Intellectual Property And Competition Law: The Innovation Nexus

Intellectual Property and Competition Law

For Adriano Vanzetti

Intellectual Property and Competition Law The Innovation Nexus

Gustavo Ghidini Professor of Intellectual Property and Competition Law, Luiss Guido Carli University, Rome, Italy

Preface by J.H. Reichman

Edward Elgar Cheltenham, UK • Northampton, MA, USA

© Gustavo Ghidini 2006 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. This book is a deeply revised edition of G. Ghidini, Profili evolutivi del diritto industriale – Proprietà intellettuale e concorrenza, Giuffré, Milano, 2001 Published by Edward Elgar Publishing Limited Glensanda House Montpellier Parade Cheltenham Glos GL50 1UA UK Edward Elgar Publishing, Inc. 136 West Street Suite 202 Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Ghidini, Gustavo. Intellectual property and competition law: the innovation nexus / by Gustavo Ghidini. p. cm. Includes bibliographical references and index. 1. Intellectual property—European Union countries. 2. Competition, Unfair— European Union countries. I. Title KJE2636.G48 2006 346.2404´8—dc22 2005054860 ISBN-13: 978 1 84542 135 9 ISBN-10: 1 84542 135 3 Typeset by Cambrian Typesetters, Camberley, Surrey Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall

Contents Preface by J.H. Reichman Acknowledgements

vii xii

1

Introduction and the general framework The subject matter The ‘constitutional’ guidelines Notes

1 1 8 12

2

Patent protection of innovations: a monopoly with a wealth of antibodies Introduction: monopoly and competition in patent law: overview The area of patentability. The (difficult) distinction between basic and applied research Exclusive protection and competitive dynamics of innovation. Striking a balance Conclusions, and some proposals Notes

3

4

13 13 15 23 41 47

From art to technology: the expansion of copyright Copyright vs. patent: a tale of two paradigms: a prospective view ‘Technology copyright’: the rationale of a ‘trespass’, and the related risks for the development of subsequent innovation and competition Of ‘applied arts’ (industrial design) Afterword. The diffusion of information and entertainment through the new communication technologies Notes

71 74

The distinguishing function and advertising value of the trademark: main aspects and critique of a European ‘reform’ Before the reform. The classic paradigm The reform. The business interests protected The reform, and the (multifaceted) risks of consumer deception A conclusion Notes

78 78 83 88 92 94

v

52 52

62 67

vi

5

Intellectual property and competition law

On the ‘intersection(s)’ of IP and competition law(s) IP and antitrust IP and unfair competition Conclusion Notes

Bibliographical notes References Index

99 99 111 114 115 119 154 157

Preface J.H. Reichman Professor Gustavo Ghidini has undertaken a searching study of the way the European intellectual property system is evolving away from pro-competitive premises that underlie the classic patent and copyright paradigms in response to strong protectionist pressures (and relentless special-interest lobbying) that have accompanied the integration of markets at both the regional and global levels. Alarmed by what he finds, Ghidini reminds us at the outset that intellectual property rights are not ends in themselves. Properly conceived, they are instruments for preserving and enhancing that system of free enterprise and free competition that finally replaced the ‘guild’ and ‘corporate’ models of the not too distant past. Viewed from this perspective, Ghidini warns that more intellectual property rights, and especially too much of the wrong kind of intellectual property rights, may cumulatively yield unacceptably high social costs by compromising the competitive ethos whose tenets were embodied in the Treaty of Rome – as well as in Italy’s post-war economic constitution. With these tenets in mind, he proceeds to evaluate the far-reaching reforms of recent years, which have aligned the European Union member countries’ intellectual property laws with the harmonizing directives of the European Commission and with the international minimum standards of the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (‘TRIPS Agreement’). His project is to determine the extent to which the product of these reforms remains consistent with the fundamental goal of promoting free competition. Have the reformers preserved an appropriate balance of public and private interests that suitably accommodates that goal? Or have they rewritten the rules of the game so as to allow powerful firms to exploit rent-seeking legal monopolies that create barriers to entry and that may actually discourage the kind of innovation on which today’s processes of dynamic competition most depend? To answer these questions, Ghidini focuses attention on the economic justification of intellectual property rights as a means to address the potential market failure associated with the production of public goods. Here he emphasizes that the purpose of using intellectual property rights to cure market failure is to avoid suboptimal investment in innovation by entrepreneurs who might otherwise remain vulnerable to unbridled free-riding on the fruits of vii

viii

Intellectual property and competition law

their investment. If, however, the set of legal incentives used to stimulate the first-comer’s investments unduly deters second comers from making further investments in follow-on applications, the regime in force will merely have traded one kind of market failure for another. Thus configured, a system of innovation might produce no net long-term gains in competitive output, and it could actually slow the pace, and distort the quality, of research and development over time. In short, a modern intellectual property system devoted to stimulating constant innovation must seek a dynamic equilibrium that avoids both the perils of free-riding duplication and the proliferation of ill-conceived legal monopolies that enable rent-seeking oligopolists to control and stifle follow-on innovation1. These premises lead Ghidini to treat the separate intellectual property disciplines, especially patents, copyrights, and trademarks, as part of a single system of innovation and to examine the extent to which the reforms under way in each compartment of that system coherently promote cultural progress and the growth of investment in productive research and development. He will particularly single out ways in which recent legislative developments may have tipped the balance too far in a protectionist direction; and in each case, he proposes interpretations or, where necessary, modifications and amendments that could help to redress the balance in favor of those underlying competitive goals that ought to drive the system as a whole. In effect, he undertakes a quest for present-day functional equivalents of the ‘pro-competitive antibodies’ that were built into the classical, bipolar system of intellectual property rights inherited from the industrial revolution. At the same time, Professor Ghidini looks beyond these disciplines to ancillary rules sounding in unfair competition law and to the principles of antitrust law, which have the power to curb and limit the strength of specific intellectual property rights in order to promote the maintenance of orderly and efficient market conditions. He thus views both unfair competition law and antitrust law, as major potential correctives of the vices and abuses that increasingly distort the workings of legal incentives to invest. Here, indeed, he is comforted by new developments in both legislation and case law that seek to promote the interests of researchers, users, consumers, and competitors in ways that balance the protectionist thrust of the intellectual property regimes themselves and that seek to restore the conditions needed for healthy competition. To the same end, he advises courts, legislators and administrators to view these correctives as an integral part of the system of innovation, and he attempts to provide them with the legal tools they will need to accomplish this task without the parochialism that sometimes constrained judicial applications of unfair competition law in the past. Professor Ghidini’s latest work thus provides scholars, judges and practitioners with a comprehensive and penetrating study of intellectual property

Preface

ix

law that attempts to integrate its specific incentives to create into a larger system of free competition. His ability to weave these diverse strands into a compelling and coherent vision of the whole is an educational delight in itself, even if one comes away from the exercise in a more pessimistic mood than that which inspired the author to guide us through the ever-expanding thicket of intellectual property regimes in the first place. To my mind, the European Commission has taken the Union down a dangerously protectionist road that threatens to balkanize the upstream flow of knowledge, data, and information in ways that will hamstring rather than promote the work of basic science, which is the real source of wealth in the knowledge economy2. While the procompetitive conditions of an integrating European marketplace are everywhere to be felt in the old economy based on tangible assets, the overly protectionist intellectual property rules that routinely emanate from Brussels cast a shadow over the long-term prospects for dynamic growth in a large part of the developed world. If any single group of policymakers needs to read and meditate on Ghidini’s pro-competitive message, it is surely those intellectual property authorities at the European Commission for whom ‘protection’ has become a mantra and ‘competition’ something of a dirty word in recent years. In reality, studies show that the most dynamic conditions of innovation and creativity have lately emerged from areas of relatively weak intellectual property protection, in which ideas and talents flow freely from one firm to another with enormous spillover effects that stimulate the cumulative and sequential contributions of the relevant technical communities as a whole. I refer, of course, to the Silicon Valleys and Research Triangles of California, Massachussets, and North Carolina, and to the innumerable research parks that have sprung up elsewhere in which innovation and competition remain the driving force. The innovative capacity of these communities is threatened, not enhanced, by the proliferating mixture of special-interest intellectual property rights3 that increasingly impede the flow of scientific and technical information upstream and that slow the pace of follow-on applications of know-how to industry later on. To my mind, a proliferation of unbalanced intellectual property rights has increasingly become a cancerous growth on the free-market economies of the developed world, which leaves those same economies ever more vulnerable to developing countries that are able to adopt a more pro-competitive approach to implementing international minimum standards of intellectual property protection4. At the same time, promising new forms of industrial production are being experimented with, such as the Linux open-source operating system, which may help to counteract some of the anti-competitive effects of recent legislative initiatives5. It is surely remarkable that IBM, which once spent millions of dollars championing the ‘technology copyrights’ and software patents whose social costs Ghidini’s book (and my own writings) have called

x

Intellectual property and competition law

into question6, is now spending millions of dollars promoting open-source platforms and the Linux system instead! Whether Professor Ghidini’s proposed reforms of existing patent and copyright regimes would succeed or not is hard for me to gauge. I personally believe that the greatest need is for a new type of intellectual property regime, based on liability rules rather than exclusive property rights, that would stimulate investment in cumulative and sequential innovation without impeding follow-on applications and without impoverishing the public domain. This new type of regime, which I now call a ‘compensatory liability regime,’ is most fully elaborated in a recent article7, which I will not anticipate here. Suffice it to say that, in my view, the existence of a liability rule to protect small-scale applications of know-how to industry would relieve the pressures on the patent and copyright subsystems and allow courts and administrators to let those regimes regain some of their former coherence which, as Ghidini so ably documents, they have lost in recent years. What I can say with confidence is that Ghidini’s attempt to re-examine present-day intellectual property law in the light of the pro-competitive premises underlying a free market economy provides a timely and enlightening contribution from which every reader interested in this field stands to benefit. I augur that this book will be widely read and appreciated and that, over time, it may help to prepare a new generation of scholars and practitioners who will retain a healthy scepticism about the protectionist virtues of illconceived intellectual property rights and a healthy regard for the competitive ethos. J.H. Reichman Bunyan A. Womble Professor of Law Duke University School of Law

NOTES 1.

See, e.g., Keith E. Maskus and Jerome H. Reichman, The Globalization of Private Knowledge Goods and the Privatization of Global Public Goods, in International Public Goods and Transfer of Technology Under a Globalized Intellectual Property Regime (Keith Maskus and Jerome H. Reichman eds, Cambridge University Press, 2005). 2. See, e.g., Jerome H. Reichman, La guerra delle banche dati – Riflessioni sulla situazione americana, 6 AIDA 226–36 (1997); J.H. Reichman and Pamela Samuelson, Intellectual Property Rights in Data?, 50 Vanderbilt L. Rev. 51 (1997): J.H. Reichman, Database protection in a Global Economy, 2002 Revue Internationale de Droit Economique, 455–504. 3. See, e.g., J.H. Reichman, A Contractually Reconstructed Research Commons for Scientific Data in a Highly Protectionist Intellectual Property Environment, 66 Law and Contemporary Problems, 315–462 (2003). 4. See, e.g., J.H. Reichman, From Free Riders to Fair Followers: Global Competition Under the TRIPS Agreement, 29 N.Y.U. J. Int’l L. and Policy 11 (1997); see also Maskus and Reichman,

Preface

xi

above, FN 1; J.H. Reichman, The TRIPS Agreement Comes of Age; Conflict or Cooperation with the Developing Countries?, 32 Case Western Reserve J. Int’l L. 441–70 (2000). 5. See, e.g., Yochai Benkler, A Political Economy of the Public Domain: Markets in Information Goods versus the Marketplace of Ideas, in Expanding the Boundaries of Intellectual Property – Innovation Policy for the Knowledge Society 267–92 (Rochelle Dreyfuss et al. eds, 2001). 6. See, e.g., Pamela Samuelson, Randall Davis, Mitchell D. Kapor and J.H. Reichman, A Manifesto Concerning the Legal Protection of Computer Programs, 94 Columbia L. Rev. 2308–2431 (1994). 7. J.H. Reichman, Of Green Tulips and Legal Kudzu: Repackaging Rights in Subpatentable Innovation, 53 Vanderbilt L. Rev. 1743–98 (2000), abridged version reprinted in Expanding the Boundaries of Intellectual Property – Innovation Policy for the Knowledge Society 267–92 (Rochelle Dreyfuss et al. eds, 2001). See also J.H. Reichman, Legal Hybrids Between the Patent and Copyright Paradigms, 94 Columbia L. Rev. 2432–2578 (1994); J.H. Reichman, Charting the Collapse of the Patent-Copyright Dichotomy: Premises for a Restructured International Intellectual Property System, 13 Cardozo Arts and Ent. L.J. 475 (1995).

Acknowledgements My deepest thanks to Professor Steven D. Anderman, of University of Essex, for his most kind and valuable suggestions for the revisions to the text. Many thanks also to Professor Richard P. Boyce for his work of translation, and to my Assistants Dr. Emanuela Arezzo, Dr. Caterina De Rasis and Dr. Patrizia Errico, for their cooperation in revising and updating the bibliographical references.

xii

1. Introduction and the general framework THE SUBJECT MATTER 1. Born of the political and economic revolution that marked the end of the Age of Enlightenment, the law of industrial and intellectual property (now simply intellectual property: IP) essentially reflects a legal framework governing the policies of industrial and commercial development and innovation, based on the right of free economic initiative and free market competition. In previous centuries, from the age of the guilds, through to the development of the mercantile system, this policy was basically grounded on privileges, concessions and limited access, typical of a command economy. An analysis of the various aspects of the regulatory framework shows that the modern perspective is based on a dialectic between ‘property’ (exclusive individual rights) and ‘freedom’ (of each individual to access the market and to operate there under conditions of equal treatment under law, and therefore also indirectly promotes the freedom of choice of consumers). IP law embraces a group of regulations focused on entrepreneurial activities engaged in innovation and commercial promotion, typically in an environment of free market competition. (a) A first series of regulations provides exclusive protection for the new results of activities that are capable of industrial and commercial exploitation. This includes, in particular, the (European and/or international and/or national) regulations governing patents and similar exclusive rights on inventions and industrial models, plant varieties, biotechnological inventions, layout-designs of integrated circuits, industrial design, etc., as well as copyright in ‘intellectual creations’ with special emphasis on those that can be mass-produced and exploited on an industrial scale, thus actually or potentially subject to competitive dynamics.1 The classical system of intellectual property, set up under major international conventions signed in the second half of the 19th Century, entailed an underlying duality, protecting functional or utilitarian creations, ‘technology’, under the general patent paradigm, while assigning to copyright law the exclusive protection of creations essentially 1

2

Intellectual property and competition law

designed (regardless of their possible practical applications) for intellectual enjoyment: ‘aesthetics’. This duality has been gradually eroded in modern times, as a result of two distinct tendencies, both aimed at affording more ‘targeted’ and also more intense protection for the results obtained in certain sectors of research and development, especially in the fields of biology and the socalled information technologies. Firstly, there has been a mushrooming of specialized regulations within both the patent law and copyright paradigm, especially intellectual property rights attached to plant varieties and biotechnologies, as well as the new patent-type rights for microchip circuitry and industrial design. Moreover recent statutory provisions have provided specialized and sometimes highly unorthodox applications of copyright protection to creations such as software and databases. Accompanying this has been another more explosive trend eroding the duality of the classical system, especially by the contentious extension of copyright protection to information technology tools, such as computer programs (and even, as some have proposed, to so-called genetic maps). (b) A second series of rules pertain to the protection of the distinctive signs used by firms, especially registered trademarks. As we shall see (Chapter 4), the recent evolution of trademark law has extended the exclusive protection beyond the signs’ distinctive function, taking into account their intrinsic advertising value. (c) These two basic series of regulations are supplemented by further rules aimed at protecting businesses against a series of attacks by competitors that cannot be withstood by the regulations just mentioned. These further rules have to do with unfair competition and, according to Article 10-bis of the Paris Convention for the Protection of Industrial Property (the ‘Paris Convention’), are aimed at discouraging professional misbehaviour (like passing-off or disparagement) that may be harmful to another party’s goodwill. Apart from these (and even though they fall beyond the scope of this work), mention must also be made of the criminal law provisions that protect the market, and thus also honest competitors, against business misconduct such as boycotts, industrial espionage, commercial fraud and misleading advertising. 2. This triple-tiered framework of regulations is based on a common denominator: the protection of the interests of (single) firms to exploit their competitive assets whether these are related to innovation, a firm’s identity and reputation, or (with reference to unfair competition law) other factors and situations enhancing the firm’s efficiency and goodwill. Such protection is sometimes based on the formal attribution of exclusive rights (patents, copyright,

Introduction and the general framework

3

trademarks, etc.), and at other times, as in the case of unfair competition, on the imposition of rules of ‘professional conduct’ in relationships between competitors. All three branches of the overall regulatory framework place special emphasis on entrepreneurial-type production and exploitation of such assets. This is self-evident for unfair competition but it applies as well to intellectual property rights (IPRs). The framework of patent, copyright and trademarks law is focused much more on the firm than on the individual creator as can be seen by the following examples: • the non-patentability of inventions that have no direct industrial applications (articles 52.2 and 57 of the European Patent Convention, EPC); • the ‘working requirement’, i.e. the duty to proceed with the industrial implementation of inventions and utility models or be subject to the possibility of non-voluntary licensing, or even the revocation of the patent rights, as imposed under various national legislations pursuant to article 5 of the Paris Convention (and subsequently, articles 30 and 31 of the TRIPS Agreement), i.e. the Agreement on Trade-Related Aspects of Intellectual Property Rights, signed in Marrakesch, April 15, 1994, in the framework of GATT’s Uruguay Round; • the exceptions to the ban on the unauthorized reproduction of the patented inventions foreseen for ‘non-industrial’ uses (article 27 of the EPC). • the provision that entitles the firm to the economic benefits arising from exploitation of employees’ inventions, entrenched in nearly all national legal systems (in Italy, see article 23 et seq. of the Italian Patent Act – now article 64 of the Italian ‘Code of Industrial Property’ (2005) –, in Germany, the Gesetz ueber Arbeitnehmererfindungen (ArbEG), in the UK, section 39 of the Patents Act). The principle is shared even by the traditionally less market-oriented sector of IP, namely copyright law, which attributes the right to economically exploit works deriving from organized teamwork, such as cinematographic works, ‘to those who organized the production of the work’, i.e. the producer, rather than the co-authors thereof, according to article 14-bis of the Berne Convention for the Protection of Artistic and Literary Works (the ‘Berne Convention’).2 • In respect of trademarks, one need only refer to their intrinsic purpose ‘of distinguishing the goods and services of an undertaking from those of other undertakings’ (article 15 of the TRIPS Agreement).3 So too for other signs, such as the firm’s name (individual or corporate) distinguishing the undertaking’s business and for the ensigns distinguishing shops and other outlets.

4

Intellectual property and competition law

Lastly, with regard to unfair competition, the reference to business undertakings is implicit in the very subject-matter of the rules and is in any event expressly confirmed in the repeated reference in the Paris Convention to the risk of creating confusion with or discrediting ‘the establishment, the goods, or the industrial or commercial activities, of a competitor’ (article 10-bis(3)(1) and (2)). 3. Beyond those and other textual indications, the fact that IP law basically focuses on the firm’s role and activity in promoting, organizing and exploiting intellectual works and distinctive signs, reflects the economic rationale of the regulatory framework itself. Individual (personal) efforts aimed to realize technological improvements and/or works of art, literature, scientific essays etc. can adequately be compensated by means other than IPRs, such as fees, prizes and academic chairs etc. One might observe that, in fact, many of the highest achievements of human ingenuity, artistic inspiration and thought, were created when patents and copyrights were not even imagined. However, when it comes to fostering and organizing mass production and distribution of both utilitarian and aesthetic works, when the firm, then, comes into play, IPRs perform a specific function in recovering the costs and compensating the efforts and investments of the firm itself, often operating in a competitive environment in organizing production and distribution of products embodying new technical or aesthetic results. In fact, apart from the limited and precarious possibility of exploiting technological results in secret (see Chapter 2) or of applying for public subsidies,4 firms cannot reliably recover their costs and receive remuneration for their investments, save through a differential profit, the opportunity for which is provided by the exclusive right to exploit, albeit for a limited time, the results obtained. It is obvious that in an environment of full and direct competition between manufacturers of identical goods, such remuneration would be highly uncertain or even impossible if competitors were free to reproduce the new inventions/creations even immediately after the firm has launched it on the market. Having ‘saved’ on all research costs, the competitors would enjoy a position enabling them to engage in a destructive, unsustainable price war. Thus much research and creative efforts aimed at enjoying the fruits of new intellectual achievements would be frustrated and much incentive for their development annulled, to the detriment of innovation dynamics and the public’s interest in benefiting from progress. Similarly, the firm’s exclusive right to its distinctive signs allows it to protect its corporate identity/image and exploit the associated goodwill in a competitive environment. In a monopolistic context, exclusive trademark rights would be insignificant. Lastly, the same rationale underlies the rules on

Introduction and the general framework

5

unfair competition, which protect the goodwill and/or efficient performance of rival enterprises. 4. Antitrust law, which in European countries is of course based, first and foremost, on Community law (articles 81–86 of the Treaty of Rome, the Merger Regulation and sector-specific regulations), is clearly distinct from IP (and unfair competition) law. It is common knowledge that antitrust law is directly targeted at protecting (not competing firms as such) but the market: a normative concept that refers to the set of geographical areas, product categories and distribution stages in relation to which the law assesses the impact of firms’ and consumers’ behaviour (see Chapter 5). More specifically, with respect to such market(s), antitrust law on the whole (*) aims at preserving and/or restoring a workable or effective competitive framework, assumed to afford (at least potentially all) entrepreneurs freedom of market access and business initiative, whilst also ensuring consumers their freedom of choice. All the main antitrust regulatory frameworks (first and foremost, the US, Europe and Japan) subordinate the individual’s freedom of enterprise to this two-faceted general interest. From this perspective, the motto of antitrust law could well be: ‘competition first, competitors second’. 5. This traditional distinction (intellectual property and unfair competition: protection of individual companies; antitrust: protection of the market) should not however overshadow a more complex intertwining of relationships and functions between the two regulatory frameworks. Although we will specifically deal with this subject in Chapter 5, a few introductory remarks might be useful. First of all, if we consider the far reaching effects of exercise of intellectual property rights on the markets, we realize that the protection of IPRs is not in itself contradictory with the enhancement of free market competition. In fact, the very attribution of limited exclusive rights over new creations as well as * European antitrust law is made up of a set of rules also typically targeted at enterprises (‘undertakings’: private and public, operating either iure privatorum or on the basis of special or exclusive rights)5, and aimed at ensuring, first and foremost, that where markets feature an effective6 pluralism in terms of supply, therefore providing consumers with real alternative choices7, such pluralism be not substantially reduced, or eliminated, by agreements between competing firms8 or by mergers creating ‘excessive’ market dominance. Secondly, in market situations where pluralism is highly limited or even absent as a result of the concentration of market power in one or a few dominant enterprises or a legal monopolist, antitrust law aims at ensuring that the behaviour of the dominant enterprise(s) does not subject the other players9 to significantly worse market conditions (in terms of weaker bargaining power, or the ‘foreclosing’ of opportunities for competition) than they would have ‘naturally’ enjoyed in the presence of a higher degree of effective structural competition (principle of ‘as if’ [also ob]).

6

Intellectual property and competition law

trademark rights does serve competitive dynamics. Further, neither patents, aimed at providing a differential advantage nor trademarks, aimed at avoiding the unjust deviation of clientele, would make much sense in a perfectly monopolistic market. There is more. Especially in the case of patent law, the IPR paradigm seems to be the result of a balanced intertwining between the individual interests of the rights holders and the general interest, itself of constitutional rank, of encouraging third parties’ subsequent innovation and thus, albeit indirectly, competition on the merits. As we shall see in Chapter 2, some of the basic precepts of patent law in fact ‘balance’ the patentee’s exclusive/exclusionary rights so as to promote competition. Think, for instance, of: • the provision of a certain, fixed time limit to the exclusive right, which influences the future prospects of direct competition with the patent holder, • the so-called ‘exhaustion’ of such a right, i.e. the forfeiture of patentee’s exclusive faculties after the first sale of the patented good, thereby moderating price levels along the distribution chain, • the full disclosure of the invention and the publication of its application, that provides the public, i.e. the competitors, with information about the patented technology, thereby facilitating subsequent (competitive) innovation, or • the restriction of the scope of the patent to a specific technical solution, rather than a type of utility, thereby allowing for the immediate development of competing alternatives (analysed more extensively in Chapter 2). For its part, antitrust law does not collide with IPRs as such, i.e. vis-à-vis their proper function of preventing free riding of creative achievements and/or firms’ identity and reputation, thus acting as an incentive to innovation and a guarantee of correct market information. On the contrary, by hindering entrepreneurs from becoming and consolidating their positions as rent-seekers, antitrust law encourages firms to develop new products and processes so as to acquire future competitive advantages from their inventions. This incentive targets both the incumbents who are driven towards innovation in order to maintain and expand their current market share (but in a competitive and socially useful manner) and the challengers who focus their R&D efforts on developing innovative solutions that could unseat the incumbents by eroding their market share. Nor does antitrust really interfere with the contractual ‘management’ of IPRs, even when based on ‘restrictive’ deals, provided that agreed restrictions are reasonably necessary to ensure efficiency in innovation. In particular, the European Community has increasingly shown special leniency (see Chapter 5)

Introduction and the general framework

7

for agreements in the field of research and development, even though they may provide for the joint development and exploitation of ‘results which are protected by intellectual property rights’ (article 3(4) of Regulation (EC) No. 2659/2000). And on only one occasion throughout the entire history of antitrust law in the US, was a research and development joint venture called to account for breaching antitrust provisions, as Professor Robert Pitofsky (2001), former Chairman of the Federal Trade Commission, pointed out some time ago. Thus, there is no prejudicially hostile approach of antitrust to IPRs. On the contrary, competition law acts like a thermostat, checking IPRs if and when the market power or conduct of the IP owner exceeds that inherently linked to their essential function, i.e. protection of innovators’ achievements against free riders and protection of a firm’s identity and renown. (There is a jurispolitical analogy with article 86 of the EC Treaty governing monopolies for public interest services, which limits the related exclusive rights to the scope strictly necessary for meeting the public service obligations for which the monopoly rights were granted). This can occur when: • the contractual exercise of IPRs results in competitive restraints exceeding the need to protect the IPR holder against free riding (e.g. price fixing and/or restrictions on output). This reflects and applies, ex contrariis, the fundamental principle of article 30 (formerly 36) of the EC Treaty, whereby the bans (ex article 28 and 29) on quantitative restrictions to exports and imports, aimed at ensuring free movement of goods within the Common Market, and hence at enhancing commercial competition, ‘shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of . . . the protection of industrial and commercial property’ (emphasis added); • possession of relevant IPRs leads to such degree of market ‘dominance’ as to justify requiring the holder to license said rights to competitors. This is substantially the case where licenses are imposed by competition authorities as a condition for approving an otherwise ‘too’ anticompetitive merger (see the Italian Competition Authority in Henkel v. Loctite, order nos. 4993 C 2641, 9795 C 2641 and 10718 C). And there is also the case of IPRs-protected works, such as dominant communication standards, to which access can be allowed to competitors, upon paying fair compensation, in order to avoid foreclosure of the relevant markets. In short, on the one hand, the intellectual property paradigms often contain built-in ‘antibodies’ that promote competitive innovation (either derivative or substitutive: see Chapter 2). On the other hand, antitrust law, while discourag-

8

Intellectual property and competition law

ing rent-seeking positions and thereby indirectly fostering dynamic innovation processes, gives the green light to IPRs’ exploitation according to their essential function against free-riding of innovators’ achievements. Thus, the two branches of law show a multifaceted, dialectic and ultimate convergence towards an industrial policy goal: that of the enhancement of competitive dynamics of innovation. It is this convergence that on the legal side justifies, indeed requires, that the framework of IP law be interpreted in the light of the same principle, of constitutional rank, that guides antitrust law, i.e. freedom of competition.

THE ‘CONSTITUTIONAL’ GUIDELINES 6. Coherence with this fundamental principle in construing and applying IP (and unfair competition) law gives rise to two main guidelines. The first is the principle of numerus clausus, according to which IPRs are strictly defined by law in number and kind10. This is because IPRs give rise to powers in restraint of competition and are therefore to be deemed exceptions to the aforesaid constitutional principle. Needless to say, acknowledging this principle does not hinder the extension by legislation, solely by legislation and not interpretation, of the nucleus of IPRs beyond those currently protected. Historically, in fact, these rights have been progressively extended: one need only consider, e.g. the new exclusive rights introduced on the layout design of integrated circuits. The application of the principle in question entails another guideline to be followed in interpretation: care must be taken to ensure that no functions of intellectual property protection are surreptitiously attributed to other branches of law which, while pursuing other functions, could refer to IPRs-protectable subject-matter. In particular, special attention must be paid to avoid misinterpretations, frequent in certain countries, of the law governing unfair competition, unduly investing the latter with a crypto-patent function exceeding its own proper sphere of application; for example: the tendency to extend the prohibition against passing-off beyond the limits sufficient to contain the risk of confusion. This misinterpretation often occurred in continental Europe, e.g. France, Italy and Germany (see Chapter 5). The second interpretative guideline to be followed is to always favour a pro-competitive construction of IP law, even when the wording might in itself allow a different interpretation. More specifically, while always scrupulously respecting the IPRs’ inherent function (protecting innovators against free riding, or firms’ and products’ identity and renown against misrepresentation), the rule(s) must be construed (to the extent that the wording allows) in a manner that defends and promotes rather than erodes the economic freedom

Introduction and the general framework

9

of third parties as well as the market’s competitive fabric. It is in compliance with this guideline, for instance, that patent law has been construed in Europe as not extending the patent scope to all the possible uses of the invention but to limit it to that industrial solution that the inventor has indicated – must indicate – in the patent application (see Rule 27 of the EPC Implementing Regulations). Following these guidelines not only ensures that IPR law remains consistent with the guiding principle of free competition, but also with the goal of promoting research and culture. For instance, if the rules on infringement were to be construed so as to extend the scope of the exclusive rights beyond the strict quid inventum, the development of subsequent innovation would be discouraged. Third parties (competitors of the patent holder), penalized by such an interpretation, would in fact have no incentive to invest in ‘too’ risky attempts at improving and/or modifying previously patented techniques. And the patent holder itself benefiting from such an interpretation, would be tempted to make a ‘rent’ of the acquired competitive advantage, rather than being stimulated to further invest in research and innovation. 7. Risks of this sort become all the more evident in light of ‘overprotectionist’ interpretative tendencies, that have periodically emerged throughout the history of IP law and that glaringly emerge today, as a result of several major developments in the technological and economic domain and of the industrialized world’s quest for new sources of competitive advantage on global markets as industrialized countries gradually lose their pre-eminence in ‘mature’ sectors. Amongst such factors, we can mention: (a) the growing extension of competitive conflicts based on technological innovation to ever larger markets, typically on an international scale; (b) the easiness of immediate duplication of new keystone technologies such as the ones related to software (due to their ‘bearing the know-how on their surface’, to borrow J.H. Reichman’s words) and biogenetic materials (due to their typical self-reproducibility) which annuls the natural ‘lead time’ of innovators and thereby jeopardizes recoup of first comers’ investments; (c) the increase (exponential in some sectors) in R&D, distribution and advertising costs that have risen more sharply than production costs; (d) the chronic insufficiency, as a result of the widespread implementation of cost-cutting policies, of government subsidies for scientific research which is the ‘raw material’ for industrial or applied research. The business community is increasingly being called upon to cover costs of scientific research that was traditionally borne by universities and public institutions11;

10

Intellectual property and competition law

(e) the need, arising from the factors illustrated above, to attract ever greater amounts of venture capital. Typically this need is met on financial markets featuring increasingly intense competition in offerings by making equity investments more attractive and therefore driving corporate policies aimed at maximizing shareholder value in the short term. 8. Under the pressure of such factors, magnified by the profit- (and market power-) seeking interests of industries that are the main holders of IPRs, international and national legislators as well as courts and scholars have increasingly opted for ‘stronger’ standards of IP protection. The trend is particularly evident in three main respects: • The extension (under various but teleologically convergent aspects) of the scope of the protection afforded by exclusive rights. Take, for example, the ‘privatization’, by means of patents and copyrights, of ‘biodiversity’ and indigenous traditional knowledge, mostly provided by developing countries. Or take the expansion of trademark protection beyond the limits of its underlying function of distinguishing undertakings and products from others, to cover business sectors that are quite different and sometimes even remote from those in which the trademark holder operates. Patent protection has also been expanded, for example, to cover ‘fields of use’ that were not contemplated or claimed by the patent holder. • The ‘replacement’ of the patent paradigm, that is rich in pro-competition antibodies (see Chapter 2), as a tool for the promotion of innovation in a wide variety of new technology sectors, especially information technology, by the copyright regime. Copyright has historically tended not to have as rich a store of antibodies (see Chapter 3). • Last but not least, the attempt to include within the scope of IPRs protection types of intellectual creation which, whilst linked to innovationgenerating processes, have traditionally been considered to fall into the public domain and therefore open to free access, and competition. Some examples are the proposals aimed at eroding the principle of the nonpatentability of the results of basic scientific research and mere business models as well as calling for a thoroughly ‘reductionist’ revision of the list of non-patentable subject-matter included in article 52 of the European Patent Convention. Thus, by substantially shifting the centre of intellectual property law more towards ‘monopoly’ rather than towards ‘competition’, such emerging tendencies, be they based on legislation or on interpretation, lead to what has been described by Jerome H. Reichman (1995, p. 15) as ‘a discredited intellectual

Introduction and the general framework

11

property system [that] risks collapsing of its overprotectionist weight’. The risk of collapse (the risk of ‘corporative regression’ that departs from the liberalist and pro-competitive spirit of the classical model) arises precisely from the danger that intellectual property rights could be transformed from a tool for the promotion of innovation and competition, into a protectionist barrier in favour of dominant enterprises, that is to say, into a factor that restricts supply and slows down the dynamic processes that generate innovation. This danger, it must be noted, is much more acute as a result of the growing tendency of markets to take on an oligopolistic structure that threatens all market operators: small competitors, both current and potential, who are increasingly deprived of opportunities for competition; consumers whose range of choice is increasingly limited by sparse offerings marketed at exorbitant prices; as well as, in the long term, the very dominant players themselves, who lulled into complacency, would be quite content to reap the fruit of their guaranteed earnings without making any further initiative and investment, thus slowing down the pace of innovation overall. 9. The interpreter who disagrees with this overprotectionist drift need only follow the simple, although by no means ‘easy’ rule set forth above: to set and maintain a fixed and steady course, regardless of the direction of the wind, aimed at always emphasizing the constitutionally entrenched principles of free competition and free enterprise. The need for this type of coherence becomes all the more pressing in light of the new technological and economic developments that drive towards a ‘revision’ of traditional interpretative categories, causing the legal framework to fragment on the one hand, and to become ‘hybridized’ on the other, when compared to classical, well distinct paradigms (see Chapters 2 and 3). Clearly one purpose of this book is to use those guiding principles as a yardstick to examine the actual capacity of the intellectual property system and its various paradigms (each with its own combination of ‘monopoly’ and ‘competition’ aspects) to evolve in step with the modern technological and economic context, so as to ensure a balanced satisfaction of the various forms of interests and the general values that are entrenched in the legal system of the EU and of a large number of European countries. These values include a dynamic, pro-competitive enhancement of innovation and in particular the promotion and dissemination, and freedom, of science, culture and information, as well as the freedom of choice of consumers. I can only add that this examination will focus not only on the regulatory aspects of the European (and Italian) IP legal framework but also on the highly uniform set of approaches and arguments that ‘run across’ the evolution of IP law in the advanced capitalist nations. Needless to say, this high degree of uniformity is historically connected, on the one hand, to the lingua franca of

12

Intellectual property and competition law

technological development, and on the other, to the ever increasing crossborder integration of modern economies.

