Implications for

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be always borne in mind, is to protect the competitive process and consumer welfare. But it seems that the new product approach has been construed by EU Courts as safeguarding the right of the competitors to compete on a level playing field rather than preventing harm to competition.79 _{If the condition could be satisfied too easily, a dominant undertaking would be}

reluctant to invest in R&D so as to avoid the potential free riding by the competitors. The judgment of the Microsoft case implies that the right to refuse would thus become an exception rather than a rule.80 _{Thus the right to refuse to grant a license could be claimed only when the}

requesting parties’ intention to develop the market would be highly unlikely achieved.81

Consequently, in the long run both the entire industry and the consumer welfare would be impaired. Yet, the cases involving copyrights may be relatively less affected by this lower standard than patent cases, since the indispensability condition is difficult to pass in cases involving copyrights.82 _{For example, the copyright of Stephen King’s book is indispensable for}

making a movie based on the novel; however, unlike the situation in Magill or IMS Health, for other movies in the movie making market Stephen King’s copyright is obvious not the input required.

2.4 Absence of objective justification