NOTES 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

11.

Other aspects, such as author/publisher or author/co-author relations, not involving – in principle – competitive aspects, are usually the object of different regulations, especially under private contract law (see Chapter 3). On copyright and neighbouring rights, see further Chapter 3. Even before considering such specific legal aspects as the requirement of actual use under pain of revocation (see Chapter 4). Which are more and more insufficient to cover actual costs and also often, subject to limitations and restrictions, such as territorial or occupational limits, as well as political tradeoffs with the public administrations. It must be borne in mind that the notion of an undertaking as a ‘economic player’ within the meaning of antitrust law, is wider (more ‘substantive’) than that under private law, since the former includes self-employed professionals, for instance. ‘Effective’ is to be understood as ‘workable’ (see Note 5). The reference to supply and demand must obviously be ‘inversed’ in the case of a monopsony or ‘one-buyer’s market’. The reference to the term ‘firms’ is to the well-known, very wide concept of ‘undertaking’ in antitrust law. Smaller competitors as well as consumers, subcontractors and customers of the dominant company, etc. Obviously: the numerus clausus pertains to the rights as such and certainly not their material ‘subject-matter’, that has sometimes been left undetermined: one need only consider, in particular, the varied family of so-called ‘atypical distinctive markings’, protected under the unitary regulatory reference to the distinguishing function (see Chapters 4 and 5). In countries where the system encourages the practices (in the US, since 1980, thanks to the Bayh–Dole Act), universities themselves increasingly tend towards applied research with a view to patenting the results and later licensing the resulting patents for industrial exploitations. Briefly put, they tend to bring their research policies in line with the R&D goals typical of corporations.

2. Patent protection of innovations: a monopoly with a wealth of antibodies INTRODUCTION: MONOPOLY AND COMPETITION IN PATENT LAW: OVERVIEW 1. Patents on inventions, the historical incentive for technological innovation, were long viewed with suspicion by various economists from the classical school, starting with Jean-Baptiste Say. They were concerned that a system of patents protecting the results of technological research would have extensively adverse effects on price levels (which tend to rise under a system of exclusive sales rights) and on the dynamism of economic competition. In practice, it was felt that a ‘monopoly over ideas’ would benefit individual inventors and individual companies at the expense of ‘society and industry’ (Say: 1803). It is noteworthy that more contemporary authorities such as Chamberlin (1937), Scherer (1984), Scotchmer (1991) express not dissimilar concerns about the anti-competitive effects generated by a system of patents (and intellectual property rights in general): the more so vis-à-vis the oligopolistic scenarios in which the current innovation processes are typically situated, especially in the ‘network industries’ (Salop: 1999). Of course today there is greater awareness that patent rights relate to a specific technical solution and not to a type of utility (and consequently not to a field of activity, as in the case of a real monopoly right). Concerns of this kind should not lead to wholesale abolition of the patent system, as some scholars periodically propose. Nor, on the other hand, should they be dismissed by the simple, though wise remark of Professor F. Machlup (1958, p. 76), whereby ‘since we have had a patent system for a long time, it would be irresponsible, on the basis of our present knowledge, to recommend abolishing it’. Rather, those concerns should stimulate a commitment to construe the patent regime so as to preserve its pro-innovation function while avoiding harm to competition. In this perspective, however, it would be simplistic to address such concerns solely by referring to antitrust law’s possible interference with the contractual, and even the unilateral exercise/exploitation of IPRs (see Chapter 5). Indeed, 13

14

Intellectual property and competition law

the features and nature of patent-related pro-innovation and pro-competition dynamics are far more complex. First of all, as we have seen, the patent paradigm features a constant, built-in dialectic tension between the protection of the patented (i.e. already realized) innovation and the promotion of subsequent innovation. Now, as we shall see shortly below, this tension, far from being restricted to the micro-market defined by the individual relationship between the patentee and its present competitors, spreads out to influence, albeit indirectly, the general market’s actual and potential competitive dynamics. This provides a first basic answer to pro-competitive concerns about the patent system. In particular, although the system is based on the grant of exclusive and absolute (erga omnes) rights to manufacture and market the products embodying the invention, the patent system does not reflect a purely monopolistic view of the protection of innovation. On the contrary, as will be seen more clearly when compared with the technology copyright paradigm (see Chapter 3), such system manifests a rich dialectic interrelationship between the need to guarantee a differential return on activities and investments poured in R&D, and the need to safeguard the actual chance of third parties’ subsequent innovation and thereby the competitive fabric of the market(s) concerned. We will endeavour to reconstruct this interplay in relation to the salient themes of the current debate regarding innovation, namely those which most require reconsideration of the established interpretation categories and normative concepts. I refer, in particular, to the increasing difficulty of establishing the boundary between basic and applied research and to the need to strike a balance between granting exclusive rights that protect innovative results on the one hand, and safeguard competition in innovation on the other. This balance is particularly critical vis-à-vis competitors’ requests to have access (even by means of non-voluntary licences) to patented techniques on which they wish to improve, or, especially in modern network industries, such as telecommunications, patents that cover dominant standards for the circulation of information in networks. The analysis of these interrelationships will provide evidence of a wealth of significant pro-competitive antibodies in the patent paradigm, showing that the system can be construed, as I firmly believe, so as to reconcile the respective fundamental needs in a juridical perspective of pursuit of innovative efficiency by means of competitive dynamics. In order to test the sustainability of this view and thus the vital strength of the patent system in front of developments in technological and economic processes, we will briefly review some basic aspects of patent law relating, in particular, to the subject and the conditions of grant of the patent and to the scope of and limitations on exclusive rights, ordering them by reference to the salient themes of the current debate on innovation.

Patent protection of innovations

15

THE AREA OF PATENTABILITY. THE (DIFFICULT) DISTINCTION BETWEEN BASIC AND APPLIED RESEARCH 2. All works of intellectual property and all intangible goods can by definition be enjoyed (or consumed) to an unlimited extent and shared by all associates. Unlike physical goods, no individual use or consumption reduces the unit value of these goods or their total availability for the enjoyment of others. Not only this, but intangible goods associated with information technologies based on network connections between users actually increase in value the more widely they are used. From this standpoint intangibles constitute public property (‘commons’), and in that respect (i.e. enjoyment) it would seem both socially unfair and expensive (inefficient) to reserve their right of use and enjoyment to a few associates, precisely because, in view of the indivisible, unlimited nature of their enjoyment, there is no need, unlike for tangible goods, to regulate their enjoyment by assigning exclusive rights to certain parties in order to ensure the efficient administration of the goods themselves. However, account must also be taken of the need to stimulate the production of intangible goods and especially the organization and financing of research activities, by means of suitable support and incentives. The basic traditional method used by legislators to achieve this aim has so far been to make a clear distinction (as regards the type of rewarding incentives and tools used) between pure basic research (which is fundamentally not focused on practical purposes, or at any event results) and applied research (which is designed to develop industrial applications) and to include in the former category research activities which are designed to achieve concrete results but have not yet done so. 3. In particular, the European Patent Convention and the harmonized national legislation implementing its terms do not consider as inventions purely theoretical intellectual ideas such as ‘discoveries, scientific theories, mathematical methods’, etc. (see article 52.2)1. This excludes proprietary rights in respect of the results of basic research, which is traditionally performed by the public sector (universities and research organizations), or jointly by those bodies and private companies,2 and wholly or mainly financed by public subsidies. These results obtain personal recognition for their inventors (reputation, awards, professorships, financial remuneration etc.) but not proprietary rights, and in particular not invention patents. Further, the EU legislation, like the harmonized national legislation, does not allow the patenting of inventions which lack the requirement of ‘industrial application’ (i.e. are not ‘susceptible of industrial application’) and whose

16

Intellectual property and competition law

object cannot ‘be made or used in any kind of industry’ (i.e. mass-produced in a uniform way): article 57 of the EPC and article 17 of Royal Decree 1127 of 29 June 1939 (hereinafter the Italian Patents Act) – now article 49 of the new(2005) Italian Code of Industrial Property. Thus, as regards exclusion from patentability, ‘scientific theories and discoveries’ are equated with ideas, typically based on basic but targeted research, very often conducted by or contracted out by a company, and equally often funded by private investors, which demonstrate application potential in certain fields, but have not yet been developed (or would not be developable with the mere use of techniques accessible to a person skilled in the art) into objects – products, processes or substances – susceptible of direct industrial exploitation. A good example is a chemical compound designed in the course of research into the action mechanisms of infectious diseases which opens up new therapeutic horizons, but is not yet ready to be converted into medicinal products by the pharmaceutical industry. Neither of these types of ideas and information are therefore patentable as such (see article 52.2 of the EPC below) and are thus destined to free enjoyment by all associates (with the obvious exception of contractual and possibly criminal protection relating to trade secrets). The prospect of patentability is therefore restricted to applied research relating to manufacturing innovations (in this respect, see the distinction between invention and innovation made by Schumpeter in Theorie der wirtschaftlichen Entwicklung (1934)). This kind of research, whose purpose is to provide the associates with goods designed to meet specific practical needs, is typically contracted out to firms with the incentive of intellectual property (and specifically patent) rights. In fact, aside from any tax relief or subsidies, the prospect of obtaining special proprietary rights over the specific innovative products and processes3 stimulates the private sector to operate and invest in this area (segment) of research. To paraphrase the colourful words of Abraham Lincoln, the legislation pours the fuel of interest onto the flames of ingenuity, guaranteeing the possibility of differential remuneration on the market and therefore a higher and more certain return on the activity and investments committed to the development of specific new products and processes (see also Chapter 1, paragraph 3). Finally, the division of labour thus described (theoretical research conducted with public subsidies, without granting exclusive rights over the results, and applied research conducted by the private sector, with the remuneration/incentive provided by patent rights) has historically corresponded to vital interests of the private enterprise system as well as the public sector. It is indeed advantageous to the private sector that the costs of pure research (which are typically sunk costs, i.e. not recoverable, at least in the short term) are externalized, that is borne by the community. Thus, firms will bear just the

Patent protection of innovations

17

cost of that research which is expected to lead to direct returns on the market, enhanced and protected against free riders by means of patent rights. 4. Patents therefore do not protect theories or discoveries, or even ideas which, though demonstrating application potential, have not been (or cannot by ordinary means be) converted into a specific solution-idea directly exploitable on an industrial scale. In other words, a patent only covers a particular idea for solving a practical problem (see further paragraphs 9 et seq.). If such a solution-idea derives from a major theoretical advance, the patent will relate only to the new artefact (product or process) which represents the technical application of the concept. This even applies in the frequent situation that the application-idea has much less intellectual value than the theoretical idea that precedes it. Let us reflect a moment on this last statement, according to which even exceptional intellectual achievements (such as the theory of relativity) do not obtain any exclusive rights for the author, apart from the glory, or perhaps a professorship or a Nobel prize, whereas the legislation guarantees that the inventor of a new tin-opener or video game can obtain exclusive profits (which may be enormous, over twenty years of monopolistic exploitation). This apparently incongruous principle provides an introduction to understanding of the objective underlying reasons for the system briefly described above. 5. The basic distinction between discoveries, scientific theories, etc. (which in themselves are excluded a priori from patentability) and applied innovation (which is patentable) is justified primarily by the need to protect the typical method of production of scientific research. It goes without saying that science is based on comparisons, exchanges, critical sharing of knowledge and peer reviews of the new hypotheses postulated (sometimes with fierce personal rivalry between researchers). In other words, it typically advances by a non-proprietary approach, traditionally considered as the most efficient method for its development. Far from being an ideological axiom, this statement is the result of a long consideration developed, on the basis of experience, by economists of the Liberal school and distinguished intellectual property historians, like Professor Paul A. David (1987). Indeed, if basic scientific research were incorporated into the proprietary system governing R&D, this would reduce its innovative potential and probably, as Rebecca Eisenberg warns (1989 p. 56), its freedom – a value of highest constitutional rank. On the one hand, researchers would proceed more slowly in pursuing further progress, as they could not freely use all prior new theoretical knowledge (or would have to pay a fee to use it). On the other hand, if influenced by the prospect of exclusive rights to the exploitation of scientific

18

Intellectual property and competition law

discoveries, they would operate in watertight compartments, each keeping their work secret from the others, failing to exploit the valuable (more productively efficient) synergies deriving from exchanges and sharing of ideas and experience. This would also bring about the failure to improve and accelerate, thanks to the mutual checks, the process of verification of the validity of new scientific proposals. Further, firms that develop applications for the market tend to exploit such applications for as long as possible (and patents enable them to do so for twenty years), in order to maximize the return on investments. Moreover, firms must adapt these applications to meet the needs (and, in the case of many products, the tastes) of the public/customers. This tends to restrict firms to a culture which is more backward on average than that possessed by the forward-looking avant-garde. Also, firms tend to neglect fields and stages of research which seem unprofitable, although they might be of great scientific and/or social importance, such as research into severe but rare diseases4. All this reduces the speed of innovation, which can only be accelerated by fiercer competition. However, if competition is excessive, it will endanger the firm’s capitalization, and consequently reduce the propensity of investors. That is why the market alone seems incapable of implementing major scientific projects with sufficient speed and why it is good for basic research to be conducted mainly under publicly-funded programmes (possibly in a consortium with the private sector), based on science’s own logic of sharing, exchange and cooperation, instead of closed ownership. This will definitely accelerate the progress of science, and at the same time, the constitution of the basic innovation on which firms may be able to draw in order to carry on subsequent R&D leading to the development of specific useful applications, these patentable. 6. The general principle that excludes the results of basic scientific research as such from patentability is also, and separately,5 justified for a pro-competitive reason. This reason also provides the specific basis for the inclusion in the pure research category (for the purpose of [non-]patentability) of ideas that constitute a stage of basic but targeted research which, though representing the intellectual antecedent of application developments, do not yet give rise to a concrete application that is directly exploitable on an industrial scale (or cannot do so with the mere aid of the knowledge of a person skilled in the art: see paragraphs 14 et seq. of this Chapter). In fact, an industrial system that operates in a competitive framework requires the entire body of general knowledge brought to light by scientific research to be considered and remain a common resource, not covered by exclusive rights; an open cast mine of information and culture, on which firms can draw to transform materials into concrete usefulness, and thus also into

Patent protection of innovations

19

industrial products or processes, which are appropriable, like the result of a work of transformation of nature6, as taught by Locke,7 consequently exploitable on the market in a system of competition by substitutes. If this were not the case, a firm that acquired exclusive rights over that kind of idea would hold a monopoly extending to a series of applications almost impossible to establish a priori; in practice it would cover the entire chain of applications directly associated with, or deriving from, scientific innovation. This monopoly would not only be multisectoral, but potentially unlimited and would be disastrous to the competitiveness of markets, due also to the grave uncertainty that it would cause between competitors, as opposed to the rapid identification of free areas in which substitutive, or in any event independent innovation could be produced. For example, there would be a great risk of restrictions on the pharmaceutical industry (and applied research itself) if exclusive rights were granted over the information that describes the human and animal genome, or methods of cloning animals, as opposed to specific, subsequent applications of this information and techniques for given practical purposes (treatment, diagnosis, production of organs for transplants, and so on). The approach manifested in Directive 98/44/EC of the European Parliament and of the Council of 6 July 1998 on the legal protection of biotechnological inventions (the ‘Biotechnology Directive’), which does not allow the sequence or a partial sequence of a gene to be patented unless ‘an industrial application is disclosed’ (article 5), deserves therefore to be applied as a general principle expressing the classic paradigm. I will merely mention in passing (but will return to the subject in paragraph 8) that in addition to preventing the creation of monopolies with an indeterminate scope, this approach produces a further desirable effect, in that it forces research activities to continue until a concrete application is developed so that a patent can be obtained, guaranteeing the opportunity to recoup the investments in research conducted at earlier stages. 7. That said, it must be acknowledged that in some sectors of science and technology, especially, but not only, the chemical/pharmaceutical and biotechnology fields,8 the legal distinction between research and application mentioned above is particularly problematic. In such sectors, in fact, the boundary between the two areas is often very blurred. The ideas which flow from one to the other are often a continuum, and scientific research, sometimes of a high theoretical level, is increasingly often directly conducted, or in any event funded, by the private sector, and designed to lead to subsequent applications. A good example is the development of new chemical compounds, which can represent an important result not only from the scientific standpoint but also as regards their foreseeable future industrial and commercial usefulness.

20

Intellectual property and competition law

Where does the threshold of patentability lie in these cases? Should a patent be refused if the use of these compounds does not produce direct application results, for example, as in the case of the so called intermediates, if the compounds are only usable to prepare other subsequent compounds destined for specific uses? In view of this continuum, what should be the extent of the exclusive rights over the general formula of a biologically active molecule, which is liable to produce direct application results? Should patentability be extended to all derivative compounds, even going beyond the specific indications of variants, one or more of which can be selected for concrete application purposes, expressly formulated in the patent application? Moreover, the close proximity of research and development, which is often (but not always exclusively)9 manifested in those sectors, sometimes means that the innovative nature of the end result, which is susceptible of concrete application (and consequently possesses the requirement of industrial application) is basically and properly identifiable in the research stage as opposed to the stage of development of an application. Should then patentability be denied in order to maintain the general prohibition on patenting discoveries as well as the need to reward innovative ideas only? That is the question. Thus, as we see, in such and similar situations, frequently arising in today’s R&D activities, the application of the general principles described above can be more problematic. The juxtaposition between research and application inherent in those principles seems too clear-cut as well as involving an excessively onerous sacrifice from those involved in research, therefore acting as a deterrent to the efforts and often huge investments required. In particular, these principles seem not to allow suitable remuneration for research leading to new results which, though not ‘industrial’ as defined by article 57 of the EPC, are still useful, sometimes not only potentially but even as intermediates which are immediately useful to develop further specific compounds and have their own specific market. Similarly, research whose applications are typically far wider than those expressly claimed by the inventor and research that leads to new and useful applications by exploiting the innovative nature of earlier scientific discoveries may not obtain suitable remuneration. If this impression were to be confirmed, it would evidence a serious lack of elasticity and thus a glaring inadequacy of the patent paradigm vis-à-vis its social function of encouraging R&D-related activities and investments – including those aimed at results which not only may represent the necessary antecedent to useful successive applications but also produce per se useful (and marketable) results, albeit intermediate as compared with final products. If this were the case, the recurrent attempts to soften the present wording of article 52.2 of the EPC to bring it into line with article 27 of the TRIPS Agreement (and footnote 1) would seem justified, and consequently call for a wider definition of patentability as provided by US legislation (‘any new and

Patent protection of innovations

21

useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof . . .’, 35 USC Sec. 101; emphasis added). 8. Are these feared inadequacies real? In my and others’ opinion they are not. I believe that a suitably diversified and, in some cases, moderately progressive application of the general legislative principles illustrated above can provide a reassuring answer to those doubts, by striking an efficient balance between the need to remunerate investments in achieved innovation and the need to stimulate future (subsequent) innovation providing an incentive also for investments by competitors of the prior innovator and safeguard the competitive fabric of the market. Before explaining the reasons for my belief, it is useful to look initially at the scope of patent rights and the relationship of dependence/independence between prior innovation and subsequent innovation. First of all, I believe that the need for fair protection of expectations of a return on investments is compatible with the need to maintain the pro-competitive principle according to which innovations whose application potential is still indeterminate, and cannot yet be converted (merely with the aid of ordinary techniques) into specific application solutions, cannot be patented. The utility of these innovations is not in question. Indeed, they could at most be said to be too useful! Allowing them to be patented would mean allowing all the applications deriving from them to be reserved. My views only relate to innovations whose application potential is genuinely indeterminate, and whose conversion into concrete applications would not in fact be within the reach of a person skilled in the art. It is therefore necessary to proceed, case by case, according to a rule of reason. Thus, if the inventive step required to convert the potential of a substance into given application solutions, determined partly by their functional destination, is within the reach of a person skilled in the art, I would see no objection to its patentability. In such a case, there would be a clearly defined monopoly right which would not hinder the way to subsequent innovations by third parties which use the substance according to a radically different and distant conceptual and functional approach. Conversely, inventions which improve and/or vary the applications of that substance, but use it wholly or partly in accordance with the same conceptual approach and functional ambit, would typically be classed as derivative, i.e. dependent on the prior patent over the substance, and their implementation would require a licence from the first innovator-patentee. The licence, in turn, could be compulsory in the cases and on the conditions set out in article 31, 1) of the TRIPS Agreement.10 It might be objected that by substantially restricting the prospect of patentability to concrete applications which are identified (or identifiable by the

22

Intellectual property and competition law

standards of a person skilled in the art), patent protection would be denied to inventions which potentially have numerous concrete applications, and that such solution would be unbalanced – excessively restrictive – vis-à-vis the need to ensure the chance of a return on the investments mobilized for (and presumably proportional to) wide-range research projects. I would reply to these concerns by reiterating my introductory comments. In my opinion, the interpretation advocated here is not only more consistent with the guiding criterion of freedom of competition but also the most efficient in terms of a specific stimulus for basic (targeted) research. In particular, such interpretation would not penalize the efforts and investments mobilized provided that it envisions the whole process that runs from basic targeted research to R&D activities. This line of interpretation forces researchers and investors to continue with the research until the stage of development of concrete applications of the basic idea has been concluded. Only then, when the patent is finally obtained, will they obtain a legal guarantee of a differential return on their investment. This would have the desirable effect of stimulating the whole research chain down to R&D activities. In particular, researchers and investors who engaged uphill in basic research would not really be penalized since experience confirms that directly performing research and experimentation activities from the earliest stages leads to a definite competitive advantage, in terms of both quality of the end results and lead times gained. In this latter respect, the greater proximity between targeted research and application that we observe in fields such as biotechnology, ensures that the process required to perfect the application will be shorter and faster for those who also engaged in the former. A reasonable application of the same line of interpretation would meet the need for a return on investments without sacrificing subsequent competitive innovation, even in the other hypothesis considered, whereby a certain innovation, which is patentable because it is capable of direct application, also has numerous different embodiments, which may not be, and typically are not, expressly indicated in the patent application. The problem of whether the patent over the formula only covers specifically identified variants or also the other possible variants can be solved in a balanced way by allowing patent protection to be extended to variants which, though not expressly indicated, can be deduced from the general formula by a person skilled in the art.11 Apart from this hypothesis, third parties which develop improved new variants (not mere expressions of current application techniques) could patent them independently and implement them later, with the consent12 of the holder of the patent over the general formula, in the ambit of a derivative relationship (which is typical in this case) between the formula and the new variant. This solution rewards the innovation actually and substantially achieved, and does not lead to an indeterminate monopoly except in the purely formal

Patent protection of innovations

23

sense. Nor does it contradict the principle that limits exclusive rights to the claims made in the application, as protection against infringement would extend to variations of the patented solution lacking innovative nature, i.e. mere equivalents.13 A further advantage of the approach advocated here is that if exclusive rights were extended to implicit variants deducible by ordinary skill from the prior art, this would avoid the effect, damaging both to innovation and competition14, of causing researchers to postpone filing their patent applications, thereby delaying full public disclosure of the principal results of their research activities, until completion of the often time-consuming mapping and full description of all or nearly all the possible variants, even those not intrinsically inventive. Finally, where the innovative nature of the invention is properly identified at the discovery level rather than the application stage, a moderately evolutionary application of the above-mentioned criteria would again reconcile the need to protect investments in basic targeted research with that to avoid an excessive extension of the patent so that the discovery itself would be patented in practice. Bearing in mind that patentability always requires the development and consequent workable indication of an industrial application15, the inventive nature of the innovation (i.e. the overall innovative end result) could be recognized in this case too, provided that such recognition, which paves the way for patentability, is accompanied by limitation of the scope of the exclusive rights to that (and only that) application of the discovery, and to that (and only that) method of industrial implementation of the discovery (such as a certain method of isolating biological material) taught by the inventor. An additional, different hypothesis, increasingly typical of contemporary research, especially in biochemistry and IT, is that even at scientific level the innovation reflects not so much intellectual leaps as gradual and methodical progress by small steps conducted by complex teams, and consequently, in the final analysis, investments in professional and technological resources rather than intellectual brilliance. As we shall see below, this characteristic of modern research affects the conceptual redefinition and perhaps also the current systematic significance of the ‘inventive step’ (formerly known as ‘originality’) as a requirement for patentability. We shall discuss this subject below (paragraphs 16–18) with specific reference to the degree of inventiveness that gives access to exclusive patent rights.

EXCLUSIVE PROTECTION AND COMPETITIVE DYNAMICS OF INNOVATION. STRIKING A BALANCE 9. After defining the boundary between unpatentable results of basic research (including targeted basic research still immature in terms of

24

Intellectual property and competition law

concrete applications) and patentable output of applied research, IP law regulates the patentable subject matter, ranging from the conditions required for grant of a patent to the definition of its scope, and consequently the ambit of its protection, the grounds for its exhaustion and its revocation, etc. As mentioned, such regulation can be interpreted as the result of a balance between reward (in form of absolute protection against free riders) for achieved innovation on the one hand and incentive for future innovation on the other. This balance seems to be based on a dialectical synergy between the two poles, monopoly and competition, aimed at protecting inventions in a way that promotes competitive dynamics while stimulating further subsequent innovations. In a nutshell, the interpretation hypothesis to be verified, which will be used to measure the persistent vitality (i.e. the dynamic efficiency) of the patent system, does not merely involve rewarding inventors in order to stimulate them to invent more, or to stimulate third parties to achieve independent inventive steps in turn, but more specifically rewarding the innovation already developed in such a way that the reward granted to the current inventor stimulates both that inventor to continue, and third parties to develop a subsequent innovation which might compete with the preceding one, thus also spurring on the first innovator, in a virtuous pro-innovation and pro-competition dynamic process even in the long term. This pattern, which highlights the plural stimulus to innovation exerted by patents, is mainly based on the principle of grant of commensurate exclusive rights within the limits necessary to guarantee via absolute protection against free riding a return on the activities and investments dedicated to the innovation, as transformed into specific innovative results directly usable for industrial purposes. In this respect, which is systematically in accord with the EU doctrine of ‘indispensable restrictions’16, the system reduces the risk that exclusive protection will lead to unearned income, i.e. rent-seeking positions, or to excluding similar situations (which directly prejudice competitors and indirectly, consumers) that are unjustified precisely in the sense that they go further than the basic contra-free riding function of patent rights. All this is accomplished by means of a series of instrumental corollaryprinciples, chiefly related to the production, stricto sensu, of innovative results. Moreover, the principle of exhaustion relates to the distribution (circulation) of patented products. In this sense, the grant of exclusive rights to that indispensable extent kills two birds with one stone: it rewards the patented innovation in such a way as to stimulate innovation by competitors, namely the development of substitute (independent) solutions as well as derivative solutions improving on prior patents.17 10. The principle requiring the exclusive rights to be closely related not only to what is claimed, but also to what is actually invented (inventum = found),

Patent protection of innovations

25

and therefore taught by the patent holder, influences the specific formal conditions laid for the issue of the patent and, as we shall see, the width of the protection. Two separate but synergically associated rules come into play: the precise description of the invention that must accompany the patent application, and the subsequent publication of the application including said description. As for the first rule, the applicant must indicate precisely the nature and intended use of the patent and require the description (possibly supplemented by drawings) to disclose the invention in a manner sufficiently clear and complete for it to be carried out by a person skilled in the article. The description must also include one or more claims which specifically define the matter for which protection is sought.18 As for the second rule, as mentioned, the principle that the grant of exclusive rights must be accompanied by public knowledge of the invention, a principle often said to derive from litterae patentes i.e. open writs, publicly evidencing the grant of sovereign privileges, comes into play. As early as the mid-18th century, the English courts applied the rule that it is not the person who kept the invention under lock and key, but he who disclosed it for the public benefit, who should enjoy the advantages associated with the patent over the said invention. In particular, the grant of a patent involves publication of the application, normally 18 months after it is filed.19 More precisely, the effects of the patent, i.e. the practical exercise of the exclusive rights, begin on the date of publication of the application.20 Publication consequently guarantees that third parties, while inhibited from unauthorized uses, will have full, concrete knowledge of the invention, because the description, together with the application, must make it possible for a person skilled in the art to put it into practice. 11. These conditions of disclosure and publication have different substantial effects, all of which are associated with the need to make the methods of grant and the scope of the exclusive rights commensurate with the aim of providing effective remuneration/incentive for research, but without prejudicing the competitive nature of the reference market. First of all, as the patent only covers the specific solution idea precisely described and claimed by the inventor,21 and this idea is disclosed in full to third parties (i.e. competitors), they are guaranteed the opportunity to legitimately achieve the same function (i.e. utility) with a different technical solution (provided that it is not merely equivalent; see paragraphs 15 et seq.). In short, to maintain a substitutive competition which is beneficial to the variety of supply and price levels on the market identified by the type of needs to be met. More precisely, by learning the logical process and functional problems

26

Intellectual property and competition law

tackled by the inventor and the way in which they were solved, third parties can much more easily follow alternative approaches to achieve the same type of utility, which must always remain free and open. Thus the restriction on direct competition caused by the grant of exclusive rights to that invention is compensated by a widening of (potential) competition by substitutes. Moreover, the trade-off between inventors and government on the basis of which exclusive rights are granted in exchange for full disclosure of the invention activates further specific competitive dynamics. Firstly, the primacy of the principle of free competition requires exclusive rights to be granted over genuine innovations. Hence the advisability of subjecting the patent to the most extensive, and therefore most efficient criticism of its innovative character by the market, typically competitors. This is especially true in the absence of a prior examination, which to date has not been introduced in some national systems, like the Italian one. This obviously requires the patent to be made fully known to third parties, who are thus enabled to challenge the validity of the exclusive rights immediately in the courts thereby restoring direct competition.22 This function of stimulating competitive criticism will be increasingly strengthened by modern information and communication technologies, which will allow more and more rapid checks on prior art. This will be functional in an assessment of ‘non-obviousness’ to be made, including on an international scale. Moreover, publication of the invention stimulates further significant procompetitive effects, even when the latter deserves the grant of exclusive rights. Firstly, publication of the application leads to the concrete possibility of negotiating with the owner to obtain a licence of the patent. The granting of the licence, even to a single operator whose exclusive rights vis-à-vis third parties will coexist with the licensor’s, will expand both price competition, whose freedom from unjustifiably restrictive impositions will be upheld by antitrust law, and potential product competition. In fact, the grant of licences often means the licensee as a potential future competitor, with a more specific competitive capacity, in the supply of the same technology after the expiry of the patent, and also, normally, before expiry to facilitate the licensee’s development of differentiated innovative solutions so that she can start preparing as a future competitor 23. Secondly, third parties are given the opportunity, indeed the right to obtain a (‘non voluntary’) licence fee to use a prior inventor’s patent in order to achieve a more advanced, and thus highly competitive ‘derivative’ innovation, as per article 31, l) of the TRIPS Agreement.24 12. The logical and teleological consequence of the trade-off between the grant of exclusive rights and full disclosure of the invention is, and must be,

Patent protection of innovations

27

the refusal to grant exclusive protection to an invention maintained (and possibly exploited) in secret – which more typically occurs with new processes than products. If the secrecy is infringed in any way, including by unlawful means, e.g. industrial espionage, unauthorized disclosure by employees or licensees, etc., the possibility of maintaining exclusive enjoyment will cease, save for exceptional cases of non-prejudicial disclosures as defined in article 55 of the EPC. The objective destruction of secrecy which causes pre-disclosure of the invention will therefore prevent the invention from being patented, because it would lack novelty (article 54 of the EPC). The inventor will be able to claim damages in civil proceedings, and the infringer may also be prosecuted before a criminal court, but the fundamental loss i.e. that of exclusive enjoyment, cannot be undone. This legal approach therefore tends to exert pressure on the inventor, or the party proposing to implement the invention, to exploit it under the patent system, and therefore to publicize it. Only if she does, will the patent holder be guaranteed exclusive rights, and the market will have the knowledge and competitive advantages referred to above. Indeed, the interests of those wishing to exploit an invention in secrecy are typically anti-competitive, as a) the condition of secrecy may last more than the patent term, and b) the exclusiveness of the exploitation is reinforced by the denial of useful information to the market, which prevents third parties from more easily developing competition by substitutes, or developing an advanced derivative innovation. However, the unfavourable attitude towards secrecy, typical of the classic model, now tends to be attenuated under pressure, mainly exerted in the international sphere, from the increasingly protectionist trends mentioned above, which support the propensity of investors and manufacturers to consider secrecy as an alternative opportunity for the firms than patenting. This approach is perfectly understandable because as long as secrecy is maintained, the economic value of know-how is the source of a concrete relevant competitive advantage, taking the form of a specific lead time prior to the entry into the market of competitors/imitators wishing to implement the same manufacturing process. This value may sometimes be greater than that of the patent with its pre-set limits on duration and its requirement of publicity. In some countries, including Italy, a right of pre-use in secrecy (in accordance with the Community Patent Convention, which has not yet come into force) is recognized in favour of those who have exploited an invention in their firm during the twelve months prior to filing the application. Above all, in the TRIPS Agreement (article 39) and the national implementing laws, disclosure to third parties or acquisition of secret information by methods contrary to fair business practice is classed as an act of unfair competition pursuant to article 10-bis of the Paris Convention. This type of act was and is already unquestionably included

28

Intellectual property and competition law

in the legal rules and case law relating to unfair competition, so article 39 of the TRIPS Agreement is in principle wholly superfluous. However, the explicit reference to it, and subsequent inclusion, as in the case of Italy, in the national patent legislation (as if secrecy were a fosterbrother of the patent)25 is very significant. In fact, when defining the secrecy protected, the interpretation that emerged on the basis of the provisions of the TRIPS Agreement and the subsequent national legislation strongly accentuates the importance of the subjective purpose expressed by the patent holder (for whom, understandably, everything must remain secret) and, in objective terms, the importance of mere non-disclosure or non-easy accessibility of data. Moreover, the objective scope of the subject-matter of the secrecy is not precisely defined, whereas this must be done in a patent application, namely in the description. This seems rather paradoxical, and all the more contradictory in view of the fact that exploitation under secrecy should be discouraged, whereas objective uncertainty as to the subject of the secrecy would normally play in favour of the holder, allowing the objective area of its claim against competitors and third parties bound by confidentiality obligations to be more easily extended. It is therefore necessary to depart from this line of interpretation in order to maintain a systematic focus on the principle of freedom of competition. This requires that protection of secrecy, always and solely under a liability, not a property regime, be limited to suppression of certain types of appropriating misbehaviour: (a) which are intrinsically reprehensible because they conflict with the principles of fair competition (which should be reconstructed and incorporated in non-corporative meanings in the ambit of the economic constitution; see Chapter 5); and (and, not or!) (b) which relate to information (in the broadest sense) determined with clarity and certainty, and precisely and on a par with the criterion imposed by article 1(i)(iii) of Commission Regulation (EC) No. 772/2004 of 27 April 2004 on the application of Article 81(3) of the EC Treaty to categories of technology transfer agreements; and (c) which also relate to data that are not only subjectively, but also objectively destined, because of to their importance, to be treated confidentially (such as those relating to scientific and technical research, or to a planned or inprogress patent application). 13. We will now return to the main topic. As mentioned, further rules enshrine the principle of strict proportion of patent rights vis-à-vis what is effectively inventum. Such a principle helps to define the scope of the ius excludendi alios, i.e. exclusionary rights, especially as far as production of

Patent protection of innovations

29

innovation is concerned26 and thus also the area of third parties’ freedom of competition. A first rule, already mentioned, defines the scope of the exclusive rights in relation to the intended function/purpose, in the last analysis, the field of use, of the invention. This function/purpose must emerge from the patent application in connection with the claims, i.e. with the analytical specification of the characteristic features of the technical solution for which the patent rights is requested.27 The rule in question is confirmed by the fact that the patentability of known substances ‘for a new use’ is expressly recognized by article 54.5 of the EPC. Now, the substantial and systematic significance of the rule lies in the fact that it prevents the patent monopoly, even when it relates to a product, from extending indefinitely, or in any event to uses or industrial applications which were not envisaged, and consequently not described or claimed with precision, by the inventor. This avoids subsequent innovation to be unjustifiably penalized by the prior grant of exclusive rights, since third parties (typically, competitors) are enabled to develop and implement new uses of the patented product and possibly patent them independently. Another rule governs the relationship between product and process innovation, more precisely between a process patent and a new product directly obtained by means of the process (article 28.1.b of the TRIPS Agreement). Briefly, the exclusive right extends to the exploitation of that product, and any other identical product, manufactured by third parties, presumably using the patented process, without the patent holder’s consent. Thus third parties (competitors) can freely manufacture and sell the identical product, thereby engaging in direct, not merely substitutive competition, if they can prove that they used a different process. As regards positive law, I doubt that the scope of the principle can be extended to the case of interference with another party’s product patent. If not, the most pro-competitive solution, namely for a third party to be allowed to make the same product with a totally different process, does not seem to be admissible today, i.e. de lege lata, as it would infringe the other party’s product patent (article 28.1.a of the TRIPS Agreement). Although this conclusion seems compelling, amendment of the legislation is still desirable in order to place this situation on a par with that of derivative inventions i.e. an invention whose implementation requires the use of another party’s prior patent.28 Such assimilation should be upheld at least if the new process represents major technical and/or economic progress in the manufacture of the same end product, (for example, because it pollutes less, is more energy-efficient, etc.), in line with the general rule laid down by article 31, 1) of the TRIPS Agreement. The inventor of the new process would thus be entitled to a licence over the prior product patent, the holder of which would in turn be entitled to a licence over the second innovator’s process patent.

30

Intellectual property and competition law

However, as mentioned, the protection granted to product patents by the current legislation does not seem to allow this assimilation, with the paradoxical result of discriminating against an objectively greater innovation, i.e. innovators who take an entirely new approach to obtaining a product developed by others and those who, albeit considerably, improve on an existing patented process. Nevertheless, a more pro-competitive approach seems to be gaining ground in new areas of patent law, see paragraph 6. One example is the case of a biological material made by recombinant DNA techniques. The patent (allowed by article 3(1) of the Biotechnology Directive) should not extend to material, even of the same type, made by totally different techniques, and especially by extraction from more complex materials. I also believe that article 3(2) of the Directive enables the scope of the exclusive rights to be limited to the process of ‘isolation’ of the sequence or gene. Of course, the integrity of the rule requires this solution to be maintained even if the particular process used does not contribute to defining the intrinsic characteristics of the material, this being a separate case which fits better with the product-by-process concept. However, in view of the factors described above, this solution seems to be exceptional, and restricted to the field of biotechnology – unless we might admit, more simply, that the case referred to in article 3 relates to a process patent, and the innovative nature of the invention lies in the process itself. In any event, I would strongly recommend the proposed legislative amendment, which would encourage the exploration of new procedural solutions able to make end products, possibly already devised by others, but with techniques less useful to society such as processes that prevent pollutant effects, removing the absolute foreclosure imposed by existing product patents even if based on entirely different intellectual approaches. Indeed, not only is such a foreclosure not imposed by the need for rewards strictly commensurate with the actual inventive contribution; it also hinders direct product competition, which would tend to have an even more favourable effect on price levels and manufacturing quality by making the different products offered more immediately comparable. 14. These principles open up significant areas for competitive innovation by third parties and play an essential, though not exclusive part in defining more completely and precisely the legal framework of the relationship between protection of the patented innovation and incentive of subsequent innovation. As mentioned, this is a crucial aspect of modern R&D, characterized by progress in small steps from the preceding innovation. Modern researchers increasingly advance by a characteristical cumulative process rather than by quantum leaps, as dwarves standing on the shoulders of other dwarves and

Patent protection of innovations

31

exceptionally on the shoulders of giants, i.e. the inventors of pioneering inventions, to whom Isaac Newton referred when he formulated his famous metaphor. In this process of subsequent innovation the prior innovation can therefore be lawfully used in two different ways: • to obtain ideas, teachings, information in order to develop, more quickly, different, non-infringing solutions, possibly more competitive on the market, and lead to the same type of useful result without interfering with the prior patent; • to incorporate the previously patented innovation into a more progressive, useful solution. The first case can be described as substitutive subsequent innovation, and the second as derivative subsequent innovation. In both cases, as we shall see, the patent system expresses a pro-competitive propensity, in the sense of protecting the innovation in such a way as to stimulate widespread subsequent innovation. This statement must be articulated separately for each of the two cases, although they have various common features. 15. The rules mentioned above (expressing the guiding criterion that exclusive rights must be strictly commensurate with the actual teaching of the inventor), while limiting the scope of the exclusionary rights in relation to the use of a product or substance and, possibly, the particular process employed to make it, contribute to defining the legal system governing the subsequent substitutive innovation. In particular, as mentioned, those rules possibly exclude infringement of a prior patented invention even when a subsequent innovation uses the same end-product (in terms of objective result). Indeed, infringement will be assessed only if the solution idea subsequently proposed by a third party is identical, or at any rate ‘equivalent’ due to the substantial similarity of the means used to achieve the same purpose. Hence, in the final analysis, the lawfulness (freedom) of subsequent innovation by third parties will depend on the criteria of equivalence used to establish the infringement. Current interpretation practice often shows a restrictive tendency to allow infringement by equivalence, in particular, if the substantial similarity of the solution idea is not obvious (to one ‘ordinarily’ skilled in the art). Such a criterion, which is substantially shared in the legislation of the European countries following article 56 of the EPC, legitimizes a large proportion of subsequent innovations, recognized as substitutive instead of derivative and thus independent. In practice, this criterion involves giving more generous approval to a

32

Intellectual property and competition law

subsequent innovation that moves from a previously patented innovation (without copying it) than an excessively broad, protectionist concept of equivalence would do. This tends to have favourable effects on the variety of supply and on price levels. Such a rather restrictive approach to equivalence appears convincing not just because it is more pro-competitive (a justification which is not exhaustive, as the degree of competitiveness that legitimizes a certain solution must be defined not on the basis of the interpreter’s subjective preferences, but on the terms of the positive legal system). It is more convincing specifically because it appears to be symmetrically coherent with the substantial conditions set by the system for the granting of exclusive rights, i.e. the conditions that define which innovation deserves patent protection. We suggest that this crucial aspect be considered in a dynamic perspective, associating it with the relationship between prior patents and subsequent innovation. 16. In this connection, we must first of all restate that innovations protected and encouraged by patents are not only the high-level ones which express significant technical progress. The legislation, starting with the European Patent Convention followed by the TRIPS Agreement no longer uses the parameter of an objective leap forward (much less the archaic flash of genius) to define the qualitative level of an innovation deserving of a patent. On the contrary, there is a clear tendency towards broad, lenient criteria of patentability, so as to include incremental innovations. The (increasingly) low selectivity of the conditions of access to the invention patent is well evidenced by the legislative developments moving away from the classic paradigm. As is well known, such a paradigm involved two distinct substantial requirements for a valid patent, which specifically expressed the innovative nature of the invention: novelty in the historical sense (a.k.a. extrinsic novelty), namely objective differentiation from known technical solutions, and originality (a.k.a. intrinsic novelty), namely the objective inventive step ahead of the body of existing knowledge (i.e. the prior art). The interpretative development which led to the 1974 European Patent Convention and the national legislation implementing it recognizes that a given solution is original (‘involves an inventive step’) only ‘if, having regard to the state of the art, it is not obvious to a person skilled in the art’: article 56 of the EPC. The footnote to article 27.1 of the TRIPS Agreement (which is an integral part of the text thereof) follows the same line: ‘inventive step’ is defined as being synonymous with ‘non-obvious’. Thus, exclusive protection is also granted to innovations of modest conceptual importance, provided that the innovation cannot be simply deduced from the prior art by a person (‘ordinarily’) skilled in the art. It is fairly evident that this minimalist view meets the need to adapt patent protection to the typical

Patent protection of innovations

33

connotation of modern research activities, which, as already observed, tend to advance by small steps more frequently than intellectual leaps, as a result of continuous successive experiments and applications handled by complex teams and advanced technological resources (powerful computers, etc.). In other words, research progresses more as a result of the size of investments than the genius of individual researchers. Hence the consolidation of the trend towards a significant reduction in the standard of originality. I wonder (obviously in the context of law reform) whether this trend is not inevitably destined to lead to the requirement for an inventive step being merged with (absorbed by) the requirement of novelty. It is easy to observe that the traditional distinction between the two is already blurred in practice because of the modest degree of originality required. Now, if this were to happen it would take account of the gradual atrophy of an element of the system that is increasingly unable to act as a significant filter. The tendency to shift the identification of the inventive step upwards, i.e. to the discovery stage, is significant in this respect. If this merger were to happen it would also concentrate this function on a single objective criterion, that of novelty in the historical sense, which is more than enough, in my opinion, to reliably select praiseworthy incremental innovation according to time criteria suited to the different innovation rates in the various industries. The cost of legal defence of patents would also be drastically reduced, leading to more effective and efficient protection of incremental innovations. The only exception to this general hypothesis should concern derivative innovations eligible for nonvoluntary licences over prior patents. Here, maintaining the requirements of an important technical advance of a considerable economic significance would be well justified by the special privilege granted. I would definitely not agree, on the other hand, with the now-and-then recurring hypotheses which, taking account of the reality of modern R&D activities, propose to assess originality even on the basis of the level of the investments made. Such criterion would lead to inherently discriminatory results and a high degree of uncertainty involved, with subsequent higher judicial costs. For example, it would be very difficult, in order to avoid substantial discriminations, taking account of the difference in investment capacity between small, medium-sized firms and large companies. This difference would also rebound on the assessment of infringement, and generate ungovernable legal disputes between holders and alleged infringers of patents belonging to different business categories. The substitutive solution developed by a small company would be inventive for that firm, but a mere equivalent if considered in relation to the resources available to a large one. These uncertainties and complications would lead to an explosion in the costs of legal proceedings, making patent litigation all the more available only to a small élite.

34

Intellectual property and competition law

17. In the light of the above-mentioned trend to shift downwards to the level of incremental innovation the threshold of inventiveness that allows patentability, I consider that the further discount on the inventive step recommended by numerous scholars and judges in various European countries in relation to patents for utility models is inappropriate. This approach seems to be followed by the proposed EU Directive approximating the Legal Arrangements for the Protection of Inventions by Utility Model (presented on 17 December 1997 and amended on 12 July 1999, but happily not yet approved). The proposed Directive relates to the auxiliary innovation represented by (new) industrial models which gives the product or process accessed (or its user) ‘a practical or technical advantage’ and, ‘having regard to the state of the art, is not very obvious to a person skilled in the art’ (article 6.1 of the Proposal). As will be seen, the wording has changed from ‘not obvious’ to ‘not very obvious’ (!), indicating that a utility model patent29 requires an even smaller inventive step than an invention. This is expressly confirmed in Recital 11: ‘Whereas these requirements are for the most part the same as for patent protection; whereas the level of inventiveness required must nevertheless be different . . .’ (emphasis added). In my opinion this approach is wholly unsatisfactory for theoretical as well as practical reasons. As regards the theory, in view of the current legislative parameter of the inventive step, it is impossible to establish a lower inventive level than that required for an invention patent. Either a solution is obvious from the prior art, or it is not; there is no middle ground. It seems somewhat ridiculous to distinguish between not obvious and not very obvious. There are at least two other grounds for dissatisfaction. Firstly, as the utility model has substantially the same protective scope as the invention, the smaller inventive step required would obviously mean easier access to patent rights. The duration is shorter, but in view of the speed of present-day industrial and commercial dynamics a duration of up to ten years – specifically six years, renewable for two further two-year periods (see article 19 of the Proposal) – is more than enough to obtain an adequate return on the investment. Thus a second-class innovation would more easily obtain a patent which, as mentioned, would have very similar protection to a first-class innovation. Now, in view of the already modest level required for the first-class innovation, this seems discouraging and actually conflicts with the claimed purpose of the patent system, i.e. to promote (genuine) innovation. Moreover, if the Proposed Directive allowing dual protection (article 23: 1. ‘The same invention may form the subject-matter, simultaneously or successively, of a patent application and a utility model application. 2. A utility model which has been granted shall be deemed to be ineffective where a patent relating to the same invention has been granted and published’) is approved, the conflict will increase, as a patent for invention which is at risk because of its insufficient

Patent protection of innovations

35

level of inventiveness would still be granted exclusive protection up to the normally quite satisfactory 10-year limit. Besides, the use of a double standard for the inventive step in accordance with this approach would in practice inevitably increase the uncertainty of the application criteria, consequently inflating the costs of litigation, which account for a significant proportion of the overall ‘administrative’ costs of the patent system, and encouraging a patent holder whose invention patent is challenged to relaunch her claim for exclusive rights in the form of a utility model patent. All these drawbacks and contradictions suggest a simple, across-the-board opportunity for reform: to abolish the utility model patent and retain a single type of patent covering both products and processes. 18. It is therefore clear in which sense a lowly selective access to patents is connected with the incentive for subsequent innovation as long as it is substitutive. Low selectivity would make it easier for competitors to avoid the exclusionary rights of the patent holder, as the modest degree of originality deemed sufficient to obtain a patent would more easily allow other solutions not just to be classed as equivalents (mere variations implementing the same solution idea) but to obtain their own inventive status and independent patentability, thus falling outside the scope of the other party’s exclusive rights. In practice, ease of patentability means also ease of substitution, namely freedom of competition, by subsequent innovators. Thus, one can apply even the reverse of the rule (of Anglo-Saxon coin) that ‘what infringes if later, anticipates if earlier’. In other words, a generous evaluation of the inventive step will logically correspond to a generous evaluation of the non-equivalence of the subsequent innovation. The author of the subsequent innovation will more freely enter the market with his or her own solution (provided that this does not straightly infringe the prior patent), a result which would obviously be impossible if the prior patent were given greater protection based on a more severe, expansive assessment of equivalence. This result seems particularly appropriate in order to promote competition in innovation the more the prior patents are concentrated in the hands of dominant firms. The innovation market, let us remember, is increasingly oligopolistic in the more advanced sectors. A more extensive protection of their IPRs would also encourage those firms to file aggressive, expensive sham lawsuits to exclude minor competitors. This perspective (which neutralizes the risk that the low selectivity of patentability requirements will have the effect of multiplying prohibitions on, hence barriers to, subsequent competition) construes the patent paradigm as characterized by a dynamic balance between prohibiting reproduction of the patented solution (even by equivalents), and encouraging differentiated (not

36

Intellectual property and competition law

obvious)30 substitutive solutions. Such a balance, which rejects the current biased approaches in favour of prior innovators, seems justified in substance. On the one hand, experience shows that the greater innovative content of pioneering inventions increases the inventor’s lead time (the time of appearance of the substitute innovation on the market). On the other hand, as regards granting the inventor a reward commensurate with the actual teaching provided, our approach ensures full and fair protection of inventors in proportion to their ability to devise, describe and claim with due precision, in terms of the implementing means and functional use, protective substitute solutions, which would more easily, and justifiably, allow the patentee to attack equivalent solutions subsequently devised by third parties. It may be objectionable that the expectation of moderate patent protection against later diversifications by competitors may lead the inventor to postpone patenting the invention until she has devised a sufficient number of variations to be described and claimed, just for protective purposes. Thus, one might argue, the effect of disclosure associated with filing a patent application would be postponed, thereby in fact delaying the development of true (not equivalent) substitutive innovation: an anti-innovation and anti-competition final effect indeed. Such an objection might be appropriate in a system of access to patents based, as in the US, on the priority of the invention (the first-to-invent principle), which grants inventors retrospective priority, but not in a system like the European one based on the priority of the patent application (the firstto-file principle), which encourages inventors to patent as quickly as possible. 19. The problem of subsequent derivative, or ‘dependent’, inventions, realized through total or partial use of solutions already devised and patented by others, calls for a different, specific approach. Here again, the subsequent innovator offers different solutions, but this time based on actual use of earlier teachings by others. The problem of reconciling protection of patents against total or partial infringement with subsequent innovation therefore arises – a relevant problem, indeed, concerning the development of all that vast sector of innovation which advances on the shoulders of earlier inventors, as Dreyfuss Cooper and Rosenthal Kwall observe (1996, p. 437), Newton would never have seen so far ahead if he had been prevented from standing on the shoulders of giants). Also at stake is the price level of goods incorporating the improved technologies, obviously influenced by the terms and conditions of the chances of derivative innovators to access and exploit prior innovation. First of all, what is ‘derivative’ as distinguished from ‘subsequent but independent’? The principles recalled above, which define the scope of patent rights, also define the relationship of dependence. This relationship will exist if the second innovation wholly or partly employs the same solution to obtain the same type of useful result, i.e. the same use. Thus, for example, an inven-

Patent protection of innovations

37

tion that improves (increases, makes cheaper, etc.) the way in which the same kind of usefulness is achieved by means of a solution idea that uses the patented innovation is dependent on the first patent since, to quote article 31, l) of the TRIPS Agreement, it ‘cannot be exploited without infringing another patent’. Conversely, an invention which uses elements of a prior patent but combines them in an original way, giving rise to a new, useful result that could not be obtained on the basis of the prior art by the individual elements considered separately and as the mere sum of their parts, must be considered non-dependent on the prior patent. Thus an invention that transfers the prior idea to a different, distant field of use, thereby obtaining a new useful result, must be deemed to be non-dependent on the first patent. However, if an invention is ruled to be dependent (or derivative), the subsequent innovator cannot implement or exploit her idea without the consent of the first inventor.31 The exclusionary rights on which the prior patent holder relies requires such a prohibition, without which the content of the patent will be useless. The prohibition can be removed after the grant of a licence, typically on payment of fees and/or royalties. That is the rub. There is a very high risk, indeed, that the patent holder will refuse her consent in order to prevent the development of a competitor who is specifically dangerous precisely because she goes further than the patent holder, whose invention would thus act as a springboard for the subsequent competitor. Thus, understandably, the patent holder may easily deny any licence, therefore preventing the implementation of the subsequent innovation, to the prejudice also of competition and consumers. However, as already mentioned, with regard to this risk, the patent system makes a distinction according to whether the new patent expresses an innovation of normal inventive scope or constitutes ‘an important technical advance of considerable economic significance’ (article 31,1) of the TRIPS Agreement32). In this second case, the holder of the first patent cannot at her discretion prevent the entry of the second patentee into the market. The latter is granted the right to obtain a licence on ‘reasonable terms’33, which can be determined by the courts in the event of disagreement between the parties. In truth, the most significant function of the compulsory licence is to act as a Damocles’ sword over negotiated solutions, as the prospect of litigation may lead the patent holder to fear disputes as to the validity of the patent, intrusion into the firm’s accounts and hence its tax position (a very pressing argument in my country) and, finally, the award of a smaller royalty than could have been obtained by negotiating. A risk the inventor might easily run should the court view her as the bad, anticompetitive operator who strives to bar the way to highly useful subsequent innovation. Thus a weakening of the exclusive rights of the owner of the prior technology is allowed in order to promote the development of high-tech innovations, and their competitive market implementation.

38

Intellectual property and competition law

Does this solution excessively penalize the prior patent holder who, as a result of the compulsory grant of the licence, may be leapfrogged by a subsequent innovator offering a more advanced product on the market by exploiting the first party’s idea, thus reducing the value (and the price) of the products that incorporate the earlier technology? The answer is no. The competitive interests of the first inventor are safeguarded by a legal solution that encourages and stimulates her capacity of catching up. This is because, in the overall framework, the first inventor is granted the right to a licence over the new, derivative technology on a reciprocal basis (last part of article 31, l) subparagraph (ii), of the TRIPS Agreement). The first inventor may therefore in her turn become a fully fledged direct competitor of the second inventor, sharing the adoption of the more advanced derivative solution. In this way, by instituting a spiral of mandatory cross-licenses, the legislation on one hand establishes a dynamic equilibrium between original and derivative high-tech innovation; and, on the other, by allowing both innovators to bring into the market the overall more advanced technology, provides for a competitive, no longer monopolistic, supply of technology, thus also encouraging price competition. If anything, this legislative model as described might be criticized in that it discriminates against modest, incremental innovation, excluded from the benefit of the mandatory cross-licenses scheme, just described. Consequently, competitive entry of an ordinary (incremental) derivative innovation into the market can be prevented by the self-serving refusal of the owner of the prior innovation to grant a licence. Now, one might observe that, while the general requirement of inventiveness is not very demanding (because, as recalled above, it is tailored to innovations made by small steps) and therefore the prior patent holder can obtain the patent and then access the market, even if her (non-derivative) invention is of a modest inventive level, the discrimination embodied in article 31, l) of the TRIPS Agreement involves imposing more stringent conditions of free market access on derivative research and development than on ‘independent’ R&D, albeit of equal or more modest level. This might discourage investment in derivative incremental innovation and restrict the potential output thereof. The answer to this objection can be found in a rationale that aims at striking a reasonable balance between the necessity to allow relevant innovation to rapidly access the market, and the need to discourage a general path-dependency approach by investors in R&D. If all derivative innovation could benefit from non-voluntary licenses from earlier patentees, investors and researchers would be strongly encouraged to safely follow the tracks already opened and tested, even commercially, by others, refraining from trying new paths, to the detriment of the general interest to more original research and more competition by substitutes.

Patent protection of innovations

39

20. The legal model laid down in article 31, 1) of the TRIPS Agreement (widely followed in Europe unlike in the US) performs an important role as regards the development and marketing of innovations of significant technical and economic value improving on earlier patents. This model is particularly valuable in cutting-edge sectors of contemporary innovation, in order to stimulate competitive processes based on innovative efficiency. I have in mind two major fields, each of which presents a distinct legal profile. The first is the field of chemical-pharmaceutical research, in which new uses for substances and compounds already patented may be identified. In this case, that model can prevent relevant subsequent innovation from being inhibited to access the market should independent status (and thus full freedom from earlier patents) be denied by the courts to the new use invented. The role of that model can be equally valuable, and no longer in a subsidiary role, in relation to information technologies designed to connect communication systems and apparatuses, especially if these technologies have come (either de facto or de jure) to represent the industry standard. Technical connection solutions (such as interfaces) typically require the use of other connection and mutual communication technologies (possibly owned by third parties) for their implementation. As is well known, the connection function, a.k.a. interoperability, especially if performed with standard technologies (which allow the highest volume of connections), has acquired a crucial technical and financial role in the performance of all the activities, starting with e-commerce, of the network economy: a sector which is governed by a law of value (the reverse of the one governing material goods) according to which value increases in direct proportion to the number of users.34 Thus, thanks to article 31, 1) of the TRIPS paradigm, the need to develop increasingly advanced connection systems, which is vital for network industries, can be met without denying fair protection to earlier innovators.35 Finally, it is worth noting the indirect but substantial convergence between the normative paradigm in question and the one deriving from application of antitrust legislation to situations of ownership and control of IP protected technologies which have become industry standards and are as such equated with essential facilities. This will allow for application of the rules on competition governing abuses of dominant position, thus preventing the IPR holder from unreasonably refusing access to the standard technology, thereby opening up competition (at least) in downstream markets.36 21. We will now move from the stage of production to that of distribution of innovation (or more accurately, innovation embodying goods). This stage is governed by the so-called principle of exhaustion. This specific rule is a corollary of the guiding criterion that exclusive rights must be strictly

40

Intellectual property and competition law

commensurate to the inventor’s actual teaching and defines the scope of the patent vis-à-vis the circulation of the patented products. This principle was developed by European Community case law as from the 1974 Centrafarm case, and adopted by European national legislatures and cannot be ignored here, although it does not relate to the ability of the system to encourage innovation through competition and, conversely, to stimulate competition based on innovation. Indeed, in the overall system of the innovation market, the exhaustion principle basically addresses concerns voiced at an early stage by classical economists about the price levels that the existence of patent rights can cause. More specifically, it relates to the conflict/balance between remunerating the innovator and safeguarding price competition as well as competition based on other business practices, such as after-sales service between distributors of patented products. Obviously, this has a direct influence on consumers’ interests too. The principle states that the right to profit from the patented invention is forfeited (exhausted) after the product has been placed on the market by, or with the consent of, the patent holder (typically, a licensee) in the territory of the State. Basically, after the first marketing, the patent holder has no right to influence the terms and conditions of the further circulation of the product. These are left to the free play of competition. For example, by virtue of her patent rights alone, the patentee cannot limit the quantity and other terms of successive marketings of the product, and in particular fix its prices. Accordingly, the only parties against which she can enforce her exclusive rights after marketing by virtue of the patent are plain infringers, i.e. unauthorized (re)producers (and distributors) of the patented product, i.e. freeriders. The principle of exhaustion therefore softens, so to say, the patent’s monopolistic impact, limiting the owner’s power to control the circulation of patented products on the domestic (national) market where the patent is registered. That impact is further attenuated as a result of the parallel application of the principle to the whole EU market as such, i.e. all the markets en bloc of the various member states of the European Union; more precisely, of the European Economic Area (EEA). In other words, Community exhaustion, a corollary of EU policies and the Treaty’s principles relating to free movement of goods,37 further restricts the exclusive rights of the patent holder. In particular, the patentee is denied the right granted by national law to oppose the import of the patented product and thus to compartmentalize individual domestic markets if the product has previously been marketed lawfully, with the holder’s consent, in other member states. This even if the product is not patented, or even patentable, in such states (Merck, 1981).38 Thus the principle of Community exhaustion also albeit indirectly reduces, as mentioned, the extent of the exclusive national rights, because if the prod-

Patent protection of innovations

41

uct forming the subject a national patent, say Italian patent, was exported and sold on another EEA market, say the UK, the holder of the Italian patent could not object to the (re)import of the product into Italy by any third parties even though she may not yet have marketed the product in Italy. Finally, unlike trademarks39, the merely Community-wide (as distinguished from fully international) scope of exhaustion of patents has not yet been called into question, although it may, and should be in future. In fact, strict application of the principle that the scope of exclusive rights must be commensurate with their essential anti-free-riding function suggests that whether the first marketing takes place in the EU or outside is quite irrelevant if the exercise of exclusive power to control the movement of products (prices, quantities, procedures) is to be restricted to the first stage of distribution. Thus, that territorial restriction of the scope of the principle reveals its truly europrotectionst rationale. Non-EU territorial aspects might only justify (I say might, with some hesitation) the inapplicability of the Merck doctrine – a fundamentalist expression of the Community policy of free circulation of goods – and consequently the statement that outside the EEA, exhaustion will occur provided that the country of first distribution acknowledges the patentee’s right – in other words, that the first commercial profit is made in a regime of exclusive right.

CONCLUSIONS, AND SOME PROPOSALS 22. Exploitation of the numerous pro-competitive features of the patent system described above should represent a given for both interpreters and legislators who, in their respective roles, aim at moulding patent law to allow for developments in the technological and economic/financial contexts of applied research and its industrial exploitation, while preserving and promoting a scenario of dynamic competition in which innovation stimulates competition, and competition is supported by innovation. In particular, new interpretations and proposed reforms should never lose sight of the need to exploit the ability of the patent paradigm to strike a satisfactory dynamic balance between the need to protect existing innovation and the need to stimulate subsequent innovation (by competitors of the first innovator as well as by the first innovator herself). This balance helps to develop innovation not as sheltered from, but on the contrary as stimulated by, competition, thereby maximizing the social welfare effects in many respects associated with the competitive development of innovation. It is neither superfluous nor rhetorical to insist on this need of a more balanced regime – a need that extends beyond patents, to the whole field of IP, as the recent research project ‘Intellectual Property in Transition’, presented at

42

Intellectual property and competition law

Stockholm University in November 2005, has convincingly shown. Now, the satisfaction of such need would be frustrated by the adoption of different approaches that we would call overprotectionist,40 as they inter alia give proprietary claims priority over basic research, and involve a protection of patent rights which is biased towards the monopoly side.41 In the long term, the period on which the responsibility of legislators and interpreters should mainly be focused, those trends are bound to produce an objective effect of slow-down, restriction and impoverishment of the pace of innovation42, hence also of innovation-based competition. This contrasts with the ability of the patent system to promote ‘the progress of science and useful arts’, to borrow the expression of Article 1, section 8, clause 8, of the US Constitution. Moreover, this adverse effect would be fatally amplified by the oligopolistic scenarios in which the processes of contemporary industrial innovation typically take place. Finally, in the long term, it would also be prejudicial to the technologically advanced countries, especially in the growing area of network industries which require an environment that dynamically encourages open connections, in legal as well as technical terms.43 Conversely, as a reaction to the wave of overprotectionism, ancient objections to patents are being revived in some modern, more sophisticated economic analyses of law. In particular, the tendency towards a general reduction in the excluding power granted by patents is growing stronger, and there are even calls for the patent system to be abolished altogether. In the contemporary period, forerunners of these tendencies were the Freiburg Ordoliberals,44 and later, individual scholars like William Kingston (1994, p. 1275) with his proposal for full ‘monetization’ of exclusive rights. As it is clear from what has been said above, I agree with the spirit of, and many of the arguments behind the proposals designed to restrict the excluding power associated with patent ownership when the use of such power can bottleneck high-tech derivative innovation, as well as competition in industrial sectors.45 On the other hand, I have serious doubts about the generalized application of those anti-property proposals. I believe that, in such generalized terms, i.e. beyond the area of ‘subpatentable innovation’ (Reichman, 2000) they fail to give a convincing answer to two objections: • the risk of reducing incentives to invest in innovation, because the firstmover advantage alone can be insufficient to neutralize the adverse impact of free riding in entire relevant sectors (especially in the pharmaceutical industry, where innovation requires huge long-term investments); • the risk of encouraging generalized path-dependence strategies rather than substitutive innovation, and consequently discouraging independent R&D activity.

Patent protection of innovations

43

In particular, this latter objection can also be made to proposals designed to replace across-the-board the excluding powers characteristic of the present patent paradigm (property) with a right to compensation for unauthorized use by third parties (liability). Now, it is true that the liability rule modifies ‘in kind’, but does not eliminate, the competitive advantage from which the patent holder benefits, since the burden of royalties operates to raise rivals’ costs. Moreover, such a replacement may even benefit the patent holders’ financial interests, since the profits from royalties accruing from several licensees might exceed those obtained through a single-firm’s sales – even if exploiting patentrelated overpricing. However, this solution (I repeat: as a solution of general scope) seems questionable because of the path-dependence effect it inherently generates. It would encourage competitors to limit their investments in alternative products/processes in order to avoid both the costs of research and the risk of market failure. Such competitors would be encouraged to compete with the innovator/licensor just in terms of price, by saving on the cost of production (possibly, also, ‘saving’ on quality standards?). 23. After reviewing the current framework, it seems worthwhile to ask ourselves what reform features of the overall patent paradigm could opportunely be entrusted to legislators (increasingly in transnational settings) in order to better meet the technological and economic developments, while preventing both overprotection and discouragement of innovation. I will briefly submit some which I consider of particular relevance without repeating those already advocated above, such as the abolition of the utility model patent. As will be seen, the following proposals mainly reduce the excluding scope of the patent; however, there are also some which take the opposite direction. (a) To start with the first kind, I believe that the policy line which has clearly emerged in fields like pharmaceutics and biotechnology, namely to grant protection to research tools rather than only to specific concrete applications of scientific research data, should be firmly rejected. The same obviously applies to proposals designed to give, as in the US, patent protection to mere business methods, fiercely opposed in the EU46. Broadly speaking, major changes to the list of exclusions from patentability contained in article 52 of the EPC should be avoided (except for explicit reinstatement of computer programs as such: see below). (b) A more liberal approach should be taken to the circulation and transmission of innovative technologies. Here, in particular, it would be advisable to reasonably enlarge the provisions for non-voluntary licences beyond the ones in favour of high-profile derivative innovations already included in article 31, 1) of the TRIPS Agreement). In all events, such enlarged

44

Intellectual property and competition law

provisions should remain exceptional – thus not further extensible by mere interpretation – and based on legislative formulation of precisely defined cases. This, as mentioned above, to avoid the spread of pathdependent attitudes, and therefore slowing down of subsequent substitutive innovation. In my opinion, one such case should be that47 of a product which, though forming the subject of a third party’s prior product patent, has been developed through an entirely different and more advanced process. Here, a modified application of the principle of article 31, 1) of the TRIPS Agreement, should work as follows: non-voluntary licence on priory patented product vs. cross-license on the newly developed process. This would allow practical (product) implementation of the new progressive process, while also enabling the prior patent’s holder to share the benefits of such process.48 (c) I would also extend the grant of such kind of licences (in clearly-defined, exceptional cases) to the following: • patented (and copyrighted49) software which has become the ‘official’ industry standard – either by decree or upon selection by ad hoc institutions or associations, such as ETSI50. • patents (including non-derivative patents) which involve the production of advanced products or processes whose mass-scale enjoyment, even at international level, meets pre-eminent needs of public utility like health or environment protection. This could reasonably go further than the situations constituting, in a strict sense, a national emergency or extreme urgency referred to in article 31, subparagraph b), of the TRIPS Agreement, usually (but not necessarily) only postulated in relation to developing countries. Such is the case of patented essential drugs, in relation to which the Decision of 20 March 2003 by the WTO’s General Council, pursuant to the Doha Declaration, indicates willingness to consider non-voluntary licences.51 A similarly extended reasonable grant of non-voluntary licenses for reasons of public interest (also applicable to developed countries) is already provided for the exclusive rights granted over new plant varieties by article 29 of Regulation (EC) No. 2100/94 on Community plant variety rights amended by Council Regulation (EC) No. 873/2004.52 In this regard, reasons of public interest are defined as follows: • the protection of life or health of humans, animals or plants; • the need to supply the market with material offering specific features, or

Patent protection of innovations

45

• the need to maintain the incentive for continued breeding of improved varieties.53 Such a limited extension of the area of compulsory licences could have desirable effects both on the acceleration of subsequent innovation in cutting-edge technological sectors, and on the price levels of more advanced goods whose more widespread use and circulation must be ensured for predominant social welfare reasons. Of course, as already emphasized, in order to distribute the pro-competitive effects of the licence in a balanced way, the prior innovator’s right to a cross-licence should be maintained, in accordance with the rule set by article 31, 1) of the TRIPS Agreement. Moreover, the specific existence of a public interest in the grant of the licence should be case by case demonstrated by ‘details of facts, items of evidence and arguments presented in support.’54 (d) Finally, I would consider it appropriate to introduce two amendments/ additions to patent law, which are designed to further reduce the anticompetitive potential of the normal exercise of patent rights: • Reducing the time which elapses before publication of patent applications (now delayed for 18 months after filing). This would obviously lead to more rapid development and marketing of subsequent (substitutive or derivative) innovations. • Promoting low-cost arbitration proceedings to solve patent disputes, as rightly advocated by the 1999 Intellectual Property Rights and Science and Technology Policy Report (by the European Commission Directorate General XII, a.k.a. the ETAN Report). These proceedings could be based on the well-known model devised by WIPO. However, to avoid possible conflict with the legal systems of the various countries, I would not make such arbitration compulsory, as suggested in the Report. I would prefer to allow each party to opt for arbitration (the financially weaker one would be the more likely to opt for it) and for this option – obviously if exercised before the commencement of a judicial trial – to fix the choice of the jurisdiction in accordance with a simple pre-emption mechanism. This measure, if drafted with care, would attenuate, if not eliminate, the practice (which is aggressively foreclosing, as well as producing inefficiencies deriving from excessive transaction costs) whereby the enforcement of patent rights, even when concerning pseudo-innovation, is exercised by harassing competitors that claim freedom of use with sham infringement lawsuits involving very high defence costs because of the complexity of the experts’ reports requested, the quality of counsels and consultants instructed, etc. This

46

Intellectual property and competition law

practice is not only objectively anti-competitive but may also be used to keep alive undeserving patents, thus nullifying the function of check on the patent’s merits entrusted to the system of judicial enforcement of IPRs. 24. In addition to these measures, which are designed to strengthen the procompetitive aspects of the patent paradigm, balanced proposals to update, and in some respects even objectively extend patent protection, could be put forward. Such proposals are suggested by the technological, organizational and legislative developments concerning innovation processes, and their acceptance would not prejudice the context of dynamic competition in which innovation can best (and therefore should) develop. In a nutshell, I would recommend: (a) Recognition of the patentability of computer programs as such, by means of a suitable amendment to article 52.2 of the EPC, contrary to what the European Parliament and the Commission seemed willing to accept in the subsequently (2005) rejected proposal of a Directive on the patentability of software-related inventions. However, this recognition should be accompanied by: • the stipulation that the patent cannot cover algorithms, as mere mathematical methods (Gottschalk v. Benson, 1972). The patent should concern only their application to provide a useful result and therefore their use in a specific manner to define structural relationships between the physical elements of the claim (in apparatus claims) or to refine claim steps (in process claims) (ibid.); and • rejection of the special protection of copyright, and of the copyright holder’s absolute power to bar any derivative software product should she so wish (see Chapter 3). The abolition of copyright protection would also eliminate the pro-monopolistic prohibition on reverse engineering for purposes other than (mere) interoperability. Consequently, as mentioned above (paragraph 23), it would be preferable to introduce not a priori exclusion from patentability but the principle of a non-voluntary licence on interfaces which are standards indispensable (and in this sense potentially equated with essential facilities: see Chapter 5) in order to ensure the compatibility of information networks. (b) For constitutional reasons, i.e. so as to maintain equal treatment in the absence of good reasons to differentiate among industrial sectors, I would extend the basic mechanism of the Supplementary Protection Certificate, now only used for inventions in the chemical and pharmaceutical industries, including plant protection products55, to patents relating to any other

Patent protection of innovations

47

business activity in which the period of actual enjoyment of the exclusive rights is necessarily eroded by the experiments, tests and other procedures legally required to obtain administrative authorization for marketing the patented product or process. In an analogous perspective, I would also give careful consideration to the idea of rewarding with a longer protection period the manufacture of drugs designed to treat rare diseases (‘orphan drugs’) which, due to their limited market, typically require a long time to obtain a return on the investment. (c) The grant to the patent holder of a grace period, in relation to the date of filing the patent application, so as to prevent novelty-destroying disclosure, if the results of her research work are communicated in scientific or trusted circles, etc. prior to the filing of the application. The introduction of this measure, anticipating the time of public knowledge of the invention, would also represent a further pro-competitive feature. (d) Last but not least, once the fact is acknowledged that even incremental innovations qualify for patentability, it would be reasonable, as mentioned, to incorporate the requirement of inventiveness into that of novelty. This would be justified also by the so-called historical criterion, which states that if the technical problem solved has been felt for some time but no one has solved it earlier, the invention can reasonably be said to be not obvious. In fact, the filter of novelty, in the historical sense, appears sufficient, as mentioned (paragraph 16), to include (and select) incremental innovations.

NOTES 1.

The formulation of the TRIPS Agreement (article 27, Patentable Subject Matter) is less restrictive, not only because it does not mention these exclusions, but above all because the footnote, which is part of the official text of the Agreement, states (with a clear shift towards the more permissive American approach) that the term ‘capable of industrial application’ (the factor that discriminates between pure and applied research) may be deemed by a Member to be synonymous with the term ‘useful’, a definition clearly designed to extend the area of patentability beyond the confines of article 52 of the EPC. 2. I refer here to contributions and/or participation by private firms in pure scientific research, from which (although the results cannot be patented) private parties can obtain direct benefits in terms of reputational reward and other advantages deriving from scientific achievements which can be exploited in subsequent R&D activities. Cooperation projects between individual companies and universities to develop particular products or processes which are destined for industrial exploitation, and consequently patentable, possibly in their joint names (see Chapter 1, note 11 and accompanying text), are a quite different matter. 3. In the form of an exclusive right to exploitation granted by the government with a patent, which is limited in time but absolute, i.e. enforceable against any and all unauthorized third parties. 4. It might be objected that the same tendency applies to investments in R&D and consequently to the propensity to develop patents on medicines curing rare illnesses (orphan drugs, on

48

5.

6. 7.

8.

9.

10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23.

24. 25.

26. 27.

Intellectual property and competition law which see also paragraph 24). However, the possibility of obtaining a patent on the endproduct (expression of R&D) and of externalizing the cost of basic research to public institutions provides the maximum possible incentive – within the present patent system – for developing products with even a small market. This propensity is further encouraged by the reputational reward that can be obtained, and consequently by a greater image benefit, which can be exploited in competitive terms. By which I mean that if, as often happens in fields in which there is a close connection between research and application, basic research is also performed by the private sector (take, for example, the involvement of the US company Celera in the reconstruction/ discovery of the human genome map), competitive reasons would still constitute an insuperable obstacle to the patentability of the discoveries, in order to prevent the formation of production monopolies over an indeterminate range of applications. And already incorporated into the Roman Law concept of specificatio. Despite the current reference to Locke’s well-known theory of labour transforming matter as the justification for property rights, Locke was not the first builder of an economic theory of IP. That merit belongs to Jeremy Bentham, the father of the British utilitarians (see Falce, V.: 2004). Some examples are the fields of electronics and (see endnote 9) Inventions in Outer Space (IOS), which are based on exploiting the discovery of particular chemico-physical reactions only obtainable in the absence of gravity by developing substances, alloys, etc. with special, useful characteristics (see Cavani, G.: 2000). As mentioned in the preceding note, in other fields of the most advanced contemporary research and development, such as inventions in outer space, close proximity exists between scientific theorizing (the discovery of the chemico-physical reaction that takes place in the absence of gravity) and concrete application (chemicals of particular purity, new metal alloys, etc.). Here again, the innovative nature of the result can often be properly identified in the stage of discovery of those particular reactions. See paragraphs 18 et seq. of this Chapter. See paragraphs 15 et seq. below. Freely given or mandatory, as in the case of article 31, 1) of the TRIPS Agreement (see paragraph 18 of this Chapter). See paragraph 15 of this Chapter. See paragraph 18 of this Chapter See the principle embodied in article 3(1) of the Biotechnology Directive. As well known, this doctrine was first adopted by the Court of Justice in the famous Deutsche Grammophon case, 1971 ECR 987. See paragraphs 18 and 19 of this Chapter. Article 84 of the EPC. Article 93 of the EPC. Article 67 of the EPC. And this is true even in the case of the first solution of a technical problem which has never previously been tackled, or at any rate solved. But see below as regards secrecy. Commission Regulation (EC) No. 772/2004 of 27 April 2004 on the application of Article 81(3) of the EC Treaty to categories of technology transfer agreements pays particular attention to the pro-competitive effects of the grant of licences, even exclusive ones, as these effects, though prospective (i.e. potential), form the basis for block exemptions. But even the first inventors can benefit from such innovation, since the overall paradigm foresees their ‘reciprocal’ right to a cross licence on the derivative invention: see further, paragraph 19 of this Chapter. Commission Regulation (EC) No. 772/2004, like the earlier Commission Regulation (EC) No. 240/96 of 31 January 1996 on the application of Article 85 (3) of the Treaty to certain categories of technology transfer agreements, governs both patent and know-how licences according to substantially common principles. As regards distribution, see paragraph 21 relating to exhaustion of patent rights. See Rule 5.1 of the PCT Regulations, consolidated text, and in particular, the requirement

Patent protection of innovations

28. 29. 30.

31.

32. 33. 34.

35.

36. 37. 38. 39. 40. 41.

42.

49

laid down in paragraph (vi) ‘to indicate explicitly . . . the way in which the invention is capable of exploitation in industry and the way it can be made or used’. Which we shall discuss in further detail below in paragraph 19. In the (unlikely) case that the Proposal will be approved, the protection document will still be called a patent in Belgium, Ireland, Italy, Portugal: see article 1 of the Proposal. This dynamizing capacity assumes the full applicability of the ius excludendi alios (exclusionary rights) to the solution taught by the patent holder, and this capacity would be absent if competitors were, in general terms, free to reproduce the patented solution merely by paying a fair price to the patent holder. In that case they would be encouraged to follow the path set by others, just competing through price and differentiating merely in formal, extrinsic terms (styling, brands, advertising, etc.), which do not express either any alternative track of R&D, or any truly qualitative competition. This is why the approach implicitly expressed by the legislation and by the TRIPS Agreement (article 31, l), whereby compulsory licences should only exceptionally be granted where essential to prevent the foreclosing effects of high-profile derivative innovations, or for pre-eminent reasons of a social nature (see paragraph 22), seems appropriate. According to Italian law, the derivative (‘dependent’) inventor is free to file a patent application. She can therefore defend her invention against infringing third parties (possibly including the prior patent holder). Moreover, even in the (temporary or permanent) absence of implementation, publication of the application will give rise to the beneficial effects deriving from disclosure of the invention. N.B. ‘economic significance’ need not relate only to the licensee’s expectation of profits, but may also, or even alternatively, relate to the benefit for society. See article 31, 1) of the TRIPS Agreement. The use of the legislative model contained in article 54.2.b should constitute an additional argument in favour of the protectability of software with a patent only. The copyright paradigm (which, according to article 1 of Directive 91/250/EEC of 14 May 1991, is applicable to computer programs, which are treated in the same way as literary works; as to this fictitious assimilation see Chapter 3, paragraph 8) does not involve any grant of non-voluntary licences over derivative works (see Chapter 3). Such protection is vice versa denied by those who, in order to guarantee connection processes, refuse across-the-board to acknowledge IP rights over connection standards. That approach strongly reduces the incentive for further innovation. And indeed, the process of dynamic competition that rewards innovative efficiency would contradict itself if it refused intellectual property rights altogether, instead of focusing on preventing their unjustified competition-foreclosing effects. See Chapter 5. Or, more precisely, of the EU competition policy (especially as regards prices) applied to the subject of movement of goods between the markets of member states. Judgement of the Court of Justice of the European Communities, 14 July 1981, Merck case. See Chapter 4, paragraph 3. Following Jerome H. Reichman (1993, p. 75). I also fear that in practice (though not necessarily in conceptual terms) this kind of trend would be encouraged by proposals which, though inspired by laudable pragmatic reasons, are intended to redesign the patent system in a highly specialist way, by tailoring it for specific sectors, and thus abandoning the classic, fundamental unity of the paradigm. However, even aside from the fact that the patent system is already articulated into special sectors that express significant differences in the discipline, e.g. as regards the terms of access to and/or the duration of the exclusive rights (biotechnologies, new plant varieties, industrial design, topographies of semiconductor products, and next, probably, computer programs), encouraging this trend would probably increase corporative pressures (which already have a very strong influence on the contemporary development of the IP system) capable of undermining the ability of the present general model to combine aspects of protection and pro-competitive needs in a substantially balanced way. As stated in Chapter 1 and in paragraph 18 of this Chapter, the dissemination of powerful intangible barriers based on exclusive patent rights (approved and enhanced by the

50

43. 44. 45. 46.

47. 48. 49. 50. 51.

Intellectual property and competition law over-protectionist tendencies already criticized) would bar the way to competitors, and at the same time encourage the market leaders to rest on their laurels, i.e. to prolong their exploitation of the innovation already developed (maximizing the short-term profits) rather than continuing to create further and more advanced innovations. It goes without saying that the more control of those exclusive rights is concentrated in the hands of competitors holding a dominant position, the more intense the competition-restricting effects will be. See further Chapter 5. See Gerber D. J. (1998, pp. 232–265). See further Chapter 5. I refer here to the controversy and the considerable fluctuations of opinion which have accompanied the difficult progress, up to the rejection, of the Proposed Directive on the Patentability of Software-Related Inventions: see Ghidini G., Arezzo E., De Rasis C. and Errico P. (2005). Not associated with the concept of dependence. See also paragraph 13 of this Chapter. See Chapter 3. European Telecommunications Standards Institute. The same solution might apply to de facto dominant standards in situations of effective foreclosure of competitors from the same or (less controversially) related markets. See Chapter 5. With specific reference to the developing countries, the WIPO is currently elaborating a new approach to IP regulation (Development Agenda: see http://www.wipo.int/edocs/prdocs/en/ 2005/wipo_pr_2005_425.html http://www.wipo.int/edocs/prdocs/en/2004/wipo_pr_ 2004_ 396. html) The non-voluntary licenses (and/or government use) referred to in article 31, 1) of the TRIPS Agreement may also help to reduce the serious problems associated with the economic/industrial development of those countries possibly deriving from the application of the principles (article 27.1 of the TRIPS Agreement) whereby the patent can be implemented by a mere import, thus abrogating the local working requirement. It must be noted that while this abrogation can definitely play a useful anti-protectionist role (against national barriers) in the context of the developed economies, it is liable to lead to strongly anticompetitive results (not to mention the obvious adverse effects on employment) in the relations between developed and developing countries, especially as regards the latter’s ability to grow as producers of advanced technology). The patent holder can avoid sharing the innovative technology with local licensees, which are potential future competitors, or manufacturing the product locally, even through licensed subsidiaries. She can therefore avoid exploiting the patent in ways which would disseminate the technologies, an effect which is not produced by mere importation, or at least to a far lesser extent. Thus the developed countries are is more likely to maintain a substantially colonial-type trading relationship with the developing ones, in which the latter perpetuate their conditions of mere exporters of lowcost raw materials and net importers of products with added technological value (Ghidini, G. 2002) An alternative approach could also be explored (partly suggested by Council Regulation (EC) No 953/2003 of 26 May 2003 to avoid trade diversion into the European Union of certain key medicines) whereby, in the ambit of multilateral conventions and under an institutional aegis (especially of the WTO), patent holders agree to manufacture suitable quantities of patented medicines in Developing Countries and freely circulate them within the corresponding circuit (as a kind of Common Market of the Developing Countries) at prices commensurate with the local purchasing power. This approach (based on the interest of patent holders in maintaining control over the circulation of products marketed at subsidized prices in developing countries, so as to prevent them from being reimported onto affluent markets) could be more advantageous, for the developing countries too, than the one based on compulsory licences, at least in the short/medium term, as it would lead to immediate availability of adequate amounts of the most advanced drugs, and transmission to local companies of advanced technical and manufacturing know-how. I discussed this approach in Developing Countries Access to Patented Essential Medicines. Are Compulsory Licenses the Optimal Means?, Studies for Alberto Bercovitz (AIPPI Spain), Barcelona, 2005.

Patent protection of innovations 52.

53. 54. 55.

51

This Regulation amends, on this point, the previous Regulation (EC) No. 2100/94 on Community plant variety rights. See also article 37 of Commission Regulation (EC) No. 1239/95 of 31 May 1995 (not amended) establishing implementing rules for the application of the aforementioned 1994 Regulation. Article 41 of Commission Regulation (EC) No. 1239/95 of 31 May 1995 establishing implementing rules for the application of Council Regulation (EC) No. 2100/94 as regards proceedings before the Community Plant Variety Office. Article 41 of Commission Regulation (EC) No. 1239/95. See Regulation (EEC) No. 1768/92 of 18 June 1992 concerning the creation of a supplementary protection certificate for medicinal products and Regulation (EC) No 1610/96 of the European Parliament and of the Council of 23 July 1996 concerning the creation of a supplementary protection certificate for plant protection products.

3. From art to technology: the expansion of copyright COPYRIGHT VS. PATENT: A TALE OF TWO PARADIGMS: A PROSPECTIVE VIEW 1. Copyright1 is another tool that protects the results of creative intellectual activity, and therefore has to do with the same general tenets of protection – all of which are of constitutional rank – as patent law: the protection of intellectual labour, the encouragement of entrepreneurial production and distribution of intellectual works, the development and dissemination of culture and knowledge and the enhancement of artistic and scientific freedom. A constitutional profile that pertains solely to copyright law, on the other hand, involves the principle of freedom of speech, under which copyright protection extends even to works deemed unlawful because they run counter to ‘public order’ or offend ‘public morals’ 2. The means used to pursue these goals are structurally similar to those adopted in patent law, and once again consist in attributing to the authors exclusive rights. These are subdivided into two general categories3: • an alienable and temporary right to economically exploit the creative results that, upon expiry of the legal term of protection, fall into the public domain; • an inalienable and perpetual moral right, i.e. the author’s right ‘to claim authorship of the work and to object to any distortion, mutilation or any other modification of, and other derogatory action in relation to the work, which would be prejudicial to his honour or reputation’4. 2. The teleological and structural analogies between copyright and patent law, only extend to the issues outlined above; then the two paradigms start to diverge, commencing with the basic, preliminary difference that demarcates the border, typical of the classical system, between the two broad areas of ‘intellectual property rights’ on the results of creative activity. Unlike patent law that extends exclusive protection only to conceptual content (the specific ‘solution’) capable of industrial application (in ‘all fields of technology’: Article 27 of the TRIPS Agreement), copyright protection 52

From art to technology

53

covers solely – again in the classical system – expressive results generated merely for the purposes of intellectual enjoyment, or ‘aesthetic’ pleasure in the broadest sense of the term. The distinction is therefore twofold: • conceptual content and practical utility on the one hand, • representative expression and ‘aesthetic utility’, forgive the oxymoron, on the other. It must further be borne in mind that patent protection does not extend to general and abstract conceptual contents which must belong to the public domain, and covers only conceptual contents capable of industrial application, i.e. contents that can be put to specific practical uses, irrespective of how it is expressed. Copyright, on the other hand, extends only to the expressive form of any type of intellectual content, while it can never extend to the latter, i.e. to its conceptual essence. (Under this aspect, the principle indirectly confirms the preclusion from exclusive protection, affirmed by patent law, of general and abstract concepts that are the result of intellectual activity but are not susceptible to specific practical application.) In the words of the TRIPS Agreement that summarize the classical principle, ‘copyright protection shall extend to expressions and not to ideas’5. It must be pointed out that the principle of free circulation of information and ideas continues to apply even when the ‘sweat of the brow’ (and/or the investment) is much more engaged in searching/analysing/processing data, ideas and concepts, than in representing them. One need only consider the work of historians, that involve infinitely more painstaking activity, and possibly more original results, in terms of researching and analysing documents and events, elaborating interpretations etc. when compared to the (re)presentation, in itself, of the results thereof. Nonetheless, the historian will hold copyright only over the representation of his findings and not over the conceptual results of her research6. 3. It is in the context of this clear ‘division of labour’ that the glaring differences between copyright and patent law must be approached and construed. Namely: (a) The ‘originality’ of the results, as a pre-requisite for exclusive protection. Whilst under patent law, the requirement of originality is measured (albeit with wide leeway) against evidence of ‘non-obviousness’ when compared to known techniques, copyright requires only that the expressive result be attributable to a specific person, a concept nowadays including legal entities. It must be borne in mind that once this sole condition is met, there is

54

Intellectual property and competition law

no need at all for the result to be new, even in the purely historical-objective sense: in the case where a third party independently and autonomously produces a creation that is identical in all respects to a previous work, such third party’s creation does not amount to an infringement of the previous work, but constitutes merely a ‘fortuitous encounter’ (i.e. an accidental plagiarism) that allows both parties to enjoy copyright over their respective, ‘personal’, works, side by side, each of them being entitled, independently of the other, to seek enforcement of her copyright vs. any other party (erga omnes). In other words, although the international treaties and Community law, in general, take no position with regard to the requirements for protection7 – it is a clearly established principle that there is no need for any specific merit/aesthetic level to be attained to qualify for copyright protection, it being sufficient for the work to constitute, to cite Italian statutory provisions, a ‘particular expression of intellectual effort’8. As a result, only the fruits of completely standardized processing, mere compilations made in accordance with established techniques are excluded from copyright protection since they reflect previous and consolidated representative models rather than a modest but independent intellectual effort that might in fact be qualified as ‘personal’. In the tradition of continental copyright law (droit d’auteur), the already noted ‘subjective’ character of the notion of originality, corresponds to the primarily natural law-conception (that Hegel borrowed from Kant) of creative works as an expression of the human personality (giving rise, in the French version, to proprietary title, ‘la propriété la plus sacrée’, in the fruits of one’s own labour)9. As a result, creative works are protected as such, irrespective of the mediocrity or otherwise, of the expressive results. The Anglo-Saxon legal framework has been portrayed by several continental scholars as offering a different underlying principle, more economically-oriented, rooted in ‘fair remuneration’ with a correspondingly low emphasis on moral rights (which, in any event, enjoy protection under the common law, and basically against the same types of infringements). From this standpoint, therefore, ‘originality’ involves the apparently different concept of independent creation: protection extends to the objective attainment of a result, albeit of mediocre creative value, arising from a contribution that is recognizably neither copied from anyone else nor reproduced using known standard models. As a matter of fact, the philosophical (pseudo) differences regarding the underlying principles of copyright protection are reconciled in the common goal shared by continental systems and the common law: the protection of independently achieved expressive results. This was

From art to technology

55

inevitable, even on the international level, after the USA became a signatory to the Berne Convention. Here, it must be restated that the concept of ‘independent creation’ does not correspond, in principle, if not in fact, in most cases, to the notion of novelty, albeit extrinsic. As already noted, if an intellectual work, an epigram for instance, is identical to another by fortuitous coincidence, that is to say, if the author of each of the said epigrams acted entirely independently of the other, under copyright law, the ‘second’ author maintains her exclusive right against any and all third parties, whereas she would not be similarly protected under patent law. (b) Copyright arises by the very fact of creation, without the need for applications and/or registrations, as in the case of patent protection (Article 5(2) of the Berne Convention). Inclusion in specific registers of ‘protected works’10, is merely declaratory in value and constitutes only prima facie evidence of authorship11, although it provides conclusive proof of the date on which the copyright arose, in the case of dispute by third parties. This difference between copyright and the patent system is essentially a corollary to the concept of ‘originality’ in copyright law. Formalities giving rise to the right to protection make sense if access to the right is subject to an ‘examination’ that, however, is not required in the case where protection is afforded on the basis of originality only in the subjective (‘personal’) sense. (c) Copyright need not necessarily be accompanied with the publication of the protected work (another reason, by the way, for not requiring registration), with the consequent absence of the competition-boosting effects referred to above12 with regard to patents. This further implies that copyright protection arises and is maintained even if the work is kept secret (that is to say, not published): a fact that does not in any way result in a ‘reduced’ protection of the created work, as in the case of inventions exploited in secrecy (only protected against ‘unfair’ methods of appropriation, rather than ‘appropriation’ in and by itself: see Chapter 2, paragraph 12). This principle, which can give rise to clearly anti-competitive effects when copyright is used to protect creations susceptible of practical application, as in the case of computer software, is expressed in the following corollary that highlights a further difference between copyright and patent protection. (d) Copyright is not subject to compulsory licensing, nor, much less, to forfeiture, if the subject-matter of the creation is not ‘produced’ and launched on the market. Confirming that the copyright paradigm is not marketoriented, the holder is not bound to any ‘working requirement’. Thus, in the case of his ‘inertia’ the author cannot be subjected to any sanction, such as compulsory licensing and/or the loss of copyright protection, as in the case of patents.

56

Intellectual property and competition law

(e) Moreover – and essentially in the same teleological vein – copyright features a duration that is not only much longer than patent protection, but is also objectively uncertain (in the EU, 70 years following the death of the author or creator of the work). On the one hand, this feature clearly aims, above all, at protecting the author’s personal interest and that of his immediate family. Indeed, in some commentaries on 19th Century European Laws, it was said that in order to encourage artistic and intellectual activity, it was necessary to provide for the widows and orphans of those who devoted themselves to such pursuits. On the other hand, the long duration of copyright, projected over several generations of the ‘paying public’ (instead of just one generation, as in the case of patent protection), suits the typical objective material difference, ultimately psychological and cognitive in nature, in the rapidity of mass (market) success between a technological innovation and an essentially aesthetic, intellectual ‘innovation’. As a matter of fact, a new product that better meets a practical need (especially if the need is universal in nature, such as health) is normally accepted by the public much more quickly than a new trend of aesthetic style or thought. The history of culture clearly illustrates that the more an emerging cultural and/or aesthetic trend is radically innovative, the more current tastes and/or ways of thinking will hinder its widespread social acceptance. This holds true for art (Van Gogh died in poverty), design (the Bauhaus masters were acclaimed only when they were very old, if not posthumously), scientific research (for years Darwin was considered scandalous). Now, while it is true that in today’s world, the ‘cultural industry’ is equipped with advertising and communications tools capable of significantly accelerating the penetration of new styles and ideas, these tools only go so far. For instance, marketing experts theorize that it takes at least 25,000 new model cars to be on the road, before the new design can be considered appealing to the public taste, which until that point in time largely ‘sticks to’ the design of the previous model. It is equally obvious, however, that when copyright extends to ‘creations’ that can be converted into marketable products, this difference, from both standpoints (duration that is both very long and uncertain if the author is living), stands in clear conflict with the entrepreneurial (competition-related) need of the followers to plan entry into the market. Such need is indeed addressed through the much shorter, and certain, duration of patent protection. (f) Unlike patent holders13, the copyright owner is under no obligation to grant any licence whatsoever to the author of a ‘derivative’ work, even if the latter is of high cultural importance: take, e.g., the translation of a Nobel prize winner’s work. We shall go into certain significant conse-

From art to technology

57

quences of this difference, when dealing with the extension of copyright to the technical results of creative works, especially information technology ‘products’ such as software14. (g) Copyright encompasses various kinds of exploitation that refer both to the ‘form’ (and format) adopted by the author as well as the techniques that can be used to diffuse the work (e.g. reproduction, translation, broadcast, etc.). All of these faculties are covered by exclusive rights that, by tacit universal consent confirmed in domestic and international practice, are independent of each other15. And it is as a result of this independence that, except where differently agreed, the author’s consent to use the work for a particular purpose (translation, for instance) does not ‘include’ other purposes (screen-play adaptation, for instance), just as consent to publish the work in print form, does not include authorization to broadcast the same over radio and television networks. Accordingly, the author’s (or her assignee’s) specific consent is required for each of the ‘other’ uses (save for those inextricably linked to the authorized ones). Now, it must be pointed out that, unlike in patent law where the ‘exhaustion’ principle rigidly rules, some of such independent rights concern phases and stages of circulation of the work, typically fixed on supports or diffused over electronic networks, subsequent to its first launch on the market. In this way, the copyright holder or her heirs can prohibit the work from being used for purposes, like rental, that, so to say, expand the circle of users without benefiting authors/assignees. As mentioned, this applies especially (but not exclusively: one need only consider the right to retransmit a previously broadcast work), to the power/right to ‘authorise rental or lending by third parties’ (that is to say, the purchasers): a right that shall not be exhausted by any sale or other act of distribution of originals, copies or carriers of works16. Briefly put, as Davide Sarti (1996) rightly points out, the author enjoys an independent exclusive right over the said ‘second degree uses of his works’: that is to say, even on uses following exploitation of the work at the first stage of distribution. Under patent law, as we know, after the invention’s first launch on the market, all patent protection is ‘exhausted’, fully exhausted: i.e. in respect of any rights of the patent holder. On the contrary, after the first distributive stage, authors (and assignees) only lose their property right over the product/support that incorporates the work, but not their copyright, except for merely private enjoyment, in respect of any other purchaser’s uses which, as noted above, can expand the ambit of enjoyment. In this way, to a great extent, the purchaser’s property right of the industrial product on which the copyrighted work is fixed (such as a CD or videocassette), is devoid of the traditional powers of ‘disposing’ of the

58

Intellectual property and competition law

same after the work is launched on the market with the rightsholder’s consent and is basically confined to private enjoyment of the work. This legal mutilation of the purchaser’s property rights is ‘ratified’, as Charles McManis (1999, p. 173) points out, in the content of the unilateral ‘authorizations’ (as such, devoid of legal effect), commonly known as ‘shrinkwrapped licences’, that producers insert, in more or less standardized form, in the packaging of the support media of the reproduced works, to highlight the fact that the purchaser’s proprietary rights are limited to the mere private use of the work. In the digital environment, the same function is performed by the technological devices: such as methods of encryption, related to the broad concept of Digital Rights Management (DRM), that bar any undesired (by copyright holder) access to the works, and enjoy now legal protection against their tampering by Directive on Information Society. But such protection should not extend to technical devices that could foreclose even ‘fair uses’ under general copyright law principles. (h) But there is more. Copyright in the strict sense, that is to say the right of the authors and of their assignees, is accompanied by ‘neighbouring rights’ that are also exclusive and feature a very long duration, albeit shorter than copyright enjoyed by parties who are not ‘authors’ in the proper sense of the term, but who play an essential role in the production and the diffusion to the public of copyrighted works. Such rights include, for example, phonogram producers’ right to authorize or prohibit the reproduction of their phonograms; broadcasters’ right to authorize or prohibit the re-broadcasting, fixation and reproduction of their broadcastings; and performers’ right to authorize the fixation, reproduction, broadcasting and communication to the public of their performances.17 Their duration is set in 50 years from ‘fixation’ on a tangible medium, or first publication of the work, or alternatively, for artists and performers, first public performance. These ‘neighbouring rights’, completely unheard of in patent law, may be functional also to the economic interests of the authors, as distinguished from the subjects who industrially ‘package’ and organize the circulation of the work. In fact, the possibility for these other parties, who play an instrumental role in the creation of the work and/or in making it available to the public, to receive exclusive remuneration for their efforts should also optimize, at least in principle, the author’s opportunities to economically exploit his copyrighted work18. But while the protection afforded under these neighbouring rights may find a reasonable explanation in the personal and creative nature of interpreters’ and artists’ performance, conversely the exclusive faculties granted to entrepreneurs (phonogram and films producers) represent a

From art to technology

59

further and independent ‘monopolistic’ protection of the efforts and investments of these other persons, as distinct from authors’ assignees. Also, a privileged protection as compared with the patent system. In fact, the distribution chain for the production and circulation of a patented invention may be based on a set of powers that are ‘decentralized’, through specific licences, from the one and only existing exclusive right: that is, the patent holder’s. Indeed, third party producers and/or distributors of the patented product never acquire any own independent exclusive right to protection. Their right to exclusively exploit the patented invention always depend from a licence issued by the patentee. Accordingly, the rights of such licensees, ‘active links’ in the production and distribution chain, are always conditioned ‘uphill’ by the validity of the inventor’s right, so that they will either stand or fall with the latter. Their rights are also conditioned by the exhaustion of the patentee’s right at the first stage of distribution. On the contrary, the exclusive ‘neighbouring’ rights we are discussing are independent from the author’s. If the work of the original author falls into the public domain, the producer of the phonogram retains her exclusive rights over the version she produces for the market. It should be noted that to obtain this result, the rights of the performing artists in respect of their performance must also be independent, such performance being an essential component characterizing ‘the’ version of the copyrighted work selected by the producer for fixation and distribution. Does this mean that the overall copyright paradigm by assimilating film producers’ to artists’ and performers’ rights implicitly attribute an equivalent ‘creative merit’ even to the former? But why should a film producer have stronger exclusive faculties than a pharmaceutical entrepreneur? However, emphasis must be placed on the ‘monopolistic’ implications that may derive from the concentration in the industrial producer’s sole hands of her own neighbouring rights, plus both performers’ (neighbouring) rights and author’s own rights (copyrights in proper sense)19: a situation which is almost normal in today’s cultural and entertainment industry. In fact, through such concentration, which seems likely to also happen in the digital environment20, the producer who is the ultimate entire holder of all such bundle of rights (her own and the performers’ neighbouring rights, as well as the author’s copyright) acquires an enormous, in fact total degree of control on the circulation of the massproduced and distributed copyrighted work. A total control that encompasses, as mentioned, phases and repetitions of the use of the work, in any form and for any reason whatsoever, including non-profit purposes21, even after its first launch on the market.

60

Intellectual property and competition law

(i) That is not all. The author’s moral right is much wider in extent than the corresponding right enjoyed by an inventor. While the latter only has the right to be indicated as the inventor in the patent certificate (and therefore no moral rights, at least under patent law, in the case where the company acquiring the invention or employing the inventor fails, or chooses not to patent the invention), an author retains not only an unlimited right to claim authorship of the work but also the right to ‘object to any distortion, mutilation or other modification . . . which would be prejudicial to his honour or reputation’22, irrespective of any transfer of the exclusive rights to economically exploit the copyrighted work. The inventor does not enjoy any such ‘moral’ right and cannot object, for instance, to an application of her invention that she feels is of poor quality and therefore susceptible of discrediting her invention in the eyes of users. No more needs to be said to highlight the significance, especially in economic terms, and the potential anti-competitive ‘use’ of the copyright owner’s right of objection (which, because it is ‘moral’, is often thought to be perpetual23), if it is exercised in concert with the company holding the rights to the economic exploitation of the copyright work. One need only consider, for instance, the possibility of invoking ‘moral’ reasons (that as such are difficult to challenge) to stop or in any event hinder a competitor of the firm holding the rights from producing a composite work (nowadays frequently ‘multi-media’) using certain musical passages or film sequences. 4. Apart from the dichotomy, not always respected! 24, between ‘idea’ and ‘expression’, all the differences listed in the preceding paragraph lend copyright a much wider scope than patent protection. Copyright is inexpensive and unselective on the merits (‘no cost, no test’); is much longer in duration; entails a much wider moral right, with clear implications even in economic terms. It does not afford third parties any right to licences on ‘derivative’ works; the principle of exhaustion is significantly attenuated. Moreover, it gives rise to a subjectively articulated dual series of rights, copyright in the strict sense and neighbouring rights, all of which are exclusive (save for very marginal exceptions regarding neighbouring rights of so-called ‘mere compensation’) and independent of each other, so as to provide watertight protection, along the vertical chain of creation/production/distribution against possible non-authorized uses of the works. This ensures the highest return on investment in respect of the production and marketing of the copyrighted work. The strength of copyright protection has immeasurably contributed to the growth of the entertainment sector, probably the largest mass-consumption industry in the world (‘there’s no business like show business’, as Mr. Ziegfield foretold a long time ago).

From art to technology

61

At this juncture, it seems useful to go into the reasons underlying the distinct nature of the copyright paradigm which, even irrespective of the many ‘additions’ introduced over time, has traditionally featured – one need only consider the characteristics dealt with in points (a) and from (c) to (i) of paragraph 3 above – a more protective attitude (which becomes blatantly ‘protectionist’ when copyright is used to protect utilitarian subject matters like software, see infra para 10) than patents. Now, I think it is interesting to analyse the rationale beyond such a strong stratification of exclusive faculties belonging to different players envisioned by copyright law with respect to the classical model, essentially inspired to cover merely intellectual and aesthetic creations. I will refer to reasons which, irrespective of the (never decisive) ‘intention of the legislator’ mainly concern the production of copyrighted works as typically associated with entrepreneurial exploitation rather than to the subjective (‘romantic’) moment of their artistic conception. This association is also reflected in Community Law, even at the level of copyright’s attribution, with legal protection being afforded directly to the firms – such as in the case of software25. 5. Merely aesthetic/intellectual creations reflect a ‘productive’ condition that is entirely free from any physical and economic conditioning, so much so that artistic and literary works are open to variations that are as unlimited, if one doesn’t raise the issue of creative ‘level’ or quality, as the number of potential creators. A boy with a dog on the lead may be represented by millions of painters in millions of different ways, each covered by copyright to the same extent as Picasso’s drawing. On the contrary, the development of a practical-functional innovation must first and foremost meet general physical and technical conditions as well as take into account economic considerations, which typically have an impact on mass reproducibility, hence on the (patent law) requirement of ‘industrial application’. As a result, in this sector, the possibility of developing alternative products capable of meeting the same type of practical need is certainly limited. Now, these differing objective features (physical and/or economic) of the two types of creation in terms of their capability of meeting the type of need they each address, seem significant as distinguishing factors, precisely from the standpoint of the different ‘competitive sensitivity’ of the respective legal frameworks. In particular, the low level or even total lack of concern about competition issues seems justified in the traditional paradigm of copyright law. After all, so long as copyright ‘remains in its place’ (that is to say, respects the classical ‘division of labour’ by actually protecting only the expressive features of works satisfying purely intellectual needs) the social cost of the related ‘monopoly’ is practically zero, given the unlimited variety of ways in which the type of needs in question can be met (and further bearing in mind

62

Intellectual property and competition law

that, as pointed out above, the legal monopoly makes no distinction between, and reserves equal treatment to, both ‘high level’ and ‘mediocre’ creations, leaving the market to decide which authors are meritorious of greater rewards). Briefly put, the unlimited replaceability of purely aesthetic/intellectual creations, albeit (each) covered by copyright, has the same negative ‘non incidence’ on competition as that typically associated with free appropriability. On the other hand, the exclusive appropriation of utilitarian innovations entails a much higher social cost, let aside price levels, precisely in terms of prejudice to competition sub specie of possible foreclosure of subsequent competitive innovation26. In fact, since competition by substitutes is limited in the case of practical innovations; since, precisely in order to foster competitive dynamics of innovation, all the alternative solutions can be patented, and since there is nothing to stop a single rightsholder from acquiring all or nearly all the patented alternatives (conceivable at that particular time), the prices of useful products tend to rise as a result of patent protection that inflates the prices of such products as a result of the higher profit margin guaranteed under the exclusive right. This is why, in the field of utilitarian innovations, there is an objectively far more justified need to ensure a competition-friendly framework and reinstate the conditions for free competition (in production and distribution). Thus, the justification of the a-mercantile nature of the copyright paradigm as opposed to the essentially market-oriented paradigm of patent law can be ultimately placed in the different degree of substitutability between works aimed at utilitarian or at purely intellectual/‘aesthetic’ enjoyment. This kind of rationale seems in fact to explain the differing levels of regulatory concern with competition-sensitive aspects. It also seems to resolve an apparent paradox in the framework governing intellectual property as to the ‘ rewarding’ role of exclusive rights. I am referring to the fact that although industrial inventions require a higher degree of ‘non-obviousness’, i.e. detachment from a given cultural context, they are nevertheless guaranteed, under the patent paradigm, a differential profit margin for a shorter period of time and a shorter segment of the distributive chain than copyright grants to ‘purely intellectual’ creations irrespective of ‘merit’ .

‘TECHNOLOGY COPYRIGHT’: THE RATIONALE OF A ‘TRESPASS’, AND THE RELATED RISKS FOR THE DEVELOPMENT OF SUBSEQUENT INNOVATION AND COMPETITION 6. As pointed out above, a comparative analysis of copyright and patent law shows that the former offers protection that is much more immediate and

From art to technology

63

simple, wide in duration and scope, and less expensive. Further, such protection is granted, not only to authors in strict sense (and their assignees) but also to other subjects professionally involved in the production and diffusion of intellectual creations reproducible on an industrial scale. At the same time, we noticed that many copyright’s peculiar features find a reasonable explanation in consideration of the merely intellectual and aesthetic nature and destination of classical copyright subject matter27. To my mind, this twofold consideration is crucial to a full understanding of the emergence of the so-called technology copyright and to shedding light on the reasons underlying the trend in modern IP law to increasingly invoke copyright to obtain protection of utilitarian/functional results that in the classical framework were protected under patent law. As outlined in the Introduction, this trend takes two forms of expression. On the one side, there is a tendency towards blurring the essentially classical distinction between copyright and patent law through the growing ‘encroachment’ of copyright on areas that, from the classical standpoint, should be reserved to patent law. One need only consider the expansion of copyright protection in the field of software, perhaps the most typical expression of modern information technology. On the other side, copyright protection is increasingly invoked so as to include subject-matter that under the traditional framework was excluded from any type of exclusive protection. Just take the example (once again) of computer programs ‘as such’ (whose patentability is banned by article 52, c) EPC). Or take the proposal to protect with copyright the so called genetic maps (meaning the graphical representation of DNA gene sequences): achievements of basic research that, according to the classical principles, should be considered as ‘discoveries’, i.e. commons. What, moreover, of the European and national legislation protecting databases, ambiguously hanging over the classical principle of denying protection to informational data as distinct from the representative form thereof? Indeed, the institution of the new so called sui generis right on the information stored in the database which, in fact, affords the database author an exclusive protection tantamount to a ‘neighbouring’ right. Clearly, this protection is not really of the type afforded under the principles of unfair competition, i.e. strictly aimed at combating certain kinds of misbehaviour, such as industrial espionage, but amounts to an essentially proprietary protection that directly and openly covers the informative content of the database and is defined by solely economic considerations pertaining, on the one hand, to the size of the investment required for collecting the data and on the other, to the commercial value of the information withdrawn without authorization (as a proxy of the economic loss sustained by the author of the database). In this way, one meets the objective, precluded from ‘classic’ copyright

64

Intellectual property and competition law

protection, of ‘compensating the effort’ expended for collecting the data and information. The fact that the protection only becomes effective, as mentioned, beyond a certain economic threshold, does not change its nature, just as, for instance, criminal liability for theft of property retains its character even when ‘indexed’ to the value of the property. As a result, therefore, of the introduction of this sui generis right (supported, as Ginsburg and Huet (1992) point out, by an industrial lobby in fierce opposition to another), the European Community basically eliminated the principle, so essential to the freedom of information, of denying exclusive protection to factual data and information as such, a principle upheld by the US Supreme Court in the Feist case (1991). Compensation for investments made for the collection of data that do not qualify for proprietary protection ought not to be secured through tools other than unfair competition rules on the one hand and, on the other, copyright protection of the representation of said data: the so called ‘architecture’ of the database, consisting in the peculiar ‘selection’ or ‘arrangement’ of the information28 corresponding to the traditional concept of the ‘internal expression’ of the intellectual work. 7. It should come as no surprise, therefore, if ‘protectionist’ interests pressure lawmakers and the courts to broaden the scope of copyright protection. For these lobbies, copyright protection is much more ‘reliable’ than patent protection, since the former is less difficult (selective) and less expensive to access (‘no test, no cost’), longer in duration, richer in monopolistic content (even vis-à-vis the application of the principle of exhaustion) and, last but not least, much more generous in extending exclusive protection to ‘subject-matter’ that, under the classical framework, would fall into the public domain. It is not surprising if the many industrial and financial interests involved in developing the innovations typical of modern advanced technology, especially innovations consisting in ‘representations’ expressing informative content intended for purely functional purposes29 seek succour within the realm of copyright: a realm much less beset with anti-monopolistic concerns than the patent-based regulatory framework of technological innovation. Thus, quite like tax havens, copyright has become increasingly sought after and ‘cultivated’, with intense protectionist grafting on the originally fertile terrain as an off-shore paradise providing refuge against the limits and restrictions imposed by patent law in favour of subsequent innovation and (albeit indirectly) competition. In my view, it is here that one finds the paradoxical ‘secret’ of the success of technology copyright: precisely that a-mercantile imprint that marks (as a result of the already noted characteristics of purely intellectual/aesthetic creation) the traditional layout of copyright, and that, as such, almost totally disregards the competitive fabric of the market. It is precisely because of this feature that reliance on copyright was ‘rediscovered’, especially by firms with

From art to technology

65

a dominant position in hi-tech sectors, seeking greater protection, either in replacement of or in addition to patent protection, of their investments in information technologies. Here, as mentioned, the ‘hook’ to copyright protection consist in the ‘representative’ form of the informational work aimed at allpractical purposes, that opens the door to a formal(istic), indeed instrumental and essentially fictitious assimilation of software to literary works30 and thus ‘justifies’ the application of a regulation that, born without the market in mind, is free of ‘burdensome’ anti-monopolistic concerns. 8. So what, the reader may well ask. What’s the point of all these complaints about the ‘invasions’ of copyright? Why all this nostalgia for the classical system, this obsession with the propriété intellectuelle du grand-père? The reader might object that once copyright protection has been acknowledged as providing greater advantages in terms of securing returns on the investments made in hi-tech innovation, it would be in fact useless, sterile and exceedingly conservative to continue to harp on the blurring of the borders between the two types of exclusive protection. Isn’t this blurring a sign of the vitality of the system that in fact adapts to new situations by updating and reinforcing its ability to promote innovation, which is far more important than the need to avoid distortive interpretations of the classical model? Hasn’t the law always progressed thanks to innovative, nay unorthodox interpretations? This argument is not without merit and cannot be countered merely by a profession of faith in the classical model as such, nor by relying on the fact that the classical paradigm is still strongly entrenched in statute. Quite to the contrary, the gauntlet cast by this argument must be picked up at the level properly defined by the rationale of the criticized ‘expansionist’ trend: that is to say, the balance of the interests emerging today. It is on this basis that the classical model must be either upheld or condemned, even though it is still strongly entrenched in statute, despite certain glaring loopholes. Nor, to be sure, does the issue involve just an analysis of the loopholes in the classical model encountered so far. If the copyright paradigm were to prove more effective in maintaining the balance of interests that promote innovation in today’s context and are therefore worthy of protection, this would be sufficient to justify not only past but also future ‘encroachments’: Sabbath serves man, not man Sabbath. 9. In order to analyse the persistent validity of the classical dual model based on the ‘division of labour’ between patent law (utilitarian innovations) and copyright (‘aesthetic’ creations), one must first of all compare the model with the framework of interests at play in the development of hi-tech innovation. This framework not only encompasses the interests of the inventors/authors and the financiers/investors, it also applies to the conflicting interests of third

66

Intellectual property and competition law

party competitors. The former tend to maximize while the latter to minimize (and even, if possible, to eliminate) the enjoyment of exclusive rights. Nor is the framework completed by also taking into account, as one anyway should, the interests of consumers who, at least at first glance, appear ‘neutral’ insofar as they are attracted as much by qualitative innovation (promoted through exclusive rights) as by reduced prices (encouraged by free competition). Indeed, in order to fully grasp the contemporary scenario featuring highly oligopolistic hi-tech markets, due account must be taken of the general interest in ensuring a workable competitive fabric of the markets involved in innovation. A healthy competitive fabric is necessary to preserve the system’s ability to develop innovation. This, in turn, requires – especially in market contexts with a strong oligopolistic bent – a clear enhancement of competitive dynamics, actual and potential and also, on the other hand, an equally clear discouragement of anti-competitive ‘foreclosures’ and/or rent-seeking positions, that tend to maintain high prices. 10. This competitive framework seems particularly appropriate when applied to information technologies, a key component of the contemporary industrial revolution. As well known, such technologies are typically developed and promoted through systems of ‘networks’, i.e. widespread connections amongst various users. Equally well known, within such systems value is no longer generated in accordance with the traditional principle of decreasing quantities, but on the contrary: precisely as a result of the widespread sharing of information (in the broad sense of the term) and, therefore, the amount of links amongst various users. Briefly put, the logic of the so called network economies is ‘what is open is good, what is closed is bad’. This logic was illustrated by the rapid huge success achieved by the IBM personal computer largely thanks to the compatibility of its operating system, while in turn this compatibility allowed other competitors to launch their own products and gain market shares. The same applies to Microsoft in the software sector. Thus, market success, the actual, effective ‘final’ reward for innovators and investors, can typically be best pursued through openness to exchanges, interconnections and widespread distribution, rather than by clinging to traditional forms of ‘proprietary exclusions’31. In this perspective, so long as software qualifies for copyright protection, a special concern should be addressed to the denial of licences for software that allows various programmes, computers or types of computer to interact, or that ensures exchanges and interconnections over electronic networks. The ensuing effects could be especially obnoxious if such licences were to be denied by a firm in a dominant position (i.e. the holder of exclusive rights on a ‘dominant’ programme), and such denial be justified neither by objective prejudice to the moral right32 nor by the gross insufficiency of the licensing

From art to technology

67

fee, especially since such latter shortcoming can efficiently be addressed, as international experience shows, by quick arbitral procedures, even at administrative level – take, for example, the model that has been offered by the US Copyright Royalty Tribunal. As we shall see (Chapter 5), the current European case law allows a limited but substantial challenge of such unjustified denials provided that the communication/information IPR-protected standards involved may be equated to ‘essential facilities’, access to which is necessary, in the absence of viable alternatives, to compete in related markets or even through (more controversially) the same market. In such case, a refusal to grant licences on such works might amount to an abuse of a dominant market position. Thus, in practice, the software in question might be subject to compulsory licensing on fair and non-discriminatory terms 33, 34. 11. Summing up, it seems to me that the expansionist tendency of copyright into technological domains, far from representing a well-balanced response to the need to foster dynamic processes of innovation, blatantly serves powerful corporate interests aimed at preserving their market dominance for as long as possible by trying to exclude current and potential competitors35. This results in unbalanced protection that sacrifices the dynamics of competitive innovation. In the long term, the time span that should be of foremost concern to lawmakers, this might lead to an overall reduction in innovative output, as an ever smaller group of ‘unchallenged’ firms consolidate almost total control of the innovation market.

OF ‘APPLIED ARTS’(INDUSTRIAL DESIGN) 12. The basic arguments underlying our critique of ‘technology copyright’ provide insight into the substantive (and systematic) bases of the tortuous problem of the legal protection of the ‘applied arts’, i.e. the creations that merge aesthetic and utilitarian features within a single work. I refer in particular to ‘industrial design’, that is to say, the design of the practical, mass produced objects whose shape, which embodies the functional content, is aimed at harmonizing aesthetic and functional values. National legal systems have historically addressed this problem in different ways, by virtue of the substantial ‘freedom of choice’ of the forms and conditions of protection afforded to individual states under article 2(7) of the Berne Convention. Articles 7(4), (6) and (7) furthermore provide that copyright protection of works of ‘applied art, ‘protected as artistic works’ are to be limited in time, albeit for no less than 25 years, without prejudice however to even shorter time limitations already in force before the Convention was signed.

68

Intellectual property and competition law

Now, since the mid-20th century, several countries, including Italy, have adopted a framework that departs from the classical ‘division of labour’ reflected in the original version of the Berne Convention (patent protection for results susceptible of practical applications and copyright for the protection of intellectual creations). The new framework was based on a design patent featuring a rather ‘short’ duration, on the one hand (15 years, in Italy), and copyright, on the other. The framework generally36 incorporated mechanisms designed to avoid the simple cumulation (‘welding’) of the two forms of protection, by establishing, for instance, that the granting of a design patent pre-empted copyright protection, or by laying down ‘discriminatory’ requirements for access to the latter, such as the condition, set by Italian law, that the aesthetic aspect had to be ‘divisible’ from the industrial character of the product37, thus practically making copyright almost never applicable to the circulation of (three-dimensional) industrial products. It was specifically on the problem of ‘cumulation’ that the most significant differences emerged and became barriers to the creation of a European design regulation. And in fact, historically, the heart of the matter lies here, just because of the inherent tension between the two paradigms. Between the applicability to industrial products of patent-type protection, much shorter (and ‘certain’) in duration and as such clearly stimulating competition (with the related social welfare benefits in terms of product quality and price) and the extension to the same products of copyright protection that is much longer in duration (as well as broader in scope: see above). Now, allowing straightforward ‘cumulation’ of the two types of protection would allow authors and industries to rely on copyright protection upon expiry (and a fortiori, in the absence of) patent protection, the time limits of which would thus be got around. I shall return to cumulation at a later stage. Despite the declared purposes of ‘harmonization’, the EU Directive on the legal protection of designs38 has substantially left Member States free to regulate the problem of cumulation. On the one hand, in fact, the Directive affords designs subject to Community registration (as a design or model), a protection, based on rgistration, for up to 25 years. On the other, it provides that registered designs ‘shall also be eligible for protection under the law of copyright’ of each Member State. Such State, it must be noted, ‘shall determine’ – that is to say, is free to determine (pursuant to the article 2(7) of the Berne Convention) – ‘the extent to which, and the conditions under which, such a protection is conferred, including the level of originality required’39. According to many commentators, this last provision definitely entrenched the principle of the cumulation of the two protections, in the domestic law of the Member States. This view obviously meets the interests voiced by manufacturers’ and designers’ circles that have often protested against the ‘too short’ term of the protection afforded by design patents (as mentioned, 15

From art to technology

69

years in Italy). These circles pointed especially, and not without reason, to the typical time lapse required for innovative design to establish a foothold on the market. However, it seems clear that straightforward cumulation (in itself not effectively avoidable by requiring an artistic value for copyright protection: see below) would go too far, since it institutes a dual sequential intellectual property regime that adds together the respective terms of the two types of protection. This is bound to result in a very negative impact on the competitive fabric of the market of industrial products40. If, therefore, on the one hand it is quite right for the needs of manufacturers and designers to be addressed by extending the protection up to 25 years, on the other, the admissibility of the simple welding of the two protections must be vigorously challenged, since it would clearly give rise to market imbalances in favour of rent-seeking monopolistic positions. Certainly, it is not sufficient to refuse, at the positive level, a solution imposed by law. But is this really the case? Is straightforward cumulation (‘horizontal’ and sequential) in fact the imposed and therefore inescapable solution? My answer would be no, for both logical and systematic reasons. First and foremost, under the principle of non-contradiction, a given segment of the legal system should not be construed in clear contradiction of another dealing with the same subject-matter. Furthermore, one cannot ignore the fact that the privileged paradigm for design protection under the Directive features a term that is shorter and certain, as in patent law, whilst copyright protection is not only mentioned as ‘accessory’ but also deliberately left undetermined in terms of requisites and extent thus entirely left to the domestic law of each Member State. This clear two-fold ‘hierarchical’ indication by the Directive suggests a different interpretative approach to discuss, coherent with the principle of non-contradiction to the so called problem of ‘cumulation’. The pointer to this path is to be found in article 7(4) of the Berne Convention, which affords copyright protection to works of applied art ‘insofar as they are protected as artistic works’ (emphasis added). Now, in the light of this textual hint, and the considerations expressed above on the rationale underlying the differences between patents and copyright, I feel it is possible to construe art. 17 of the Directive in a way that avoids both the systematic contradiction and the monopolistic effect that would arise from an essentially indiscriminate application of ‘horizontal’ sequential cumulation of copyright and patent-like protection. I am not definitely referring, as hinted, to any requirement of ‘artistic value’ (as some national legislations, including the Italian, have foreseen): a criterion too subjective, too uncertain, too prone to manipulation, to effectively and reliably restrain, in the judicial prctice, an all to ‘easy’ cumulation.

70

Intellectual property and competition law

Instead, the Directive can be construed to allow for the parallel coexistence of the two types of protection, each with its own specific scope to be determined on the basis of the difference in the objective market use of the work of design. Precisely, on the basis of the (type) of market – of industrial products or of artefacts – in which the work of design is ‘channelled’. In order to clarify this interpretative proposal, let us consider a couple of famous works of modern design, such as, for instance, Henry Dreyfuss’ ‘doughnut-shaped’ portable radio and Philip Starck’s ‘spider’ juicer. These practical objects are, or have been, sold as utilitarian products, yes, but they are also ‘enjoyable’ at the aesthetic level. In different circumstances they might well also be sold and copied as ‘objets d’art’ through distribution channels typical of the so-called art market. To my mind, this forms the empirical basis of the differentiation that allows for the parallel but not cumulative application of copyright protection and patent law, without mutually contradictory overlaps. Let us go back to the two examples. As practical products sold on the market of portable radios and household items, those items would be covered under the protection arising from their registration (at the Community and/or national level), and therefore, for a period of 25 years. On the other hand, as individual or multiple artefacts possibly sold on the art market, their shape could not be reproduced by third parties for works of figurative art (and as such, also marketed or to be launched on the art market) for the statutory period of 70 years following the designer’s death. It must be pointed out that this distinction between types of exclusive protection of the same ‘product’ on the basis of its different market of destination (nothing new, by the way, in the system of intellectual property law41), does not create any difficulties or uncertainty as regards concrete identification. Indeed, the type of applicable protection is objectively and precisely ‘certified’ by the type of infringement, or rather, the type of market targeted by the infringement. Therefore, if Starck’s spider is imitated, even on a different scale, by a sculptor to produce a work offered on the so-called art market through its typical channels42, the designer and/or her assignee would be entitled to bring action against the sculptor or the art gallery precisely on the basis of copyright law. On the contrary, in the case where the shape is copied by a manufacturer of household products and offered for sale on that market, the only exclusive protection should be the one afforded under ‘patent-like’ registration of the design. Accordingly, within the framework of the proposed solution, the ‘parallel coexistence’ of the two types of protection by definition precludes any preemption of copyright protection by the fact that the design was registered at the Community or national level43. In other words, the cited provision of article 17 of the Directive under which Community registration of a design or

From art to technology

71

pattern does not preclude copyright protection in harmony with the domestic legal framework, ought to be construed to read: ‘should the infringement of a design product arise on the art market, registration of the shape as a design pursuant to the Directive or domestic legislation, shall not in itself preclude recourse to copyright protection’.

AFTERWORD. THE DIFFUSION OF INFORMATION AND ENTERTAINMENT THROUGH THE NEW COMMUNICATION TECHNOLOGIES 13. Some further thoughts can be addressed, albeit only de lege ferenda, to the increasingly ‘monopolistic’ features that the modern development of copyright law has helped to introduce into the entertainment industry’s patterns of mass production and distribution. The already noted proliferation, side by side with copyright in the strict sense, of other so-called neighbouring rights; the ever increasing concentration of all such exclusive rights in the hands of the industrial producer; the stricter and stricter limitations to the ‘freedom of use’ by consumers, as well as the prolongation of the term of protection, etc.44 has resulted in a ‘distributive chain’ of entertainment ‘products’ (music, movies, multimedia works) which is much more anti-competitive in effect than the regulatory framework governing the distribution of patented products. We are talking here of creations earmarked for purely intellectual enjoyment, so the issues at stake are related to application of the statutory copyright paradigm within its traditional domain of reference, not to its ‘trespass’ into the utilitarian domain, as outlined above. Accordingly, a critical review of the legal framework can only focus, as mentioned, on possible ‘countervailing’ regulatory reforms. However, as mentioned, the considerations set forth above basically apply, in substantial terms, to the problems at issue. Non-discriminatory access to culture and information (irrespective of economic status) has come to be considered crucial for the development of the human person and constitutes a cornerstone of open democratic societies. It could certainly be conceded that the issue pertains, first and foremost, to the essential tools of education, from school and university textbooks through to academic papers and high-quality literature. And it seems obvious that in terms of education and culture, the price of educational textbooks is a far more sensitive issue than that of the latest Britney Spears CD. But this seemingly reasonable distinction must be approached with caution, since the entertainment sector is often closely linked with information and culture, and tends to use the same technological tools of expression and distribution (most recently, the Internet). It may be easy to distinguish between Siamese twins, but exceedingly difficult to separate them.

72

Intellectual property and competition law

As a result of a legal framework thrown off balance by over-protectionist zeal, the technological advances currently revolutionizing the production and distribution of information and entertainment, could well have socially undesirable consequences. At the very least, industry runs the risk of missing a fantastic opportunity to fully develop its potential for progress. On the one hand, copyright was raised to the dignity of a constitutionally protected right, so as to promote the dissemination of culture, with compensation being reserved to authors and investors only as a means towards this end45. It is thanks to modern information technology that culture and information have been brought within the reach of large portions of the world’s population. On the other hand, due account must also be taken of the emergence of regulatory models that further various exclusive rights throughout the economic lifespan of the work, whilst also prohibiting the circumvention of technologies that limit individual online access to copyrighted works46. Critical reference is here made especially to the models embodied in the US Digital Millennium Copyright Act and in the EU Information Society Directive. These laws are aimed at ‘codifying’, in practice, a general principle of pay-per-use for all uses of all intellectual works distributed on line. In particular, I am worried that a too broad protection of DRMs might de facto foreclose – the more so if coupled with unilaterally imposed over-restrictive ‘licenses’ to users – a number of private non-competitive users legitimate under general copyright law. Where could this lead? To the suppression of any form of ‘fair use’ on the Web? Let’s pay attention to the warning of Justice Hugh Laddie: ‘In the case of copyright not only the mediaeval chains remain, but they have been reinforced with late 20th century steel’ 47. Exaggeration? Paradox? Unfounded fears? Perhaps. However, in the light of the development of copyright law in recent years, one cannot avoid questioning the wisdom, especially in the field of information technology, of enhancing the pro-monopolistic features of copyright as is happening within the EU as a result of intense lobbying. Containing the excluding force of copyright would not only serve the interests of the public of users and promote the opening of new horizons within the ‘cultural industry’48, some of which emerged owing to the fact that the Internet has so far basically treated as commons. It would also further the interests of the category of authors, as a scholar as authoritative and ‘above suspicion’ as Richard Posner points out in Law and Literature49. May I add that The Economist, itself a sanctuary of the Anglo-Saxon business world, called for ‘A radical rethink’ of copyright protection in order ‘to foster creativity in the digital age’ (January 25th 2003, p. 13)? In the ultimate analysis, containing copyright’s expansionist thrust will be necessary to ensure that we will not wake up some sad day to find that the information highways along which, one hopes, a huge ‘traffic’ of culture and information will flow for the benefit of all humanity – is cluttered with toll-

From art to technology

73

booths at every kilometre, thereby making access to the transported information not only slower, but prohibitively expensive for too many. I do share the concern that over the long term unbridled copyright expansion is bound to generate ‘exclusions’, hindering both industrial development and access to information and culture. 14. Of course, we cannot ignore the fully justified need for the efforts of authors, as well as the culture and entertainment industry’s production and commercial investments, to be fairly compensated. I am well aware that with the advent of modern digital copying techniques that make it exceedingly easy to pirate copyrighted works, the right to fair compensation keeps standing in need of effective protection. The arguments presented above, therefore, do not imply any support to the ideology and proposals of the no-copyright movement50, which seem to lie at the other extreme of the over-protectionist trends criticized here. On the other hand, while also considering that digital technologies have sharply reduced the costs of producing and distributing ‘creative contents’, there seems to be reasonable leeway for pratical reconciliation between the right to fair consideration for investments and the right to the widest possible access to information, culture and entertainment, in a climate of non-discrimination and equal treatment. One way is suggested by a fore-quoted editorial article of The Economist: effectively protected but ‘much shorter copyrights . . . The 14-year term of the original 18th Century British and American copyright laws, renewable once, might be a good place to start’. Another type of practical reconciliation (although not free from ambiguities), already implemented in certain contexts, consists in offering cultural, educational and recreational content at ever lower prices, so as to boost e-commerce: that is to say, to attract the attention of consumers, luring them to visit the ‘virtual malls’ whose online offerings comprise consumer goods and services, including in the financial, insurance and other sectors, that, unlike literary or musical works, cannot be acquired by mere downloading. Another may yet be offered by the useful tools resulting from the technical and economic development of communications technologies, specifically transmission techniques (such as audio and video streaming, for example) that could block commercial uses while allowing for free private use and (limited) peer to peer exchange of text, music and pictorial content broadcast over electronic networks. These will be all the more useful if they respect elementary rights of private access and exchange. For instance, given that Digital Rights Management technology is still in progress at present, these tools could include balanced pay-per-download systems, such as iTunes that allow recorded music to be transmitted to no more than five other PCs. Last but not least, in the digital context, marginal production costs should necessarily fall,

74

Intellectual property and competition law

both for the technological reasons hinted above, and as a result of the dissemination and use of individual works on a scale never before encountered in human history. In the absence of cartels, this reduction should not only exert a direct impact on the price of on-line use of copyrighted works, but should also affect the retail prices of works made available on conventional media. The fact that prices have not yet started to fall in a consolidated manner on global markets, reflects not only probable price-fixing amongst the so-called majors, but also and, more importantly, the inability of large segments of the entertainment industry to adapt and evolve in response to the opening of new horizons in distribution. A policy aimed at countering the over-protectionist tendencies currently favoured by lobby-driven lawmakers could help to provide medical treatment, if not a cure, for these tendencies.

NOTES 1.

2. 3. 4. 5. 6. 7. 8. 9.

10. 11. 12. 13. 14. 15.

16.

Copyright law is governed at the supranational level under the Berne Convention and the TRIPS Agreement, at the Community level under Directives 1991/250 on software, 1992/100 on lending and rental rights, 1983/93 on satellite broadcasting and cable retransmission, 1993/98 on the term of copyright, 1996/9 on databases, 1998/71 on designs, 2001/29 on copyright in the information society, 2001/94 on droit de suite, 2004/48 on the enforcement of intellectual property rights. In Italy the field is governed by Royal Decree 633 of 22 April 1941 as amended (hereinafter the ‘Italian Copyright Act’). Under articles 13 and 59 of the Italian Patent Act – now articles 50 and 76 of the Italian ‘Code of Industrial Property (2005) – such works are precluded from patent protection. For a third, copyright-like one, i.e. so-called neighbouring rights, see below, paragraph 3 point h. Article 6-bis(1) of the Berne Convention. Article 9(2). These issues will be dealt with further below, in paragraph 7 focusing on databases. A reference to the nature of ‘intellectual creations’ appears, in respect of databases, in article 10(2) of the TRIPS Agreement. The reference is extendable to copyrightable works in general. Article 2576 of the Civil Code and article 6 of the Italian Copyright Act. Language that the so called Loi (Act) Le Chapelier on copyright (1793) borrowed from the famous definition that Turgot gave to the droit de travail in 1756 when he proclaimed the need to abolish the corporations and privileges. For an overview of the philosophical bases of the theories of intellectual property, see Falce V. (2004). Such as the register maintained in Italy by the Prime Minister’s Office, pursuant to articles 103 et seq. of the Italian Copyright Act. Article 103(5). Chapter 2, paragraph 11. See article 31 of the TRIPS Agreement. See paragraphs 11 and 12 below. This principle is duly codified in the Italian Copyright Act (article 19). The absence of an express textual reference in international treaties and Community law (although the principle is confirmed, as mentioned, in established international practice), is perhaps explainable in the light of the different – albeit nominalist – conceptions regarding the ‘unitary’ or ‘plural’ nature of copyright (i.e. the [pseudo]question whether copyright expresses a set of various rights of economic exploitation [Anglo-Saxon view], or rather, a single right encompassing multiple powers [continental view]). This rule, established in Italian law – article 18-bis(3) and (4) of the Italian Copyright Act –

From art to technology

17.

18.

19.

20. 21. 22. 23. 24. 25.

26. 27. 28. 29.

75

is clearly encompassed within article 1.2, lett. B, 4(2) of Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonization of certain aspects of copyright and related rights in the information society. Such provision expressly bans any likely interference with rights set forth in Directive 92/100/EEC establishing the independence of rental and lending rights from the exclusive right to distribute the work. See also article 4.2. of the same Directive read in light of recital 29. See articles 7, 10 and 13 of the Rome Convention of 26 October 1961 for the protection of performers, producers of phonograms and broadcasting organizations; articles 6 to 9 of Council Directive on 92/100/EEC of 19 November 1992 on rental right and lending right and on certain rights related to copyright in the field of intellectual property as well as articles 2 and 3 of the Directive 2001/29/EC. One could also note that the granting of autonomous rights to different subjects with different contractual strenght (on the one side authors and artists and, on the other, big companies – like film and music producers) may eventually disadvantage those who are not directly involved in the production stage: namely the authors. This because: 1) if consumers’demand is very elastic (meaning that consumers’willingness to pay decreases proportionally to the increase in the price of the product), the final price of the product cannot simply derive from the sum of rights (copyrights and neighbouring rights) of the entitled owners. Rather, the final price will result from a royalties’ redistribution among all the entitled owners (so called ‘cake’ theory). However, since authors historically and structurally are at the very beginning of the chain, good chances are that the former will be ultimately affected by the process. 2) The attribution of exclusive rights to producers can cause an impairment of authors’ and artists’ position. Think, for example, that authors and artists are usually requested to cede their exclusive reproduction rights to the music producer who will later compensate them: in this way, though, music producers in practice become the sole intermediary towards final users. This phenomenon is quite common, inter alia, in the music market where editors have gradually become subjected to phonogram producers. This is also true for the on-line music markets where phonogram producers have become the sole ‘gate-keepers’ of on-line utilization in the USA. And Europe is rapidly heading in the same direction . . . Such a concentration is obviously grounded on the transfer of said persons’ own exclusive rights of economic exploitation (the transfer is even presumed, in the case of the rental and lending rights of the performers in cinematographic or audiovisual works: see article 2(5) of Directive 92/100/EEC). This is likely to happen, for example, if the more powerful companies, like Microsoft, would try to acquire – or alternative would decide to merge with – big music or movies companies. See articles 1 to 6 and 12 of Rome Convention; articles 6 to 9 of Directive 92/100/EEC and articles 2 and 3 of Directive 2001/29/EC. Article 6-bis of the Berne Convention, emphasis added. As contemplated in Italian law – article 23 of the Italian Copyright Act – and in any event, exercisable throughout the author’s life. The duration of moral rights has so far escaped harmonization at both the Community and international levels. See paragraphs 7 et seq. regarding the copyright protection of computer software. Article 2(3) of Council Directive 91/250/EEC of 14 May 1991 on the legal protection of computer programs. The directive on databases on the other hand, limits itself to granting national parliaments the power to attribute copyright to legal entities (article 4(1) of Directive 1996/9/EC). This power has also been exercised by the Italian parliament (article 12-bis of the Italian Copyright Act). See Chapter 2. The aesthetic and intellectual nature of copyright subject matter, however, does not seem to justify, in the opinion of the author, the attribution of exclusive rights even to film or phonogram producers. See supra para 3, h). See article 3(1) of Directive 1996/9/EC of the European Parliament and the Council of 11 March 1996 on the legal protection of databases. In Reichman’s concept and words (Reichman J.H. (1994), p. 2511): ‘ITs bear know-how on their face’.

76 30. 31.

32. 33.

34.

35. 36. 37.

38. 39. 40. 41. 42. 43. 44. 45. 46. 47.

Intellectual property and competition law See article 1 of Council Directive 91/250/EEC of 14 May 1991 on the legal protection of computer programs. Various jurists and economists are opposed to granting any kind of exclusive protection (under either copyright and patent law) to the ‘interfaces’ that allow various types of computer programs to interact. However, since this position would encourage free riding and thus reduce the incentive to innovate, a more balanced solution would be preferable. In particular, interfaces could be treated as ‘essential facilities’ so as to allow, on one side, unjustified denials of access to be qualified as abuses of a dominant position, and, on the other, grant fair compensation to the first innovator. Itself of marginal relevance, by the way, in the case of ‘technology copyright’. I agree with those who, like Robert Merges, find it preferable for the ‘essential facility’ tool to be used only in the last resort, after negotiations between private parties have failed (Merges R. (1998)). As already pointed out in Chapter 2 with regard to patents, compulsory licensing’s most significant and useful role, is that of a ‘Damocles’ sword’ to induce the private parties involved to negotiate on a fair and equitable basis. This ‘European’ approach allows one to do away with foreclosures that tend to hinder the development of network industries as well as the qualitative and quantitative expansion of the markets concerned, in which competition already tends to be restricted owing to their typical oligopolistic layout. The same teleological reasoning leans in favour of lifting the ban on reverse engineering for developing more advanced software. The lifting of the ban could be accompanied by a system of compulsory cross-licensing between the author of the original software and the subsequent innovator, in keeping with the model set up under article 31, 1) of the TRIPS Agreement. See above Chapter 2, paragraph 18. To my mind, the basic reference here remains the study by Ryan M. P. (1998). France has always allowed for cumulative protection, relying upon the so-called principle of ‘l’unité de l’art’. The concept of dividing the ‘artistic value’ of the shape from the ‘industrial character of the product’, now abolished in Italian law, was ambiguous and did not resolve much. On the one hand, defenders of a (more) competitive regime for the production and marketing of industrial products, limited it to cases where the shape was reproducible on media different from the product originally associated with it (thus ending up by generally affording copyright protection only to two-dimensional aesthetic creations – typically, textile designs – and reducing it drastically, if not marginalizing it altogether, in the case of the three-dimensional shapes typical of industrial design). On the other, supporters of the possibility of simply cumulating the two types of protection (for the substantive purpose outlined above), the concept was construed to give rise to a ‘split’ that was purely perceptive, or merely intellectual (and as such, always possible). In this way – that is to say, in (each of) those two meanings – the concept of splitting could not effectively function ‘normally’, since the interpreter was forced to sacrifice either the copyright or the patent paradigm, depending on his hermeneutic choice (that was sometimes made at the outset): quite like a surgeon who has to decide which of two Siamese twins, she is to save. Directive 98/71/EC of the European Parliament and of the Council of 13 October 1998. Article 17. See Auteri P. (1981) who finely argued this point some time ago. One need only consider a pictorial creation that at the same time constitutes a registered logo or trade mark. This does not apply here, of course, but doesn’t the huge spider that Louise Bourgeois put on show a few years ago at the Turbine Hall of the Tate Modern, come to mind?! And obviously, even more so, in case the rightsholder failed to complete any of the formalities required under national copyright laws – especially since such formalities are generally not essential for copyright protection. See above, paragraph 3. As a long line of US case law has established – see e.g. Sony vs. Universal Studios, 1984. This prohibition can sometimes be absolute, see paragraph 3 g, above dealing with DRM protection. Laddie, H. (1996).

From art to technology 48.

49. 50.

77

Another important aspect that speaks in favour of such containment involves the multimedia industry, especially with regard to the problem of obtaining consent from a potentially very large number of holders of copyright and/or related rights, for the use of pieces of their works in the multimedia ‘finished product’. Once again, it would perhaps be useful to mitigate exclusive rights through systems of compulsory licensing against payment (and therefore precluding free riding), that, as suggested by several scholars, could be placed under ‘collective’ management through specific collecting societies, so as to avoid slowing down and burdening with excessive negotiation costs, the production processes and, therefore, the development of an emerging sector of the publishing industry, with enormous potential in terms of the dissemination of culture and information. Furthermore, as already pointed out (see endnote 7 above), the ‘compulsory’ nature of these licences is, in actual fact, typically used to encourage negotiations between the private parties involved. Briefly put, Posner claims that less intensive copyright protection would benefit authors (as a category), since the mushrooming of works by others would provide them with precious input for their own future works. This view is also shared by Lessig L. (1999). There is food for thought in the very emergence of worldwide spread opposition to the idea of having to pay sometimes exorbitant prices for access to information and culture, whereas no one has ever seriously suggested that cars and household appliances should be made available free of charge. In actual fact, as a result of changed social attitudes, priorities and values, access to cultural ‘services’ as against the sphere of material consumer goods, has come to be considered tantamount to a ‘fundamental’ right in the broad sense of the term, to such an extent that any attempt at imposing discriminatory limitations on access will be instinctively resisted. Lawmakers mindful of the ever-changing demands of open democratic societies must necessarily take due account of this social attitude that James Tobin (1970, p. 263) labelled ‘specific egalitarianism’, rather than remaining almost completely absorbed with the well-justified, but unfortunately exceedingly exaggerated concern with ensuring a ‘return’ on investments.

4. The distinguishing function and advertising value of the trademark: main aspects and critique of a European ‘reform’ BEFORE THE REFORM. THE CLASSIC PARADIGM 1. Distinctive signs fulfil an essential function in the market economy. They enhance firms’1 own market identity by emphasizing their difference from competing firms and businesses. Trademarks, which specifically identify a firm’s products and services and as such form the cornerstone of distribution and advertising policies provide the fundamental legal paradigm for other signs such as the firm name and the store sign.2 Accordingly, we will focus on trademark law, and its modern evolution – basically in the European framework. The trademark’s distinctive function (which was also associated with a quality guarantee before the introduction of free-market principles, especially in the age of guilds) has acquired a special, stronger significance with the expansion of markets and the increased physical distance between firms and consumers, who no longer come into close, or even personal contact, as was the case in the cottage industry-based economy. This distance can only be bridged by a distinguishing sign, used on an exclusive, permanent basis which enables consumers to recognize a given source of business and products, and therefore to make or repeat preferential choices when purchasing certain goods and services. It must be stressed that firms and consumers share an interest in the distinctive function of the sign: consumer choices may be diverted as a result of mistake about the origin of the products. This diversion, not only directly prejudices consumers (whose desire to purchase from X instead of Y will be thwarted by the misunderstanding) but it will also prejudice the trademark owners, who will lose current and potential customers to their competitors. Despite the evidence that consumers are directly prejudiced by misleading use of trademarks, the legislation of some countries only entitles the owners and licensees of trademarks to take proceedings for infringement. In those 78

Distinguishing function and advertising value of the trademark

79

countries, therefore, such restriction may only be overridden from the outside: either by intervention by the public authorities (such as the Competition Authority in Italy) which censure misleading trademarks as a form of deceptive advertising or by specific pro-consumer legislation such as Italian Law 281 of 30 July 1998, article 3(1)(a) which authorizes recognized consumer associations to take legal proceedings to prevent the commission of ‘all acts and behaviour’ prejudicial to the interests of consumers and users. Another markedly private-law feature of trademark law emerges in the case of invalidity of a sign identical or confusingly similar to a prior registered trademark. This is the possibility that the legitimate owner authorizes the registration of the later trademark: article 4(5) of Council Directive 89/104/EEC of 21 December 1988 to approximate the laws of the Member States relating to trademarks and article 52(3) of Council Regulation (EC) No. 40/94 on the Community trademark.3 This provision is consistent with the broader principle, laid down in the said Directive and Regulation (articles 5(1) and 8(5) respectively),4 according to which the consent of the owner of the trademark to the ‘coexistence’ of an identical or quite similar sign constitutes an exception to the general prohibition on infringement. (See paragraph 10.)

The interest in correct identification of the source of goods and services that legitimate trademark owners and consumers share is protected per se, as an expression of freedom of choice unrelated to the quality of the product. Whether the goods or services that may be purchased as a result of the confusion are of similar, worse, or even better quality than the product actually desired, that interest requires (and most legislation guarantees) an equal degree of legal protection.5 The nature of that interest further affects the duration of the trademark’s legal protection, as regulated by most national legislation. On the one hand, full effective defence against confusion requires the prohibition on misleading signs to apply to the time when the risk of confusion arises, without waiting for actual prejudice to take place. On the other hand, as the need to distinguish obviously remains as long as the trademark owner carries on her business, it is inconceivable for the need to avoid confusion to be subject to a time limit6. Full protection of the sign therefore requires a duration scaled to the effective persistence of the firm’s activity and is hence potentially perpetual. This contrasts with patent protection, subject to a compulsory time limit. However, the divergence is also justified by the very different significance of the monopolistic aspect of trademark rights as compared with patent rights. 2. It is common knowledge that a patent for invention prohibits third parties from manufacturing and/or selling the industrial products/processes to which it relates throughout a fixed period of time. This has the effect of limiting direct competition; the patent holder can consequently charge a higher price and therefore (potentially) make a differential profit, than it could have done

80

Intellectual property and competition law

in a competitive scenario. This constitutes the statutory reward/incentive granted to technological innovators. Conversely, the right to a trademark used with a purely distinguishing function (see paragraph 4) does not express any exclusivity over industrial or commercial activity, but merely reserves the right to use a tool that ensures distinction on the market; one which is more fully (effectively) distinctive precisely because it is exclusive. In the last analysis, this feature performs a genuine pro-competitive function. Thus, insofar as protection of the sign is limited solely to its distinguishing function, the exclusive right to the sign constitutes a zero-cost monopoly, or rather, forgive the oxymoron, an essentially pro-competitive monopoly. In fact, by contributing to the transparency of the market, the trademark enables consumers to choose between different offers in the most efficient way: as Landes and Posner (1987, p. 265) point out, it is faster and cheaper than other methods of obtaining information about the market. This is a strong additional reason why no a priori time limit is set on such a monopoly; the absence of monopolistic costs thus converges with the vital need to avoid confusion on the market and to protect the identifying function for as long as the firm’s business continues. In practice, there is one properly monopolistic aspect which, in the classical framework, can apply to trademark rights, even considering their distinguishing function.7 I allude to the fact that, as the exclusive protection conferred by these rights covers the whole of the country in which the trademark is registered, it may enable the owner to isolate that territory (market), in particular by preventing the entry of original products marketed by the owner itself or her licensees in other countries. This may allow the trademark owner to hinder free international circulation of goods, usually with the purpose of exploiting the price differences which can arise on isolated national markets. However, this risk is avoided at European level by the principle of ‘exhaustion’ of trademark rights, repeatedly confirmed by the European Court of Justice and incorporated in article 7 of Council Directive 89/104/EEC of 21 December 1988 to approximate the laws of the Member States relating to trademarks and article 13 of Council Regulation (EC) No. 40/94 on the Community trademark. According to this principle, the owner of a registered trademark cannot, unless there are particular justifying grounds,8 ‘prohibit its use in relation to goods which have been put on the market in the European Economic Community or the European Economic Area under that trademark by the proprietor or with her consent’ (i.e. through licensees or distributors in general). In practice, therefore, from the time when the product is put on the market, even in other EU or EEA countries, the owner of a national registration can no longer control or influence its movement even in such (different) national markets (she might do so on the basis of specific agreements with

Distinguishing function and advertising value of the trademark

81

resellers, but such agreements are obviously only effective inter partes, and also subject, in principle, to antitrust prohibitions, as possibly ‘in restraint of trade’ for limiting intrabrand competition, i.e. between distributors of the same branded product). Consequently, recognition of the Community exhaustion principle substantially eliminates that particular risk of monopolistic use of trademarks, though only in the European Union and the European Economic Area. This territorial limitation is open to criticism, as an objective expression of geopolitical protectionism9. But I believe that in the not too distant future, such ‘Community discrimination’ is destined to be dissolved into the broader ambit of member states of the World Trade Organization (WTO). In other words, it will be overridden by historical perspective of the actual globalization of world trade, which calls for circulation of goods without any geographical discrimination. In this case, I also believe that the only sanctions for conscious unauthorized imports of original goods into an exclusive licensee’s territory, should involve the application, for a limited time, to prevent ‘rentseeking’ effects of private law remedies based (not on cease-and-desist orders, but rather) on liability for damages, to compensate licensees for loss of earnings. The contractual terms entered into by authorized licensees and importers to ensure a return on the investments made to build up the local market for the product would thus be upheld; an outcome supported by commentators like Herman Cohen Jehoram (1999, p. 495). This would avoid the present unfair tendency to equate original although unauthorized products and counterfeited ones, with all the consequences that involves, including criminal sanctions. 3. In addition to information about the source of manufacturing and trading, the trademark is a modern form of communication incorporating a message designed to appeal to consumers thanks to the substantial reputation of the product and/or the advertising campaigns supporting it, which obviously focus on the distinguishing sign.10 This message of reputation tends to generate consumer fidelity, and therefore, in the last analysis, a commercial lock-in (think of the many young, and even older people who buy clothes or shoes of that brand to feel they belong to a certain social circle). This promotional value (i.e. selling power) translates into a competitive advantage which may, either principally or concurrently with other commercial factors, grow so intensely as to give the trademark owner a dominant position11. The trademark owner may thus become subject to the ‘special responsibility’ of abstaining from vexatious or excluding conduct which constitutes an abuse of that position.12 The preceding remarks, widely supported by case law13, refer to the broad issue of market power related to trademarks’ renown, an issue14 which is not to be confused with, nor reduced to, the question of the expanded protection

82

Intellectual property and competition law

of famous trademarks in commercial sectors other than – distant from – that of registration.15 Thus, the remarks above and the relevant case law first of all refer to renowned trademarks as used in the field of registration and similar fields, having regard to the special selling power that can be assessed aside from the strictly distinctive function. 4. Until the implementation into national legislation of Directive 89/104/EEC and the coming into effect of Regulation (EC) No. 40/94, in a number of European countries, including Italy, the legal protection granted under the classic paradigm of trademark law focused exclusively on protecting the distinguishing function of the sign. In particular, the legislation only granted to the party that first registered (or in some jurisdictions first adopted) the trademark, a right to forbid any unauthorized third party from making any commercial use (including advertising)16 of the same or of a confusingly similar sign to brand17 products in the same or similar sector as that of registration (or prior use) offered for sale in, and/or imported to and/or exported from, the country of registration.18 This right was later extended to commercial uses in telecom networks, in relation to which the law of trademarks provides the fundamental regulatory paradigm (with some adaptations imposed by the cross-border nature of the medium) of specific distinguishing signs of electronic communication, in particular domain names.19 The focus on the distinguishing function expressed the traditional relativity of the trademark protection, which operates within the limits of the risk of confusion (passing-off) and is typically related to the use of the signs in identical, or at least neighbouring industrial fields. Thus, in the classic paradigm, the use of identical, or at least very similar trademarks beyond those limits, was not deemed unlawful in itself: if no confusion might occur, the interests of both firms and consumers in correctly identifying manufacturing sources could not be prejudiced. Hence, also, the fundamental requirement for the validity of the trademark, namely novelty (i.e. not being identical or similar to a sign previously adopted by others), could only be ruled out if the prior registration (or de facto adoption) by another party related to products of the same or similar kind. As will be seen shortly, the EU ‘reform’ has been extremely innovative even on these points, significantly reducing the scope of third parties’ freedom to adopt identical or similar signs in fields of use distant from that of registration, and correspondingly expanding the area of invalidity (for lack of novelty) of the same signs. 5. The exclusive reference to protection of the distinguishing function, typical of the classic paradigm, entailed a close, constant association between the trademark and the registering firm. The guarantee of true identification of the

Distinguishing function and advertising value of the trademark

83

origin of the products required that the trademark be constantly associated with the supplying firm. Hence, the countries faithful to the classic paradigm (not including France, which had long allowed free assignment of trademarks), first of all prohibited transferring the trademark outside the firm itself (or the specific branch that supplied the trademarked products)20. The aims of the prohibition were twofold: one aim was to guarantee that the circulation of the trademark could not induce consumers to be misled about the source of the goods and this rationale led to the corollary rule that third parties could be granted only exclusive licenses21. The second aim was to protect the firm of the assignee against the risk that the assignor, by retaining the firm, could continue to compete nonstop with the former. This competition was particularly insidious because of the goodwill retained by the firm itself, together with the specific skill in manufacturing the very products to which the assigned trademark related.22

THE REFORM. THE BUSINESS INTERESTS PROTECTED 6. With the advent and consolidation, from the end of WWII, of the mass consumption era, powerfully boosted by the refinement and intensification of advertising and marketing techniques, the classic paradigm, grounded on a strict trademark-to-firm connection, was inevitably called into question. That connection, designed to protect the identifying function of the sign and expression of a traditional long term- and single-product-oriented type of industrial planning, emerged as a constraint on the more and more evident potential of well-known trademarks to express an independent, and independently measurable and exploitable promotional/selling power. This was true even in business areas quite distant from that of registration. That power translated into a trademark’s own commercial and financial value, which became increasingly significant by comparison with the firm’s material assets. How can one deny, for example, that the greatest asset of the Coca Cola Company is its trademark? Now, under the classic paradigm, which focused on mere protection of the distinguishing function, this value had no recognition and thus was destined to be largely ‘wasted’. The classic paradigm eventually became outdated, and while ‘free assignment’ of trademarks was openly allowed in some countries, as in France, in others the classic principle was increasingly watered down, for example, through dematerialization of the legal requirement: transfer of mere productive know-how could substitute the actual transfer of the firm or a specific branch23. The reform, chiefly based on the above-mentioned Directive 89/104/EEC and Regulation (EC) No. 40/94 (to be systematically interpreted as a set of

84

Intellectual property and competition law

principles that complete and confirm one another, even in relation to their harmonizing effect on national legislation) led Europe-wide to the crisis of the classic paradigm. It did so, in particular, mainly by expressly allowing free assignment and non-exclusive licences24 and expressly stretching the legal protection to the extramural promotional/selling value of the trademark.25 Both facets highlight the new normative feature of the sign as ‘an asset in itself’. Recital 10 to Regulation (EC) No. 40/94 contains a very strong statement of principle which applies beyond the strict discipline of the Community trademark (as demonstrated by the harmonization of national legislation). It states that the trademark ‘is to be regarded as an object of property which exists separately from the undertakings whose goods or services are designated by it’. Accordingly, ‘it must be capable of being transferred’ i.e. as such . . . and ‘must also be capable of being charged as security in favour of a third party and of being the subject matter of licences’ including non-exclusive ones: see above26. 7. The cornerstones of the European reform, which were fundamentally confirmed by the TRIPS Agreement,27 involve several specific corollaries. (a) Valid registration and ownership of a trademark does not require its being destined for use by the owner’s firm. It is sufficient for the trademark to be used directly by third parties with the owner’s consent (licence). The trademark can therefore belong to and be enforced by a party who has never owned any firm, and never will. Conversely and symmetrically, a permanent end to the firm’s business does not represent grounds for revocation of the trademark as it did under several prior national laws. (b) As the trademark can circulate as an independent asset, the validity of licences is no longer dependent, as mentioned, on an exclusivity clause. (c) In addition, licenses (as well as assignments) can relate not only to ‘some of the products or services’ for which the trademark was registered, but also (unlike assignments)28 to ‘part of the country’s territory’. (d) As regards the extension of the protection beyond the limits of the distinguishing function of a sign that ‘has a reputation in the Member State’ (article 5(2) of Directive 89/104/EEC)29, the owner’s exclusivity reaches industrial sectors which are not only dissimilar in the strict sense from that of registration and use by the owner, but even so dissimilar as to rule out all risk of confusion. The only condition is that third parties’ unauthorized use, effected ‘without due cause’ would involve taking ‘unfair advantage30 of . . . the repute of said (earlier) mark’ (tarnishing) or ‘be detrimental’ to such repute or to the sign’s distinctiveness (dilution by blurring).31

Distinguishing function and advertising value of the trademark

85

In the light of the European norm’s rationale, the extramural protection of a trademark which has a reputation is far from exceptional. Firstly, the threshold of ‘reputation’ is defined simply as the existence of a measurable economic ‘advantage’. It therefore need not necessarily correspond to the high renown (haute renommée) which the owners of famous trademarks had to show in order to claim protection unrelated to the sector of registration.32 That threshold only excludes trademarks of mere local renown. But as even these can become known at national level simply through a strong injection of advertising, it is easy quite easy to transform an ugly duckling into a swan. In this respect33 every trademark is potentially renowned. That’s fundamentally why I am sceptical about the exceptional character of the extramural protection. Secondly, the specific conditions laid down for extended protection are not very restrictive on the whole. If one condition is not fulfilled, another will usually allow the extension. In particular, although uses of the trademark that can cause dilution of its distinctiveness or tarnishing of its reputation may rarely occur34, the existence of an ‘unfair advantage . . . without due cause’ 35 taken by unauthorized third parties will be normally affirmed, unless the distance between the fields of use is so huge as to a priori exclude any possible transfer of promotional value from one field to the other. It should be noted that the EU reform and the national legislation into which it has been transposed protect renowned trademarks to a greater extent than does the common denominator established in international law. If we compare the conditions laid down in the last part of article 16.3 of the TRIPS Agreement with those of article 6(2) of Directive 89/104/EEC and article 9(1)(c) of Regulation (EC) No. 40/94, the EU legislation will be seen to be far more generous. On the one hand, as we have seen, the extended protection it provides can be based merely on the second user’s undue advantage, and not necessarily and solely on the prejudice(s) to the first user, as in the TRIPS Agreement. Above all, the EU legislation does not further require, as does the TRIPS Agreement, evidence of a connection between the owner’s products and those of the third party. Thus, in the ultimate analysis, the TRIPS Agreement also provides extended protection, but mainly against a ‘risk of association’ essentially within the boundaries, at large, of the distinguishing function. The granting of this privileged legal status to renowned trademarks, reaching out beyond the area of confusion, basically amounts to protecting commercial goodwill as such with absolute exclusive rights. Moreover, there is no time limit to it, thereby taking [unfair!] advantage of a rule which is only justified by protection of the distinguishing function. Here one can point to a breach with the system of intellectual property and not only with its classical paradigm. Goodwill ultimately only reflects a communication (advertising) ability,

86

Intellectual property and competition law

whereas the IP system only grants exclusive protection (in the form of a patent or copyright) to tangible new technological or aesthetic results of intellectual effort. Neither patents nor copyrights are there to protect the authors’ ability to communicate, or their commercial reputation! Thus, as a result of the reform, a mere commercial value, usually increased, and often created, by advertising, receives the same protection (in fact more protection, as it has no time limit) as objective expressions of human creativity.36 At the same time, by substantially creating a new form of exclusive right, the reform eludes the principle (which reflects the primacy of freedom of competition) of the fixed number of exclusive rights and its corollary: namely that goodwill (and the values that determine it) can only be defended against unfair methods of appropriation. 8. Whom does it benefit? What concrete interests are served by such a reform? This question is essential to understand the true reasons behind the reform itself. Let us first of all focus on the business interests involved, while we shall later discuss the system of consumer protection introduced by the reform to compensate for the risk of deception as to the origin of the trademarked goods (paragraphs 10 below). The pillars of the reform, described above, indicate a clear emphasis on a multi-faceted exploitation of the selling power of trademarks in order to turn them into a tool for obtaining greater economic benefits (for owners, assignees and licensees) than would have been possible within the previous system. For example: (a) Free circulation intrinsically increases the commercial value of the trademark as an asset in itself. Hence it also allows a specific asset valuation of a trademark purchased from third parties, which, in perspective, might be entered in the accounts at the current value (not merely at the historical purchase cost). In this perspective, confirmed by the new International Accounting Standards (see in particular IAS 38), which encourage a more realistic search for the ‘fair value’ of a firm’s assets, the valuation could also concern not only trademarks purchased from third parties, but also the ones created by the firm and grown in reputation as a result of the firm’s own (internal) development. (b) The possibility of ‘splitting’ the assignment to include only some of the products, or also, in the case of licences, only parts of the country of registration, as well as of granting non-exclusive licences, typically leads to growth of income flows, especially royalties, which the earlier system, based on the principle ‘one mark, one firm’, allowed only to a much lesser extent. A number of licensees, each of whom makes her best efforts in her area, may often achieve a higher sales volume than a single operator. In

Distinguishing function and advertising value of the trademark

87

addition, this expansion of sources of revenue is typically accompanied by another significant advantage for the owner: a reduction in advertising costs, due to the transfer of significant proportions of such costs to licensees pursuant to typical terms of contract) with a consequent tendency for the overall volume of advertising investments to increase too. (c) The extramural protection of the renowned trademark translates (also) into the consolidation of the competitive (image-related) advantage that assignees and licensees acquire over competitors who do not benefit from equally well-known trademarks. (d) The concrete possibility, offered by the protection stretching beyond the risk of confusion, of benefiting from an advertising value which the owner of the trademark would not have enjoyed had the protection been confined to the distinguishing function, i.e. to the field of registration. Experience shows that, beyond a certain limit, the power of attraction of a trademark even if boosted by advertising, no longer increases sales in a given field of use. The possibility of granting multiple licences, offered by the reform, moves this limit forward to the owner’s advantage, but does not eliminate it. Thus, were trademark rights to be restrained in the fields of registration and neighbouring, much of that promotional power would remain unused by the owner and be freely available for appropriation by third parties operating in distant sectors. To the owner, this effect would represent both a waste and a parasitic appropriation of a value she created. Now, extramural protection of the renowned trademark precisely prevents this ‘waste’ and those ‘appropriations’ by bringing home that surplus of promotional value. The owner will be able to collect royalties from third parties who, under the classic system, enjoyed in principle free use of the sign as non-confusing. Thus, for all these reasons, extramural protection of renowned trademarks, coupled with the possibility of granting multiple licences, gives a stronger boost to the practice of merchandising, which in several sectors of consumer goods generates a flourishing market for licences. A practice which, before the reform, enjoyed no legal protection in a number of member states, including Italy.37 (e) Finally, the extramural protection of renowned trademarks can provide a further type of economic benefit for the owners. A direct effect of such protection is obviously that third parties must keep their hands off the famous trademark even in distant fields of use. This amounts to allowing owners the right to reserve the right to exploit, by direct entry and/or by licensing, the trademark’s inherent promotional power, in distant sectors in which their firm is not presently operating. In other words, they can book now the right to enter new distant markets tomorrow and to enter the

88

Intellectual property and competition law

same with a considerable start-up advantage over competitors, since the adoption of an already famous trademark obviously tends to increase purchasing propensity. This aspect of exploitation of the renowned trademark, which in antitrust terms might be viewed as a form of leveraging of market power, is apt to specifically benefit groups, especially conglomerates, with a multi-business financial investment capacity. 9. The strongly corporatist inspiration of the reform also transpires from other significant, albeit not as central, features. I refer, for example, to the revocation of the trademark for becoming generic, i.e. ‘the common name in the trade’ (Cornish, 2003) to designate a certain type of product.38 For example, revocation may occur only if the owner used her trademark to describe the type of product sold, or did not promptly sue for infringement unauthorized third parties, thus allowing the sign to become a descriptive term. This solution clearly rewards the interests of the trademark owners, reluctant to accept that simple vulgarization may lead to revocation and thus destroy the investments made in the trademark and the goodwill it incorporates. It offers less reward to consumers, interested in fully and easily comparing the same kind of products offered by different firms. This informative interest, converging with the pro-competitive interest of the trademark owners’ rivals to supply products clearly recognizable as of the same kind, is also typically associated with that of a reduction in price levels. If demand by the public for a given commodity focuses on a descriptive term, it will spread on a variety of brands, not on a single one: were the name cellophane a valid trademark, I could only ask for a given product by that name, and not for many corresponding (substitute) products, with the result that I would probably pay more. This is the twofaceted content of consumers’ interest, and has nothing to do with the query about the owner’s alleged negligence in defending her trademark’s distinctive force. As Judge Learned Hand (in Bayer Co. v. United Drug Co., 272 F. 505, 509 (S.D.N.Y. 1921)) vividly put it: ‘What do the buyers understand by the word for whose use the parties are contending? If they understand by it only the kind of goods sold, then, I take it, it makes no difference whatever what efforts the plaintiff has made to get them to understand more’.

THE REFORM, AND THE (MULTIFACETED) RISKS OF CONSUMER DECEPTION 10. ‘Freeing’ purchase and circulation of a trademark from its connection with the firm entails a high risk that the consumer public will be misled in several respects. Let us analyse them, beginning from the risk of deception as to the manufacturing source.

Distinguishing function and advertising value of the trademark

89

(a) As Professor Adriano Vanzetti (1998, p. 75) pointed out, prior to the EU reform the link between the trademark and the firm ensured the continuity of the entity (firm) identified by the sign, namely ‘the factor which remained constant over time, without which . . . it would have been impossible to speak of identification’. He added that ‘in relation to a product, i.e. a specimen of a series which the public is enabled by the distinctive sign to associate with that series, which originates from the same firm, the very concept of identification implies a time dimension, as the concept makes no sense in an instantaneous perspective. Recognition (from re-cognoscere) means knowing again, i.e. associating a present reality with a past experience’. That being the case, the original function seems to be reduced to a self-certification’ that the product originates from a firm which lawfully owns the sign. As Vanzetti39 remarks, this indeed performs a modest, almost formal informational function in the interests of consumers, ‘which merely enables them to identify the party responsible for the quality of the product.40 This is very different from, and in substantial terms far less significant than the guarantee of constant product quality which the traditional function of origin, based on a close connection between trademark and firm offered consumers, at least in the intention of the legislator, and which guaranteed that the product would always originate from a clearly determined, concrete business entity capable in itself of characterizing the product.’ Therefore, free transfer ‘leads to a breach in this continuity, and has the effect that consumers are misled during the period after the assignment, because they rely on continuity of origin, but receive products originating from a different firm without their knowledge’. To eliminate, or at least reduce the risk (against which the EU reform does not introduce any specific remedy) that the distinguishing function might thus be emptied of significance, Vanzetti41 suggests interpreting the rules designed to avoid the risk of confusion42 as involving an obligation to inform the public about the transfer that has taken place. In the case of the most renowned trademarks as well as of general trademarks (i.e. those coinciding with the firm’s name, such as Gucci, Burberry, Peugeot, Volkswagen, etc.), this obligation could be fulfilled through the mass media where branded products are usually advertised. In the case of other, less known trademarks, the information should be written on the labels of each product. (b) The same logic should govern the right (against which the EU reform again does not introduce any specific remedy) that trademark holders (assignees and licensees) enjoy to vary the quality and/or characteristics of their products over time. That power stems from an undeniable freedom to shape one’s own business policy, but its rightful exercise requires

90

Intellectual property and competition law

that consumers should be adequately informed. If this is not done, the trademark holders may be held guilty of a deceptive use of the sign, which may lead to revocation of the exclusive right43. (c) An analogous logic can prevent the risk of the public being misled by the so called ‘coexistence agreements’ allowed by the reform. This grants the trademark owner the faculty to consent to the use of identical or similar signs by a third party even in the same or similar fields of business44, thereby accepting the inherent risk of confusion. To prevent full privatization of this risk, to the detriment of consumers, these provisions should be interpreted in association with those already mentioned which punish the misleading use of a trademark by revocation. It might be objected that the European rule on revocation for deceptive use of the trademark45 does not expressly mention deception about the industrial origin, i.e. the manufacturing firm. The answer to this is that the list of sources of deception is not exhaustive, as suggested by the rationale and the words ‘inter alia’ which precede the list. Articles 5(1) and 9(1) should therefore be interpreted as meaning that coexistence agreements, though a possible source of confusion in theory, will be deemed lawful46 if the specific informational context of the coexistence, namely mutually distinguishing additional information steadily supplied by the parties, actually eliminates the risk47. 11. To compensate the public for the inherent risk of diluting the distinguishing function of trademarks as a result of a deliberately fragmented, dispersed circulation thereof, the reform expresses concern about consumer protection by introducing a direct guarantee of substantially constant quality of the branded goods. This is achieved by some provisions,48 such as articles 8(2) and 12(12)(b) of Directive 89/104/EEC and articles 22 and 50(1)(c) of Regulation (EC) No. 40/94 designed to prevent the use of the trademark (including the grant of licences) from causing deception as to the essential characteristics that the public is used to associating with the branded product. Misleading uses can include significant variations on essential characteristics that consumers were used to associating with the branded product, which are not clearly announced to the public. These provisions, I’m afraid, are not excessively severe. True: the provisions which allow licensors to enforce their trademark rights against licensees who contravene a term of the licence relating, for example, to the quality of products or services, are worthy of note49. However, unlike the strictest national rules, such as article 15.2 of the Italian Trademarks Act50, the EU legislation does not make the validity of a non-exclusive licence conditional on an undertaking of this kind. In any event, the sanction of revocation for deceptive use of a sign also relates to its use by the licensee(s), whose conduct in this respect the owner has therefore a strong interest in supervising.

Distinguishing function and advertising value of the trademark

91

(a) The revocation of trademark rights for a misleading use of the sign is certainly a severe sanction. However, the prohibition of deceptive use of the sign seems to be necessarily restricted to licences granted in the field of business in which the owner operates or operated, or neighbouring ones. The same prohibition would seem to be substantially unusable in the case of licences in distant fields of use, where the very idea that the licensor should impose and enforce manufacturing standards does not seem to make sense. That duty postulates the possession of specific know-how in the industry to which the licence relates. But what can the owner of a trademark renowned in the clothing industry teach a confectionery manufacturer, for example? What supervision can it ever perform in an industry which, by definition, she is unfamiliar with? Conversely, what expectation of ‘steady quality’ can a consumer who was encouraged to buy confectionery by a trademark that became famous in the clothing industry ever realistically have? Thus, it might be argued that in these cases there is no possible room for deception of the public: there is simply a no-man’s land in which the value conveyed may be certainly evocative, but in such broad, vague terms, lacking any specific informational content, that it cannot generate any possible misunderstanding by consumers. This is a sensible, but not fully convincing argument. Frequently, in the reality of business communications, owners and licensees convey the same basic type of promotional message for the renowned trademark in the new field of use by harmonizing their advertising campaigns. This enables the owner to maintain a consistent brand image in its licensing policies, and thus exploit a specific selling power, from which the licensees also benefit in that they obtain a greater competitive advantage over their competitors. For example, the message conveyed by the Ferrari brand, namely the idea of cutting-edge technology combined with modern design, could be conveyed in very distant fields, like that of wristwatches, as a result of a skilful fine-tuning of the advertising campaigns for the two fields so that they convey the dual message that: the technical quality and attractive design of those watches are at ‘Ferrari level’, and this is guaranteed/supervised by Ferrari as licensor. So, how can one deal, in such cases, with possible disappointment of consumers’ expectations? How can one avoid an irresponsible deceptive effect and thus a ‘liability vacuum’ vis-à-vis the apparent impossibility that car manufacturers possess and enforce watchmaking know-how? The EU reform does not suggest a solution, but we might try a systematic approach in line with the fundamental trade-off set by the EU reform, i.e. free and plural circulation and use of trademarks vs. consumer protection against deception. This approach does not view as conclusive the undeniable fact

92

Intellectual property and competition law

that in the type of cases considered here, the licensor does not possess (and therefore cannot transmit, still less enforce) any own know-how relating to the so distant sector for which she has licensed the trademark. As well known, the development of stringent EU and national mandatory regulations of industrial standards has stimulated the growth of independent institutes that specialize in conducting quality controls on industrial products/plants/systems, and produce and constantly update and enhance a wealth of specific, diversified manufacturing and experimental know-how related to almost all industrial sectors. These institutes, external to individual firms, normally collaborate with the firms themselves to perform tests designed to certify not a generic good quality but that the products meet given quality standards, ranging from those sufficient to meet fundamental safety requirements to those which fulfil the highest quality criteria according to the state of the art. This evolution suggests a reasonable, economically viable, factual way out for preventing the liability vacuum and the irresponsible deceptive effects alluded to above. Accordingly, the owner of the renowned trademark, who licenses it in a distant field of use, can be asked to ensure, by means of recourse to external technical skills, that the licensee’s manufactured goods are of a quality consistent with the type/content of the advertising message that the famous brand may convey to consumers even in the distant field. In the last analysis, it is only a question of costs (of the technical-professional expertise): costs that can be deducted from the licensor’s royalties and the licensee’s revenues earned as a result of the competitive advantage generated by the renown of the trademark. Ubi commoda, eius et incommoda, i.e. there is no gain without pain.

A CONCLUSION 12. Even if strengthened by serious if optimistic interpretations, the rules aimed at protecting the public against (various kinds of) deception do not constitute the reform’s ‘trademark.’ On the basis of the analysis developed above (paragraphs 6–11), it must be acknowledged that the reform aims primarily and fundamentally to ensure the widest possible economic and financial exploitation of the trademark as an asset in itself, in consideration of its intrinsic selling power. The list of rights conferred by a trademark51 represents a crescendo designed to ensure that not a jot of that power might be lost, thus enabling the owner to acquire the entire profit (advantage) obtainable from the distinguishing value and the renown of the sign. This being the fundamental purpose of the reform, the anti-deception rules represent the necessary damper provided for counteracting the risks of confusion which the reform itself has increased.

Distinguishing function and advertising value of the trademark

93

This said, I wish to dispel a possible misunderstanding concerning the nature and extent of a reasonable criticism of the reform. In a purely inter-individual perspective, the goal of enhancing the protection of the trademarks’ selling power, even beyond the distinguishing function, does not in itself attract any criticism, including in policy terms. Maximizing the value of a trademark generates an efficient financial return on investments – including those related to advertising. And once the public is protected against deceptive uses of the sign, full appropriation by the owner of all that value does not seem to have any contra-indications, since it concerns a value stemming from the owner’s business and investments. In fact, the behaviour of one who appropriates, even in a distant field, the promotional power of a sign made famous by the owner appears far more parasitic than the owner’s position looks rent-seeking: after all, as mentioned, it’s the latter who worked and invested, if only in advertising, to build up the renown of her sign. The grounds for criticism therefore relate to a different aspect which a purely inter-individual approach cannot detect.52 The reform certainly encourages a competition model based more on advertising than objective performance, be this related to quality, price, innovation or a combination of such factors. That is the point. In my opinion, that model is liable to lead to adverse (restrictive) effects on the markets concerned, as well as to inflationist trends. In this respect, the multiplication of licences in the field of registration and similar fields; the expansion of merchandising (i.e. licensing renowned trademarks in distant fields); the reservation of a pre-eminent position (in terms of commercial image) in a new distant field as a result of third parties’ exclusion from use of the renowned trademark – all these factors, then, act as shortcuts to acquiring a competitive advantage which would otherwise have to be built up with the tools of competitive innovation, hence on quality, variety and price. More slowly and painfully, for sure, but much more usefully for the market in terms of competitive innovation, which is reduced by licensees’ exploiting the renowned trademark thus necessarily following the licensee’s technical standards (instead of imposing their own innovative/competitive identity) and in terms of emphasis on innovation and quality as competitive tools. Thus, it is not a question of moralizing about the triumph of image factors in consumption models. I just merely wish to point out that the key features of the reform are not without social welfare costs. In a nutshell, taking account of the critical aspects discussed above the costs of the reform consist of anticompetitive and price-increasing effects, namely: (a) The reinforcement of intangible barriers to the entry of competitors which may perform very well in terms of innovation and quality, but are not strong enough in financial terms to keep up with the field. As stated by the Italian Competition Authority in the Pepsico v. Coca Cola case (no.

94

Intellectual property and competition law

7804/99), the large amount of sunk costs involved in advertising investments in support of a brand image represents a significant obstacle to the entry of new competitors. These competitors consequently opt not to enter the market (at a comparable level), or seek admission to the network of licensees of the known trademark; in either case, the degree of innovation, as well as the competitive fabric of the market suffer. (b) The trend towards an increase in the market prices of goods branded via a licence, by renowned trademarks. This can happen in several ways: • the costs of the licence (which often are partially sunk costs) will be passed onto the end user; • the licensee’s mark-up usually exceeds the actual cost of the licence, as the former obviously tends to take advantage of consumers’ willingness to pay a premium price for products of a well-known brand; • the entry into a licence system usually involves the acceptance of prices (or at least price ranges) similar for all the various licensees (and the owner) and also, depending on the fame of the brand, above the average market level. Such fixings are particularly difficult to combat with antitrust weapons because they are often spontaneously supported by licensees, who have an interest both in keeping prices high and in avoiding price wars. Pointing out these costs of the reform does not necessarily entail a desire to return to the past. In my view, it is merely one way to voice the need to use all the normative tools at the service of competition on merits in order to eliminate, or at least substantially reduce, those costs generated by the basic imbalance of the EU reform in favour of the business interests associated with the advertising value of trademarks. Other normative tools, also provided by EU sources, should also be exploited. These include the freedom to practice comparative advertising based on objective performance data; the prohibitions on misleading advertising and deceptive use of trademarks; the product liability rules which punish incorrect information activities. Finally, the vigorous use of antitrust law. Competition law may indeed be suitably invoked in relation, e.g., to coexistence agreements, agreements relating to the terms of sale and prices of licensed products, as well as situations of market dominance which can be strengthened, as we have observed, by the possession of a trademark with strong promotional appeal.

NOTES 1. The term encompasses individual enterprises and companies, as well as groups of firms subject to unitary powers of control.

Distinguishing function and advertising value of the trademark

95

2. For domain names, see endnote 19 and accompanying text. 3. Article 4(5) of the Directive: ‘The Member States may permit that in appropriate circumstances registration need not be refused or the trademark need not be declared invalid where the proprietor of the earlier trademark or other earlier right consents to the registration of the later trademark’. 4. Article 5(1) of the Directive: ‘The registered trademark shall confer on the proprietor exclusive rights therein. The proprietor shall be entitled to prevent all third parties not having his consent from using in the course of trade: (a) any sign which is identical with the trademark in relation to goods or services which are identical with those for which the trademark is registered; (b) any sign where, because of its identity with, or similarity to, the trademark and the identity or similarity of the goods or services covered by the trademark and the sign, there exists a likelihood of confusion on the part of the public, which includes the likelihood of association between the sign and the trademark.’ 5. In other words, in the same ways and with the same legal protection methods which can be used if the product purchased as a result of the confusion is of lower quality (except, obviously, a claim for damages for financial loss, as no economic interest to take proceedings exists if the product is of higher quality). 6. I obviously leave out of consideration from possible fiscal laws’ terms (anyway, indefinitely renewable) for payment of duties in support of registration’s validity. 7. For an aspect which the 1992 reform regulated in a ‘monopolistic’ sense by recognizing the exclusive appropriability of expressions in general use and descriptive expressions through the concept of ‘secondary meaning’ (article 3(3) of Directive 84/104/CE), see paragraph 6 of this chapter. 8. Such as the need to distribute modified versions of the product on the market of a given country, either to adapt it to particular local customs or for climatic reasons. See, however, endnote 7. 9. On the one hand this discrimination serves to hinder imports by major competitors, especially the USA and Japan, of agribusiness and industrial products which are competitive in terms of quality and price (by forcing non-European manufacturers to add a further distribution stage, thereby increasing their costs). On the other hand, though less evidently, it prevents ‘embarrassing’ re-import into Europe, obviously at very low prices, of products of lower-quality manufacture and therefore a lower cost of production, not infrequently exported by trademarks owners from Europe, under the same trademark, to developing countries (i.e. ‘third-class’ consumers). 10. The message may exceptionally turn out as a negative one, causing a ‘drawback’ effect. This may happen if the product has gone through a bad patch (an example being the Contergan brand, which suffered as a result of the thalidomide tragedy). As mentioned, this is a very unusual situation, as it is normally followed by abandonment of the loss-making sign. However, experience shows that such a negative effect is not normally generated by a mere reduction in the quality of the product, which can usually be offset by suitable advertising campaigns. 11. Which may also be found in vertical relations, i.e. in agreements between the manufacturer/owner and distributors which, having regard to the type and ‘bracket’ of consumers served, ‘cannot afford not to stock’ certain branded products (think of a sportswear department stores chain that offers neither Nike, nor Adidas, nor Reebock gym shoes). Said distributors therefore become ‘captive customers’ (see further Chapter 5). 12. See further Chapter 5, paragraph 7. 13. See e.g. the German Supreme Court in the 1976 Rossignol case, and the Italian antitrust Authority in Pepsico Foods v. Coca-Cola (case no. 7804/1999, paragraphs 74 et seq. and 88 et seq.) and Telecom Italia v. Tiscali and Albacom (case no. 8481/2000, paragraph 104). 14. Which we shall specifically address in Chapter 5, analysing the ‘intersections’ between IP law and antitrust. 15. On this separate question, which highlights a basic feature of the European reform, we shall discuss, see below, paragraphs 4 et seq. 16. In the case of e-commerce, the owner of a trademark cannot oppose the advertising use of

96

17.

18. 19.

20.

21. 22. 23. 24. 25. 26. 27.

28.

29.

Intellectual property and competition law an identical or similar sign which is lawfully registered and/or used by other parties in other countries even when it is (inevitably) extended to the country of registration. The indivisibility of telematic networks, especially the Internet, means that in this case, exclusive national trademark rights work to bar third parties from manufacturing and distributing (not, repeat, from advertising as such), i.e. from commercial uses of the trademark which by definition – and unlike advertising) involve a physical location. See the lucid ruling of Playboy Enterprises v. Tattilo and others, US District Court, So. District N.Y., 1996. The reference to the distinctive function allows third parties’ freedom to use the sign for purely informational and/or descriptive functions. Examples are a reference to a third party’s trademark in comparative advertising, or the indication of a certain product as being a component of another (like a certain mineral water used to make an orangeade). Without prejudice to the principle of ‘Community exhaustion’ (see next paragraph). In addition to the comments made in endnote 17, it is necessary to consider the possible coexistence of identical or similar distinctive ‘roots’ of domain names, corresponding to trademarks lawfully used by different owners in different countries. On this issue see G. Ghidini (2002, p. 15 et seq.) and J. T. McCarthy (2000). Other consequences, according to the Italian legislation in force prior to the reforms (1992 and 1999) which transposed the principles of the Directive and the Regulation, were that: (a) the trademark could not be acquired by a party that did not use it or propose to use it ‘in its business or trade’ (the old article 22); (b) the exclusive right was extinguished if the company no longer existed (the old article 43.2). This, with the sole (apparent) exception of the so called ‘licence for use’, corresponding to mere decentralization of production within a ‘group’ of enterprises subject to a unitary power of supervision and management. In Italy, moreover, the trademark could not validly be registered unless the applicant would use or be programmed to use it ‘in her industrial or commercial business’ (article 22 of prereform Italian trademark law), i.e. directly in, and by, the owner’s firm. In Italy, for example, a substantially ‘free’ transfer of trademarks was eventually achieved in this way, covered by the fig leaf of a fictitious transfer of know-how and an equally fictitious system of controls, which basically eluded the principle. Article 8(1) of Directive 89/104/EEC and article 22(1) of Regulation (EC) No. 40/94. Article 5(2) of Directive 89/104/EEC and article 9(1)(c) of Regulation (EC) No. 40/94. Article 8(1) of the Directive: ‘A trademark may be licensed for some or all of the goods or services for which it is registered and for the whole or part of the Member State concerned. A license may be exclusive or non-exclusive’. The greatest changes involve the strengthening of judicial protection (relating to intellectual property rights in general): see Section 2, articles 42 et seq., of the TRIPS Agreement, with special reference to the powers of the courts to obtain evidence (article 43), and to restitutional remedies, such as the order to withdraw products constituting a breach of those rights from the market (article 46). In substantial terms, however, the protective scope of the rights granted by earlier national and international legislation has sometimes been reduced. This applies, in particular, to the case of renowned trademarks which, in the case specified in article 6-bis of the Paris Convention (1967 version), are only protected on condition that a possible prejudice to the owner exists, and not also (as stated in Regulation (EC) No. 40/94, not amended on this point by Regulation (EC) No. 3288/94, which harmonizes the first Regulation with the TRIPS Agreement) if just a third party gains unfair advantage from using a renowned trademark for non-similar products (above, page 85). The rationale for the difference lies in the need to avoid the risk of an intrinsically confusing joint use of the same trademark by independent manufacturers of similar goods or services in the same territory/market. This risk is basically eliminated in the case of nonexclusive licences due to the licensee’s obligation to ‘use the trademark to distinguish products or services identical to the corresponding products marketed or services rendered by the owner or other licensees in the country under the same trademark’ (article 15.2 – now article 23.2 of the Italian ‘Code of Industrial Property’ (2005); our italics). According to the traditional view, the reputation of a trademark was (and is) taken into

Distinguishing function and advertising value of the trademark

30. 31.

32. 33. 34.

35. 36.

37.

38.

39. 40. 41. 42. 43.

97

consideration only in terms of its ability to invalidate the subsequent registration of a trademark intended for related (‘identical or similar’) products, with an express reference to the risk of confusion (article 6-bis of the Paris Convention; see also article 17.1.b of the Italian Trademarks Act – now article 12.1.b. of the Italian Code of Industrial Property ). The ‘unfair advantage’ is also referred to ‘the distinctive character’ of the earlier trademark. But this case, by definition, is covered by the risk of confusion. See article 4(3) of Directive 89/104/EEC and article 8(5) of Regulation (EC) No. 40/94. Accordingly, ‘a trademark shall not be registered or, if registered, shall be liable to be declared invalid where, and to the extent that (. . .) the trademark is identical with, or similar to, an earlier national trademark within the meaning of paragraph 2 and is to be, or has been, registered for goods or services which are not similar to those for which the earlier trademark is registered, where the earlier trademark has a reputation in the Member State concerned and where the use of the later trademark without due cause would take unfair advantage of, or be detrimental to, the distinctive character or the repute of the earlier trademark’ (article 4(4)(a) of the Directive and article 8(5) of the Regulation). Until the EU reform, the courts in various countries granted protection within the limits defined by a possible, though broad ‘association’ relating to origin, i.e. always within the limits of the distinguishing function, although broadly interpreted. Which evokes the ‘rehabilitating’ effect expressed by the ‘secondary meaning’: see article 3(3) Directive 89/104/EC. A real risk of ‘dilution by blurring’ is fairly unlikely in the absence of a high number of third parties’ appropriations, a rather unusual circumstance – the more so the wider the ‘distance’ between trade sectors, which reduces the advantages of using one specific sign rather than another. In fact, to paraphrase Landes and Posner, if I wished to use another party’s renowned trademark evoking luxury, in a very distant field, it would make little difference whether I chose, for example, ‘Rolls Royce’, if others had already adopted ‘Tiffany’. As for ‘tarnishing’ of a trademark’s reputation, it postulates the association of the trademark with poor quality or ‘disreputable’ products; however, such associations are merely hypothetical (and consequently entail no solid, permanent reason for protection), and the more the use of another party’s sign takes place in distant sectors, the more improbable they are, thus ruling out a reasonable risk of negative image transfer to the renowned trademark. ‘Due cause’ seems to be restricted to the third party’s objective needs for information, like those underlying article 6(1) of the Directive. Protection of the ‘commercial value of the personality’, which is the basis for various legally authorized forms of financial exploitation of the renown of a person (especially sponsorship), could not be invoked in relation to a trademark, which is the distinguishing sign of the source of products, except in the specific case of a trademark constituted by a personal name. Not even through the use of copyright licences (a widespread practice – ‘character merchandising’ – especially for the commercial exploitation of fictional characters made famous by the publishing and entertainment industries). However, without the specific right to use the name, this practice remained precarious and of limited use against third parties which had freely adopted the famous name (typically registered as a trademark by the author for publishing products). ‘In the trade’ means ‘general public’ in some countries, like Italy, as it does in the US whereas in others, like the UK, it means ‘the circle of traders’. In several countries, including Italy, that objective fact was enough to constitute grounds for revocation, whereas the EU reform further requires a causal connection between such fact and ‘the acts or inactivity of the proprietor’: see article 12(12)(a) of Directive 89/104/EEC and article 50(1)(b) of Regulation (EC) No. 40/94. Op cit. p. 81. On each single occasion, and by reference to each single product, not to the series, as that party may change with time in a ‘free transfer’ system. Op cit. p. 88. Such as article 5(b) of Directive 89/104/EEC and article 9(1)(b) of Regulation (EC) No. 40/94. See article 12(2)(b) of Directive 89/104/EEC and article 50(1)(c) of Regulation (EC) No. 40/94.

98 44. 45. 46. 47. 48.

49. 50.

51. 52.

Intellectual property and competition law Articles 4(5) and 5(1) of Directive 89/104/EEC and article 9(1) of Regulation (EC) No. 40/94. Article 12(2)(b) of Directive 89/104/EEC. Obviously without prejudice to any antitrust aspects: see Chapter 5. Incidentally, this solution substantially mirrors the logic of the ‘distinguishing additions’ followed by the Commission in well-known cases concerning co-existing trademarks, most notably Persil (1976) Bayer-Tanabe (1978) and Syntex-Synthelabo (1989). As regards the protection of third-party licensees, it is self-evident that article 8(2) of the Directive is much narrower than article 15 of the Italian Trademarks Act (now article 23 of the new Code of Industrial Property) since the EU legislation entirely lacks the principles contained in paragraphs 2 and 3 of the aforementioned article 15, an Italian initiative designed to protect consumers. Article 8 of Directive 89/104/EEC and article 22 of Regulation (EC) No. 40/94. Article 15.2 of the Italian Trademarks Act (now art. 23 Code of Industrial Property), provides as follows: ‘A trademark may be the subject matter of an exclusive and non-exclusive licence for the whole or part of the products or services for which it has been registered and for the whole or part of the Italian territory, provided that, in the case of a non-exclusive licence, the licensee expressly commits himself to using the trademark for distinguishing products or services identical with the corresponding ones bearing the same mark and placed on the market or rendered on the Italian territory by the owner of the trademark or other licensees thereof.’ Article 5) of Directive 89/104/EEC and article 9 of Regulation (EC) No. 40/94. See Giovanni Cavani (1995).

5. On the ‘intersection’(s) of IP and competition law(s)* 1. Throughout the analysis conducted so far, we have referred to the existence of frequent ‘interactions’ (within the paradigms of the various IPRs) between the normative features relating to the ‘excluding incentives’ of innovation and other profiles which are designed, even indirectly, to promote competitive dynamics, and which we have called ‘competitive antibodies’. As remarked, these interactions require that excluding incentives be given an interpretation which is consistent with the enhancement of competitive dynamics and thus, ultimately, with reflecting the constitutional principle of free competition that oversees economic relationships. A similar need, and constitutional basis, affects the reconstruction of the relationship between IP law and the regulations that directly govern competitive relationships: antitrust law in particular, and the set of rules enforcing unfair competition. The history of such complex interaction(s) dates back since almost to the very foundation of the European Community and it is still ongoing today. As hinted, it is necessary to analyse these interactions distinguishing between antitrust and unfair competition law. I will start with the former, the most significant and troubled profile.

IP AND ANTIRUST 2. As well known, the problems related to the intersection between IP and antitrust law – which we will deal with mainly from the European perspective – are basically rooted in the apparent antinomy of the respective (direct) goals: fostering innovation through the attribution of exclusive/excluding rights on one hand, and preserving freedom of access to the market on the other. Historically, the first profile of such an intersection which came to the attention of the EU Commission and Court of Justice relates to the contractual relationship between IPRs holders and third-party operators such as distributors, licensees, co-venturers. Through such relationships (whose main tool is the licence agreement, in its various forms) the IPR can be used, for example, to extend to one’s own dealers the protection against free-riders, thus ‘shielding’ the firm’s decentralized organization, or to extend a firm’s IP ‘portfolio’ 99

100

Intellectual property and competition law

by pooling own patents with other owners’, or to acquire joint patent-rights’ ownership over the future results of R&D joint-venture agreements, etc. With respect to such forms of contractual exploitation of IPRs, the ‘intersection’ with antitrust law substantially operates in terms of (European) ‘economic public order’ limitations on the exercise of IPR owners’ and their counterparts’ freedom of contract – ‘economic public order’ being hence defined by the set of fundamental principles expressing the Treaty’s economic goals. This profile, whose economic significance is self-evident (as is the wealth of negotiating forms and legal rules it evokes) was developed in the early days of the European Community in the light of the fundamental goal to combat all possible forms of ‘market partitioning’ which hinder the free circulation of goods. It reflected an industrial policy of progressive integration of the several national markets into a single European market. The various contractual expressions of industrial and commercial expansion and decentralization strategies that inspired the first stage of post-war economic reconstruction in Europe were thus analysed in the light of this goal. This led, first and foremost, to an endorsement of the principle that the excluding powers of trademark and patent licences are ‘exhausted’ at the first stage of distribution, thus combating the compartmentalization of national markets and encouraging intra-brand competition. The result was the gradual development, through case law and regulations, of a systematic (and rather ‘suspicious’) system of pro-competitive limits on the bargaining powers of IPRs holders. The strictness of these limits often failed to take account of the need to remunerate and protect the investments of independent licensees against free-riders (thus providing suitable incentives to undertake new productions and/or open up new markets) and of the intrinsically pro-competitive nature of transfer/decentralization of important technological know-how to independent partners. Experience confirms that today’s licensee can be tomorrow’s competitor. Nor should one neglect the intrinsically innovation-enhancing effect deriving from the continuous two-way exchange of technological and manufacturing know-how during the contractual relationship between licensor and licensees. Moreover, such a strict ‘per se’ approach objectively amounted to a ‘pro-oligopolistic antitrust’1, in the sense that greater severity with IPRs owners and licensees agreements would mainly affect independent licensees, and therefore the networks of collaborative transfer of technologies typically affordable by SMEs. The latter would thus be objectively discriminated against in favour of manufacturing and commercial internationally integrated groups, i.e. the most concentrated structures, whose ‘internal’ contractual practices were far more widely sheltered from antitrust interference due to the absence of ‘real competition’ within the unitary group. (This ‘contradiction’ may have reflected a conscious line of industrial policy, namely the one set out in the famous 1970 Industrial Policy Memorandum, in which the Community asserted the need to promote

On the ‘intersection’(s) of IP and competition law(s)

101

European industrial structures large enough to compete with American and Japanese giants.) As is equally well known, the original European approach, stimulated by economic analysis, gradually developed towards a more in-depth assessment of the various negotiating practices in terms of their even long-term effects on competition and market relationships, including those with consumers, as well as on innovation dynamics. It was thus gradually recognized that what once appeared to be a tool that just simply imposed and/or expanded market dominance could in practice turn out as a necessary expression of a cooperation promoting growth and disseminating innovation. This development continues, and has recently taken another step forward with Technology Transfer Block Exemption Regulation (TTBER) no. 772 of 2004 relating to licensing of technologies protected by IPRs or industrial secret. This Regulation develops and emphasizes an approach (which also inspired its previous 1996 version) designed to make more flexible and pragmatic the qualification criteria governing IP-related contractual relationships, and their application to the actual market context. This different approach, which reflects the growing influence of the ‘rule of reason’ (and is therefore closer to reality and more controllable), has legitimized the distinction between horizontal agreements (involving actual competitors) and vertical agreements (involving non-[actual]competitors), the latter being considered on the basis of the earlier EU legislation potentially less liable to distort competitive balances2. Moreover, earlier en bloc prohibitions, such as those concerning non-compete obligations, have been restricted or revoked (even in the case of horizontal agreements) provided that the mandatory market thresholds are complied with. It is worth emphasizing that the new trend particularly encourages ‘group innovation’, which promotes licensing as a means of sharing technology, and hence of furthering the innovation process. In this respect, the Guidelines that accompany the new TTBER favourably evaluate the efficiencies inherent in technology pools, which reduce transaction costs that would hinder technological progress3, especially in cases of incremental innovation4. However, this trend, which also marks recent EU5 (as well as US6) case law, may underestimate the risk that the pool could represent a means of collusion or indirectly promote, thanks to the synergy of the partners’ technologies, the emerging of a dominant de facto standard, thereby foreclosing competitors from the markets of reference7. 3. The traditional legal perspective, just briefly described, does not question the exercise of IPRs’ holders’ excluding power as such versus unauthorized third parties trying to access the protected innovation/creation. This applies both to the earlier interpretation, which denied the possible interference of

102

Intellectual property and competition law

competition law with the terms of grant of IPRs as established by national legislations, and to the subsequent approach, which rejected such interference in relation to the ‘normal exercise’ of IPRs themselves according to their ‘own’ (or ‘specific’) power content, equated with their ‘essential’ anti-free riding function8. Under this approach which, as noted by Professor Steve Anderman, blurred the distinction between ‘existence’ and ‘permitted exercises’ of IPRs9, antitrust did not question the exercise of excluding faculties as such against unauthorized third parties seeking to access (share) the IPR-protected innovation/ creation, but only the enactment of further anti-competitive behaviours by the IPRs holders aimed at exploiting their position of strength on the market in their dealings with third parties, and the consequent generation of further anticompetitive effects. Thus, only these further ‘exercises’ whereby IPRs are used as a ‘lever’ to expand market power beyond their ‘essential’ anti-free riding function could be restricted by antitrust law. Basically, therefore, despite its rather nominalistic development, the traditional perspective did not challenge the ‘sanctuary’ of IPRs owners’ absolute power to exclude unauthorized third parties seeking access to the use of the IPR-protected innovation/creation. In that perspective, such third parties are always viewed as potential ‘infringers’; and stripping IPRs of their excluding power versus such parties would be tantamount to ‘killing’ their function as incentives of innovation10. Things have substantially evolved in Europe11. Today’s European antitrust seems to aim at that very sanctuary (within limits we shall recall in a while), and have begun writing a new chapter in the history of the relationship between IP and antitrust. A history still in progress, diversified, troubled and one that deeply differs thus far on the two sides of the Atlantic. 4. First of all, as said, this history is diversified. Although its core problems undeniably relate to access by third parties to technologies covered by copyright or patents, especially on information technologies, the modern approach now under discussion affects all IPRs, including trademarks. Yes, trademarks: the IPR which would seem illogical to associate with a prospect of ‘access’, i.e. sharing by third parties. One might indeed intuitively assume that except for the atypical case of geographical indications (which do not reflect origin in a particular firm, but characteristics that are associated with a particular territory, and can therefore legitimately be used by a number of qualified parties), imposing shared use of a trademark would amount to accepting, indeed encouraging confusion about the industrial source of products. Hence the need, one might argue, to keep the trademark’s use in the sole hands of the registered owner and/or her licensees. However, this argument neglects the fact that the European reform of trademark law allows ‘coexistence agree-

On the ‘intersection’(s) of IP and competition law(s)

103

ments’ (see Chapter IV, para. 11) between the holder and third parties. Should this then lead us conclude that, de lege lata, only privately negotiated trademark sharing is possible – thus anyway leaving no room for ‘legal’ sharing under antitrust law? This is not the case. There is at least one hypothesis of particular importance whereby an ‘antitrust interference’ can undermine the excluding paradigm of the registered trademark. I am referring to well-known rulings by the Commission such as Kimberly-Clark v. Scott12, whereby a merger consolidating famous trademarks in a single ownership may lead to a situation of market power which the competition authorities may decide to reduce by ordering the grant of licenses to third parties. Also, there have been cases where abuses of dominant positions were found under article 82(a) in relation to anticompetitive implementation of a trademark licensing scheme; the Commission has consequently imposed, as a remedy, that the company license the trademark free of charge13. Even apart from such specific cases, I would say that in general terms the market power associated with trade-mark rights can be subject to antitrust scrutiny in relation to the assessment of a dominant position created, or at least reinforced, by the control of trademarks with strong ‘selling power’14. Furthermore, market dominance may originate from synergies between the trademark’s appeal and the exploitation of other IPRs. I refer, for example, to the case of a patented product, marketed under a certain trademark, whose commercial success, and appeal, is obviously enhanced by the exclusive presence of the product on the market for 20 years, a circumstance which might even cause that trademark to become almost synonymous with the successful patented product. Now (except of course the cases where the trademark has become a ‘generic name’: such as ‘Aspirin’ in the US and other countries15), the appeal acquired by such a trademark can prolong the ‘monopolistic’ effect of the patent, or rather the owner’s dominant position beyond the patent’s expiration. ‘Legal’ opening of the market to competitors does not prevent consumers, attached to the trademark which has accompanied the product for 20 years, from preferring to remain loyal to the same – thus ‘locked-in’ – even after the patent expires. 5. Let us now come to the heart of the matter: the question of whether, and to what extent, a right of access, typically in the form of a non-voluntary licence, over innovative ‘creations’ protected by copyright or patents16 can be granted to third parties if the exercise of the excluding powers typically associated with IPRs would prevent the same parties from operating as competitors on a related (downstream) market or even, more controversially, on the same market. Before analysing the merits of the issue, we will briefly review the underlying technological and economic phenomena. The first factor to be

104

Intellectual property and competition law

considered is the modern industrial trend towards standardization, i.e. the development of products and processes capable of ‘working together’ with other products and processes and therefore of providing interoperability through compatibility. Various beneficial economic effects are associated with this trend, such as the production of compatible products and services, and therefore the creation of markets separate from that of the first, standardized product. However, in addition to these favourable effects, economic analysis has identified the risk of adverse impacts of standardization on competition and consumer welfare as well as on the dynamics of innovation. This is the case especially when standardized technology also becomes the dominant pattern on the market17; and when the de facto dominant standard is protected by IPRs, be they patents or copyrights18. It is indeed self-evident that in the absence of IP protection, any standardized product or technology can be appropriated and adopted by competitors, who are free to put newly improved versions on the market. Also, the technology will be available for every firm willing to manufacture compatible products not directly competing with the standardized one. Conversely, if the standardized product is protected by intellectual property rights, the owner is afforded a greater degree of market power over the entire chain of products, and can significantly restrict, and even foreclose business activities, at least in downstream, related markets, and often also in the same market, thus preventing even direct (horizontal) competition. 6. The risk of adverse effects on competition is further intensified if the market scenario is that of information technologies, often characterized by a ‘systemic’ form of competition. This term describes a type of market on which two or more firms compete, offering consumers not a single item but a series of items which are not only standardized in the sense described above (i.e. manufactured in such a way that they can communicate with one another), but linked by a functional bond so that consumers only benefit from joint purchase of the whole set of those products. One example is the close functional link between the hardware of a personal computer and its operating system, and between those two items and programs such as browsers that allow users to surf the Internet. In the presence of this type of competition, the effects of the ‘self-perpetuating success’ induced by consumers’ preferences, which has already been mentioned when discussing the effects of standardization in general, tend to be strongly emphasized; this is due to what are generally called ‘network effects’ in economic jargon, otherwise defined as ‘economies of scale in consumption’. The term describes the phenomenon whereby the utility obtained by a consumer from a given article grows when, and to the extent that, others use the same product. This phenomenon acts as a powerful

On the ‘intersection’(s) of IP and competition law(s)

105

‘catalyst’ of demand, with the result that once a first demand for a given article has been created, it will be self-perpetuating, continuing to attract more and more consumers to its network (direct network effects). And the more the number of purchasers of the product grows, the more products compatible with it will be launched on the market, and this will make the basic product even more appealing to consumers (indirect network effects). In other words, unlike what happens in the sectors of the traditional economy, where consumers’ preference for a product which has become the most popular on the market does not in fact prevent, in the absence of specific foreclosing manoeuvres, other competing products from entering or remaining on the market, if network effects are present consumers tend to be far more intensely ‘trapped’ (‘locked-in’) by the technology initially chosen. The costs initially incurred (of purchasing and learning the technology bought, and buying a range of compatible products) discourage consumers from changing over to a new product, and consequently constitute a veritable entry barrier for competing products, even if these are technologically superior. Although this trend has some immediate technical advantages for consumers, the obstacles to competition may be particularly strong. To quote Shapiro and Katz, ‘the strong get stronger and the weak get weaker’.19 This tangle of direct and indirect network effects leads straight to the de facto dominance of a single standard, marginalising standards based on alternative technologies: even if the latter may be technically superior. This occurred, for example, in the famous case of video recorders, where the success of the VHS technology de facto ousted the competitor Betamax from the market. The anti-competitive effect is even wider in relation to secondary (related, downstream) markets. In the IT sectors, competition between products compatible with the standardized ‘first’ product means creating market niches which did not exist, and were not even originally contemplated by the owner of the standard. Thus, if access to the latter is refused, the owner will be enabled to extend (‘leverage’) her dominant position, foreclosing third parties even from these other downstream markets. All this brings us back to the concern referred to above: in hi-tech sectors, where the presence of strong network effects often make the probability of a customers’ changeover to a different product minimal, if not actually nil (even if the latter is technically superior to the former), intellectual protection over the standardized technology vests the IP-owner with an extremely far-reaching power: namely, the power to control the degree of competition (in the relevant market, as well as downstream related ones) throughout the level of interoperability she is willing – if willing – to grant. This entails great risks not only for competition, well beyond the degree of restriction inherent in the proprietary paradigm but also for innovation, whose dynamic process can in practice be blocked, or at any rate slowed. As observed by Professor Robert

106

Intellectual property and competition law

Pitofsky, former head of the US Federal Trade Commission, ‘[. . .] the exclusionary rights granted by intellectual property protection, coupled with trends toward standardization due to network effects, threaten to diminish market competition. Where this results in monopoly or near-monopoly, there can be negative effects not only on price and output, but also on innovation [. . .]’.20 7. It was the European Commission, when progressively drafting the Guidelines for the industrial policy aimed at liberalising telecommunications, that first expressly and systematically expressed the kind of concern described above about the risks of ‘proprietary foreclosure’ of communication and information standards. Thus in relation to the software used for satellite communications, which have become de facto industry standards and are covered by patents, the Commission, years before the Courts, stated that the use of common standards represents ‘an enabling element for effective free-market competition’21. This conviction was again firmly stated, as an expression of a policy line, in the Commission Guidelines on Intellectual Property and Standardisation22, the ‘1999 Communications Review’ addressed to the European Parliament23, and finally, with an even broader scope, in the Commission Notice, Guidelines on the Applicability of Art. 81 of the EC Treaty to Horizontal Cooperation, in which the Commission stated that where a de facto industry standard emerges, ‘the main concern will then be to ensure that these standards are as open as possible and applied in a clear non-discriminatory manner. To avoid elimination of competition in the relevant market(s), access to the standard must be possible for third parties on fair, reasonable and non-discriminatory terms’24. This pro-openness approach adopted by the Commission in formulating policy lines is also reflected in its decisional practice (from Magill to IMS, to mention the best-known cases). The Commission’s decision indicates a substantial application of the doctrine of ‘essential facilities’ (EF)25 to dominant standards protected by IPRs, with the result that refusal to give access on fair, non-discriminatory (and obviously non-exclusive) terms to third parties which would otherwise be ‘bottlenecked’ might constitute abuse of a dominant position. This approach has been basically followed by the Courts, although, it seems, with a recent significant restriction. In the IMS case the Commission condemned IMS’s refusal to grant a copyright licence over a modular structure used as a data classifying criterion which had become the dominant standard on the market. The decision thus facilitated the provision of competing information services and avoided the foreclosure of competition on the owner’s market, i.e., the primary market, which would have resulted from refusal. However, the ECJ, answering to the preliminary ruling posed by the Landgericht of Frankfurt am Main, explained that in order for an abuse to exist it is necessary, inter alia, that ‘[. . .] the undertaking which

On the ‘intersection’(s) of IP and competition law(s)

107

requested the licence does not intend to limit itself essentially to duplicating the goods or services already offered on the secondary market by the owner of the copyright, but intends to produce new goods or services not offered by the owner of the right and for which there is a potential consumer demand’26. In other words, although implicitly recognizing the role of networks and lock-in effects as factors rendering the data in question essential, the Court’s judgment seems to confirm the principle that the unlawful restrictions on competition are limited to those behaviours that impede, by means of the refusal to licence, the development of ‘derivative’ products/markets27. (Does this limitation indicate a bent towards the dominant American approach, which holds firm to the basic ‘intangibility’ of the IPR-related excluding power, thus limiting possible antitrust interference with the exercise of IPRs to cases involving leveraging of such power?). However, the Commission did not back down. In the most significant part of the Microsoft judgement of 24.03.2004, Commissioner Monti ordered Redmond to disclose the specifications of the interfaces (note: not the source code) of the Windows workgroup server operating system to competitors (especially Sun Microsystems) to enable them to achieve full interoperability of their server operating systems with Microsoft’s, and in particular to ensure the same degree of compatibility as exists between the latter and Windows operating systems for personal computers which are designed to operate within a single network of computers. Basically, therefore, if we put aside the grounds, which debatably and unnecessarily focused on alleged leveraging of market power from the upstream market of PC client operating systems to the downstream market of workgroup server operating systems, DG COMP imposed a duty of disclosure, so as to allow competition on the same market, namely that of workgroup server operating systems28. The Commission therefore confirmed the basic pro-openness approach as expressed, inter alia, in the aforementioned Guidelines: ‘To avoid elimination of competition in the relevant market(s), access to the standard must be possible for third parties on fair, reasonable and non-discriminatory terms’29. Here Europe strikes a clear difference with the other side of the Atlantic. In the US, as hinted, the dominant opinion, quite in tune with the recent ruling of the Supreme Court in Trinko30 (2004), is traditionally reluctant to allow any breaches in the excluding faculties of IPRs, viewed as a) indispensable incentives to innovation, and b) already subject to (sufficient) ‘built-in’ limitations of time and scope. 8. However, it must be emphasized that even the Commission’s broader procompetitive approach views antitrust ‘interference’ on IPR-related excluding faculties as ‘exceptional’. In particular, even according to the Commission’s analysis, the doctrine of essential facilities which legitimizes this interference requires, in addition to the obvious finding of a dominant position, the abusive

108

Intellectual property and competition law

behaviour to take place under ‘exceptional circumstances’, represented either by foreclosure of a new product for which significant demand exists or the presence of economic phenomena that strengthen the barrier to entry constituted by IPRs. Now, it is not important here to question whether the essential facility doctrine might, in truth, be nothing but an expressive variation of the general antitrust doctrine of refusal to deal (see also C. Osti (2004), H. Hovenkamp (1999)), and thus, also, whether its requirements, amounting to situations of effective market foreclosure, can properly be defined as ‘exceptional’. Here it is significant to focus on the substantive outcome that the application of such a doctrine allows, i.e., its ability to sort out the specific strict circumstances where the IPR owners have been able to obtain a ‘true’ monopoly or quasi-monopoly (extended to a whole sector or activity). In other words, the EF doctrine does not provide easy access to IPR-protected technologies; in fact, it embodies the most restrictive form in which a right of access might be affirmed, under an antitrust rationale, in the issue at stake. This also applies, as hinted, to the Commission’s ‘jurisprudence’, which strengthens the severe approach displayed in cases regarding material facilities (see, for example, Sealink Harbours, 1992 and Stena Sealink, 1994).31 Thus the dual danger otherwise inevitable from a ‘loose’ approach to the duty to grant access is avoided, namely: unjustly ‘taxing’ technological improvements32 and encouraging a path-dependent attitude by competitors. Indeed, the very strict, ‘exceptional’ conditions required by the EF doctrine exert an all too reasonable pressure on competitors to roll up their own sleeves, instead of simply following the path established by the first innovator at the mere cost of a royalty33. In another respect, the approach supported cannot be assessed as ‘punitive’ for the owner of the IPR-protected standard, subject to a duty to grant access on the basis of the EF doctrine. Indeed, allowing access to a certain resource does not imply a free of charge utilization thereof. The misleading assumption that openness will rule out any possibility to recoup R&D expenses has led many being opposed to the application of the essential facility doctrine, fearing an overall lost of incentives towards innovation. This is far from truth. First of all, in purely economic terms, the perception of adequate licence royalties could well maintain, or even increase the owner’s expectations of profit, and therefore her propensity to innovate. At the same time, the burden of paying royalties, if they are really ‘fair’, fair for the owner too, could maintain a significant competitive advantage for the owner though in the form of a significant increase of rivals’ costs34. Moreover, in terms of technological development, the IPR holder could in her turn, and in several ways, take advantage of the derivative innovation developed by (otherwise bottlenecked) competitors as a result of the right to access. Think, for example, of the benefits

On the ‘intersection’(s) of IP and competition law(s)

109

an operating system can derive from the disclosure of its APIs to manufacturers of compatible programs, which will enlarge its network and render it even more appealing to consumers. But also, on a different level, think about the crosslicense mechanism envisioned by Article 31, 1) TRIPS in patent law, where ‘high profile’ (second) inventors can obtain a license on the first blocking patent provided that they license back their innovation to the first innovator. Moreover, mutual technological enrichment appears to be the logic underlying ‘Open Source’ licence mechanisms, whose rapid spread seems to be attributable precisely to the principle of ‘make-and-share’ further innovations35. The above considerations regarding the pro-competition and pro-innovation advantages stemming from the application of the EF doctrine to dominant standards protected through IPRs lead us to support the European attitude towards ‘openness’ and especially the Commission’s approach with regard to foreclosure of access even in the very same market where the IPRs do operate. Here, I reject the objection that the antitrust ‘interference’, which allegedly deprives IPRs of their typical excluding powers, amounts to an encroachment of their ‘essential function’. This is not the case. Aside from the fact that such interference would occur, as emphasized, only in ‘exceptional’ situations of foreclosure of competitors from a certain market, even in principle that pro-competitive ‘interference’ by antitrust law could in no way be seen as an encroachment of IPRs’ function. This, in systematic terms, is to protect inventors against free riding by granting them a micro-monopoly i.e. on the given specific technological solution they developed, not a macro-monopoly on the industrial sector to which that solution belongs36. This assumption is comforted by the undisputable principle that patent protection cannot cover a type of function even if the patented solution might be, at the date of filing, the first and only to satisfy that kind of usefulness. One is further comforted by the often recalled built-in procompetitive features of the patent paradigm: from the public disclosure of a full and exact description of the invention to the non-voluntary (cross-) licence mechanism provided by art.31, l) TRIPS in favour of derivative inventions of high technical and economic profile. Thus a fortiori no encroachment of IPRs’ function can reasonably be affirmed when antitrust law intervenes to grant third parties’ access on reasonable terms in cases in which the otherwise ‘normal’ exercise of IPRs would prejudice the competition scenario on a whole sector of the market37. This leads us also to reckon that the antitrust ‘correction’ properly concerns not the IPR’s exercise as such, but the market situation of competitive bottleneck that has grown ‘around’ the IPR, be it due to owner’s manoeuvring or to objective circumstances such as the growth and maximization of ‘lockingin’ network effects38. Thus, pro-innovation as well as pro-competition reasons support the approach defended here. This applies, let us again emphasize, also to (derivative) innovations situated on the same market as that of the standard owner. Even for an additional reason: as experience shows, and as Professor

110

Intellectual property and competition law

Brian Arthur (1994) and Professor Rudy Peritz (2002) have convincingly illustrated, the situation that leads a product (or an information or communication standard) to dominate a market does not always reflect its greater efficiency/quality, but is sometimes due to random circumstances and sometimes to shrewd marketing and advertising operations, or others which can hardly be associated with the concept of ‘competition on merits’. Now, this factor constitutes a strong additional argument in favour of solutions which, by opening up access to the dominant standards for third parties, would increase the number of firms engaged in improving on the existing technology. 9. Incidentally, it might be worthwhile to compare the approach supported here with the continental European concept theory of property, rooted on Roman law and ius commune. The doctrine of easements, or servitudes (the substantial ancestor, in my opinion, of the EF doctrine39), shows that the theory of property law encompasses a duty upon landowners to grant access to ‘neighbours’ (also, potential competitors)40 in the specific cases where foreclosure of the latter would thwart, e.g. to access to water, the efficiency of their farming/breeding activity and consequently the overall agricultural productivity. Now, it seems to me that from a substantial point of view, the application of the essential facility doctrine to IPRs aims at achieving ‘from the outside’, i.e. throughout antitrust ‘interference’, a result which is not obtainable ‘from within’ the IPRs paradigms (more fastened than those concerning tangible goods, esp. real estate: it is not coincidence, by the way, that the most frequent application of the EF doctrine to IPRs has occurred with regard to copyright, by far the closest paradigm toward derivative innovation). In order to better grasp the differing approaches towards the application of the EF doctrine to IPRs, one may reflect on the enlightening Foreword by Judge Learned Hand to volume L (1936) of the Harvard Law Review, dealing with the Anglo-Saxon ‘idea of property’. Well aware that contemporary industrial development requires ‘collaborative’ relationships (‘Every smallest step of modern industry depends upon a co-operation whose maintenance and regulation is the very stuff of law’), the great Federal Judge recalled that the Anglo-Saxon theory of property did not include any significant ‘social duties’ (as had persisted under feudal law): ‘while the Tudors were forging the English commonwealth, legal theory created no new nexus of property and duties’. While as regards the American tradition, ‘it was impossible that the American colonists of the seventeenth century should have maintained, even if they had inherited it, a tradition of communal servitudes [. . .] The individual asked little of society, and himself created whatever value his meagre possessions acquired. On the contrary he established, and handed on, a notion of society as an aggregation of monads, legally bound together as lightly as possible and for few common purposes’ (emphasis added).

On the ‘intersection’(s) of IP and competition law(s)

111

10. One more comment. The need to invoke antitrust law might often be avoided (thus drastically reducing the costs of litigation) if the paradigms of IPRs (especially copyright) were structured, or applied, so as to reconcile in a more balanced way the interests of the first and the subsequent innovators, who are often respectively incumbents and new or existing rivals. This seems most urgent in the IT field, more intensely characterized by network effects, and extensively dominated by the copyright paradigm, the less friendly to derivative innovation (supra, Chapter 3). To quote Hanns Ullrich (2004), ‘because legislators often fail to properly define the limits of exclusive property rights, the exercise of these rights in new situations, and especially with regard to new technologies, attracts scrutiny under competition law, with a view to preventing anti-competitive market foreclosure’. In this respect, one example of more competition- (and innovation-) oriented regulation of intellectual property can be found in the text of the 2002 Proposal of a Directive – blocked by the European Parliament in 2004 in second reading – on the patentability of computer-related inventions (doc. COM(2002)92–C50082/2002-2002/0047). The Proposal sought to transpose into the patent framework, presented therein, the pro-interoperability rules set forth by Council Directive 91/250/EEC of 14th May 1991 on the legal protection of computer programs. Now, in coherence with the pro-competitive approach we stand for, a symmetrical ‘gene transplant’ from the patent to the copyright paradigm could well be proposed, inserting into the latter Directive the principle protecting derivative innovations set by art. 31, l) of the TRIPS Agreement and various national European legislations.

IP AND UNFAIR COMPETITION 11. Let us now consider the other side of the IP/competition law intersection, namely that concerning the law on unfair competition. Two preliminary comments are necessary. I have not used the word ‘legislation’, because ad hoc statutes only exist in some member states of the EU, such as Germany and Italy, whereas in others, like the UK, common law principles developed by the courts are applied. Apart from this formal difference, there is no body of EU legislation to refer to, as in the case of antitrust law. The only general legislation, referred to en bloc in the TRIPS Agreement (art. 39, 1)), is art. 10-bis of the Paris Convention, last amended on September 28, 1979. However, the principles it expresses have become so obvious and generic that the various national Courts have interpreted and applied them under often diverging approaches, as we shall see shortly when comparing the traditional continental approach with that of the English-speaking countries. In my opinion, this is the true reason why all attempts to pass modern supranational legislation have so far failed41.

112

Intellectual property and competition law

For a better understanding of the development of this branch of law, let us briefly review its origins. Starting in France, and subsequently spreading throughout the industrialized nations of Europe, a set of rules against ‘unfair’ acts of competition came to be enforced by the Courts a few decades after the establishment of free-market principles in economics. The original function of such rules was ‘ancillary’ to the trademark and patent laws newly enacted after the Industrial Revolution. More precisely, these rules were originally aimed at ‘filling the gaps’ of the early IP legislation with reference to business practices which, albeit prejudicial to IPR owners’ goodwill and condemned by the dominant professional circles, could not be legally classed as ‘infringement’ and therefore enforced under said legislation. Thus, thanks to the new rules, a patent holder could protect her finished product not only against reproduction of its technical substance but also against imitation of its distinctive forms (passing-off). Similarly, a trademark owner could prevent competitors from making disparaging references to her branded goods (slander of goods) or, the other way round, she could prevent them from implementing behaviours aimed at unduly profiting from the trademark’s reputation (behaviours described as ‘Anlehnung’ in Germany, ‘gâchage’ in France, ‘appropriazione di pregi’ in Italy). Thereafter, the new regulation progressively spread to other, non-IP related misbehaviours, such as poaching of employees, industrial espionage etc. For a long time, the rules on unfair competition were applied, especially in continental Europe, with a strongly protectionist, corporative bias. For example, imitation of formal features of a competing product was condemned even in the absence of a real risk of passing-off; comparative advertising was prohibited per se (i.e. even if mentioning true facts) just because of its disparaging effect; poaching of employees was enforced even if it merely took the form of offering better working conditions, etc. In ultimate analysis, that approach was based on the idea that goodwill ‘belongs’ to the firm that generated it, as a quasi-property (sometimes without the ‘quasi’ . . .). Hence the development of an erroneous concept of ‘misappropriation’ even in absence of a deceitful conduct. The British courts were the first in Europe, between the wars (at least up until the 1938 Trade Marks Act42), to move gradually beyond this corporatist approach. In the USA too, the ‘misappropriation doctrine’ had little support from the courts43. They refused to extend ‘proprietary’ protection beyond the IPRs established by law, outside whose confines only fraudulent operations on the market were held to be unlawful (‘no misappropriation without misrepresentation’). This development came later and more slowly in continental Europe, as a by-product of the emergence, after WWII, of a new vision of capitalism driven by two basic guidelines:

On the ‘intersection’(s) of IP and competition law(s)

113

• the adherence to the principle of freedom of competition as acknowledged in its adversarial ‘toughness’, and • the acknowledgment that the limits of this freedom should be fixed not where and how the interests of the strongest competitors dictate, but where private business interests collide with social welfare – meaning both collective consumers’ interests and the general interest to a competitive market. On the basis of its substantially, and sometimes also formally, constitutional status, and therefore the ‘hierarchical’ superiority of its representative principles, this vision influenced also the interpretation and application of the ordinary legislation governing economic relationships, including that against unfair competition. Thus the guiding principles, including the concept of ‘unfairness’, were gradually freed from their original dependence on sectional business criteria, and no longer obeyed to ‘values’ expressing the interests of the business establishment (beati possidentes). This cultural [r]evolution, born of the ‘social market’ approach to economic policy, gradually led to a substantial rejection of the traditional ‘proprietary/protectionist’ bias, whose reference to goodwill as ‘quasi-property’ was emblematic. Thus the British Judge (now Lord) Robin Jacob, vividly synthesizes the new line of thought: ‘There is no tort of taking a man’s market or customer. Neither the market nor the customers are the plaintiff’s to own. There is no tort of making use of another’s goodwill as such’ (Hodgkinson & Corby and Roho v. Ward, 1995). 12. As regards the relationship with IPRs, especially patent and patent-like rights such as those over industrial designs or semiconductor ‘topography’, this evolutionary approach defends separate, different ‘competitive interests’ from those to which the IPR paradigm relate. In other words, unfair competition rules no longer strengthen IPRs’ excluding power, in terms of either duration or scope. Two examples may be offered to clarify this statement. Firstly, on expiry of the exclusive rights to a registered design, the loss of the monopoly may lead to confusion (passing-off) precisely because competitors are now in principle free to use a form no longer protected by exclusive rights. The various products offered on the market must therefore be differentiated from one another sufficiently to ensure that purchasers are not misled. Now, the approach I have called protectionist assigns to the competitors of the ex-patentee the duty to adopt distinctive ‘variations’, while the former owner can continue to exclusively (and indefinitely) use, as a form of her finished product, the very design to which the expired registration related. Thus, the rules against passing-off are objectively transformed into a ‘proxy’ of the IPR, extending its excluding power in perpetuity. On the opposite side, the modern pro-competitive

114

Intellectual property and competition law

approach, equally worried to avoid confusion after the expiry of the IPR, would rather put on the ex-patent owner the onus to ‘dress’ her finished product with distinctive (‘off-registration’) variations, and this either right from the start, or in any event as the expiry date approaches44. And competitors would never (without any time limit) be allowed to reproduce such variations, otherwise incurring in passing-off. The second example relates to the case of a new industrial machine, where a competitor reproduces a certain arrangement of the internal parts which was not claimed by the inventor and therefore cannot be covered by the patent. Nevertheless, according to the approach that prevailed until recently in several countries, the unauthorized reproduction of such arrangement amounted to ‘misappropriation’. The paradoxical result was that since protection against unfair competition lasts of course in perpetuity, the unpatented components would be protected against reproduction imitation for longer than those claimed in the patent! On the contrary, according to the interpretation I support, that reproduction would be lawful, since • in the case of imitation of internal parts there can be no risk of confusion, • unpatented technology cannot be subject to exclusive exploitation. Once again, we must reject the attempt to assign to unfair competition law the role of IPRs’ proxy: in this second case in order to surreptitiously expand the scope of exclusive rights of production and trade45. In conclusion, according to the modern pro-competitive approach, unfair competition law ‘integrates but does not extend’ IP protection, as it did in its very origins. In particular, it can certainly protect IPR holders’ competitive interests against a series of misconducts based on misrepresentation, fraud, boycott, etc., but cannot any longer be used as a means to expand the scope of IPRs, still less to resuscitate the exclusive/ding powers after their statutory expiry (or annulment). In this respect, the approach to unfair competition we support here helps to restrain the criticized tendency towards expansion of the IPRs-related excluding powers: thereby expressing a significant jurispolitical convergence, and a useful functional integration, with antitrust law.

CONCLUSION A conclusion for this long reconstruction of the relationship among intellectual property and competition rules can well be expressed in a caveat. It would be somewhat over simplistic to construe this interaction either in terms of the

On the ‘intersection’(s) of IP and competition law(s)

115

clash between the excluding features of IPRs and the principle of freedom of competition (from barriers and whatever behaviours can hinder competitive scenarios) or in terms of the reassuring prospect of substantial convergence of goals. Actually, each of these disciplines has a direct specific goal which cannot be ‘harmonized’ with that of the other. To give just one example, the defence of competition requires the prohibition (except within the strict limits of art. 81.3) of agreements in restraint of trade even if they promote innovative technical/manufacturing relationships. Similarly, the protection of entrepreneurs’ free business initiative against unfair practices cannot be stretched so as to defend them from slavish imitation of products that could have been patented, but they hadn’t. Equally, as we have seen, the patent paradigm only gives free rein to derivative innovation developed by third parties (and therefore to their competitive capacity) on the conditions (relating both to merit and reciprocity) set out in section 31, 1) of the TRIPS Agreement: thus a more limited set of hypotheses would be postulated by the prospect of full and complete promotion of subsequent competition, which would include even incremental improvements on prior art. Analysis of the intersections between IP and competition rules would therefore lead to a false trail if it attributed to the latter a direct role in promoting innovation, and to intellectual property a direct role in promoting competition. Rather, one should recognize a dialectical exchange between the two disciplines which aim at different but often synergic objectives, and therefore often interact to eliminate situations which would obstruct both innovation and competitive dynamics. Thus, through this dialectical exchange, each discipline, by fulfilling its function, can also indirectly serve the aims of the other. A convergence of goals can be acknowledged from an industrial policy angle, i.e. the objective of strengthening and promoting European competitiveness. Obviously, however, such perspective may serve to better comprehend the substantial grounds of a normative and jurisprudential evolution rather than to interpret and apply the positive law.

NOTES 1. Ghidini G. (1973). 2. Compare, indeed, the new TTBER with Regulations 2659/2000 and 2658/2000 relating to vertical agreements with the different approach of Regulation 2790/1999. 3. In favour of patent pools as a means to constrain transaction costs see Merges R.P. (2001). 4. Economic literature uses the term ‘incremental’ or ‘cumulative’ to address previous inventions or the new nature of innovation in the twentieth century whose development need to stand on the shoulders of ‘giants’, to quote Scotchmer S. (1991) who, in her turn, borrowed the famous saying from Newton. The incremental nature of innovation carries within itself the need for innovators to have free access to the fruits of third parties’ efforts in order to preserve the creative process. But when proprietary rights come into play, inventors need to negotiate several licenses to get

116

5. 6. 7.

8. 9. 10. 11.

12. 13. 14. 15. 16. 17.

18. 19. 20. 21. 22. 23. 24. 25.

Intellectual property and competition law feu vert to their innovation: hence, if transaction costs happen to be too high the very same innovative process could come to a halt. I am referring here to the well known issue explored by Heller M.A. (1998) of the ‘tragedy of the anticommons’. Case MPEG, COMP/C-38143, in G.U.C.E., 19 June 2001, C 174/6; case DVD, Press Release IP/00/1135, 9 October 2000. See cases MPEG-2 (US Department of Justice, Antitrust Division, Business Letter, 26 giugno 1997, www.usdoj.gov/atr/public/busreview/1179.htm), DVD-3 (www.usdoj.gov/atr/ public/busreview/2121.htm), DVD-6(www.usodj.gov/atr/public/busreview/2485.htm). Note, indeed, that the very same Guidelines (§ 152) acknowledge that ‘[. . .] a technology pool, for instance, can result in an industry standard, leading to a situation in which there is little competition in terms of the technological format. Once the main players in the market adopt a certain format, network effects may make it very difficult for alternative formats to survive.’ But then conclude: ‘This does not imply that the creation of a de facto industry standard always eliminates competition within the meaning of the last condition of Article 81(3)’. This concept and boundary are restated in art. 30 TRIPS. Anderman, S.D. (2000). As we shall see, this perspective is a substantial equivalent of the presently dominant US approach to refusal to share immaterial assets (more below, paragraph 8). They have evolved so far. You never know with antitrust law application, so highly sensitive to political approaches (see Fox E. (1987)). Thus, it might be that the end of the ‘Monti era’ will soon or later give way to a return to past visions – possibly fine-tuning with present US dominant line, as conspicuous professional interests even in Europe keep asking. Kimberly-Clark v. Scott, case no. IV/M 623; see also the Italian case Henkel v. Loctite, order nos. 4993 C 2641, 9795 C 2641 and 10718 C. The decision has been upheld by the Court of First Instance, see Duales System Deutschland AG v. Commission, case T-151/01 R. See Pepsico Food and Beverages International v. IBG Sud v. Coca Cola Italia, order of the Italian Competition Authority no. 7804 A224. In such cases, as well known, revocation of the exclusive right may occur. The question mainly – albeit not exclusively – focuses on Information Technology’s products, software in particular: see paras. 6–7 of this chapter. Indeed, product standardization sensibly decreases consumers’ willingness to switch to different products and, conversely, forces suppliers – who must comply with consumers’ preferences – to adopt and distribute the standardized good. The same phenomenon can and does happen, albeit with less intensity, even in the case of non-standardized products where, once an article in a certain ‘basket’ of substitutes becomes the most widespread and the most appealing to consumers (such as Coca-Cola or Scottex toilet paper), not only will consumers be reluctant to change product, but their preferences will directly and strongly influence traders to acquire the ‘must carry’ product in order not to risk losing customers to their competitors. Copyright deserves special attention when dealing with information and communication standards (see paragraphs 7–9, in this chapter, and Chapter 3 above). Shapiro C. and Katz M.L. (1999). Pitofsky R. (2001). See Directive 92/38,1992, O.J. L 137, 20.05.1992, Recital 7. Commission Guidelines on Intellectual Property and Standardisation (COM 892), 1992. See the ‘1999 Communications Review’ addressed to the European Parliament, ‘Towards a new framework for electronic communications infrastructure and associated services’, COM (1999) 539 final, 10.11.1999. Commission Notice, Guidelines on the Applicability of Art. 81 of the EC Treaty to Horizontal Cooperation, O.J. 2001/C 3/02, § 6.4.3, 174. Briefly put, this doctrine states that a dominant firm which owns or controls an essential facility (defined by the Commission as ‘a facility or infrastructure without access to which competitors cannot provide services to their customers’, see Sealink/B&I Holyhead: Interim Measures, 5 CMLR 255, 1992) abuses its position, without an objective business justifica-

On the ‘intersection’(s) of IP and competition law(s)

26. 27.

28.

29. 30.

31.

32. 33. 34.

35.

36.

37. 38.

117

tion, it refuses to third parties access to those facilities. For comment relating to the essential facilities doctrine, its early applications (to physical infrastructures) and subsequent development in the field of IT, see, among many others, G. J. Werden (1987); P. Areeda (1990); J. Temple Lang (1994). See Judgement of the European Court of Justice, 29 April 2004, case C-418/01, IMS Health GmbH & Co. OHG v. NDC Health GmbH & Co. KG, REC I-5039, §49. The judgment of the Court is vague at best. On the one side the ECJ refers to the need of a new product brought about in the secondary market; but soon after it explains that the finding of the two separate markets can be satisfied even when ‘two different stages of production may be identified and [. . .] they are interconnected, inasmuch as the upstream product is indispensable for the supply of the downstream product’ (ibidem, §45). Please note that much in the same way, in the IMS Health case the Commission, in its interim order, tried to open up competition on the same (primary) market by compelling IMS to license its brick structure to competitors willing to provide the same service (the RMP market report). Notice 2001, supra at footnote 20, para. 7. Verizon Communications Inc. v. Law Offices of Curtis V. Trinko LLP, 124 S.Ct. 872, 2004. Although Trinko did not involve intellectual property rights, the ruling of the Supreme Court is of striking importance also for our discussion. Indeed, in the words of Justice Scalia, ‘firms may acquire monopoly power by establishing an infrastructure that renders them uniquely suited to serve their customers. Compelling such firms to share the source of their advantage is in some tension with the underlying purpose of antitrust law, since it may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities. [. . .] Thus, as a general matter, the Sherman Act does not restrict the long recognized right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal. United States v. Colgate & Co., 250 U.S. 300, 307, 39 S. Ct. 465, 63 L. Ed. 992 (1919)’. Id., at 880. The statements by the Commission in the Guidelines and Communications relating to telecommunications certainly used less restrictive language, but this is justified by the type of document in question, dedicated to announcing industrial policy lines designed to promote the liberalization of entire macro-sectors. See Advocate Jacobs’ Opinion in the Bronner case: Oscar Bronner GmbH & Co. vs. Mediaprint, C-7/97, para. 57. I would not support a general perspective of changeover from the property to the liability rule, and this for the reasons mentioned above (Chapter 2), i.e. in order not to encourage a general tendency to technological path dependence. At this regards Baumol observes that the licensing of a certain technology to third parties grants the owner a certain exclusive lead time over licensees because they will always need a good amount of time to properly learn how the intellectual assets work. Hence, competitors will need time to assert an effective pressure on the market and the IP owner can use such time to build a good reputation (and tie consumers to her product) or improve upon her own technology. See Baumol W. (2002). Many eminent scholars have supported the idea of reshaping the patent system, at least for some specific subject matters, in such a way to substitute property rules with liability rules. See, Reichman J.H. (2000). On a similar line of reasoning Antonelli C. (2003) explaining that technological knowledge should be considered by itself an essential facility. At this regard, although reaching different conclusions than the one supported here, Posner explains that the use of the word ‘monopoly’ with regard to IPRs ‘[. . .] though common is unfortunate, because it confuses an exclusive right with an economic monopoly. [. . .] A patent or a copyright does carve out an area of exclusive rights, but whether the right holder can use his right to obtain a monopoly return depends on whether there are good substitutes for his product [. . .]’. See Posner R.A. (2005). Please note that such licensees would not be free riders. Free riders do not pay! With regard to this issue J. Drexl has pointed out that ‘the copyright is not the cause of IMS’s dominant position [. . .] the problem is that the lock-in effect excludes any other method of collecting data from the relevant market [. . .]’. However he added that ‘[. . .] although it

118

Intellectual property and competition law

46.

may not be denied that in IMS Health the copyright is not the cause of the dominant position, the copyright remains essential so that IMS Health can effectively exploit its dominant position’ and therefore even if the exclusive right does not represents in itself the cause of the overall monopolistic situation ‘[. . .] the competition problem may be cured by restricting the exercise of the exclusive right’. See Drexl J. (2004). I am here referring to the economic substance of servitudes, aside from legal technicalities such as their ‘real’ (in rem) nature and their intrinsic inherence to the property paradigm. Both in the (primary) market of agricultural commodities and cattle and in the (downstream) market of alimentary finished products. Indeed, some attempts have been made to harmonize (within the EU) the rules regarding unfair competition practices; however, such efforts so far have been limited to specific practices which directly damage consumers. Take the example of the recent Directive (Directive 2005/29/EC of the European Parliament and of the Council of 11 May 2005, in O.J. L 149/22 11.6.05), so called ‘Unfair Commercial Practices Directive’, which sets forth a detailed restatement of anti-consumers marketing activities but avoids dealing with the more thorny business practices such as poaching of employees, sales below cost, etc. Sec. 41, b) of the Act considered unauthorized ‘references’ to a registered mark as infringing. Opposite view had been expressed in Irving’s Yeast-Vite Limited v. F. A. Horsenail (1933), 50 R.P.C.139. See Cornish W. (2003), IV, 12 and ff. If the IPR owner chooses to add distinctive variations to the registered form from the start, she will be protected, as long as the exclusive right is in force, against third parties’ adoption of even the ‘basic’ form of the product. I will add a third example, although it does not relate to the relationship between unfair competition and IPR, but which is worth mentioning as a symbolic expression of the ‘culture’ underlying the traditional approach. As hinted above, for a long time, en hommage to a leit-motiv of professional ‘codes of conduct’ traditionally hostile to comparisons that name names, comparative advertising was considered to be an act of unfair competition by various continental legislation, regardless of the truth of the facts stated, just because it damaged the competitor’s goodwill, and on the argument that criticism by a competitor is ‘biased’, whereas consumers should be left ‘free’ to make up their own minds. [If this hypocritical argument were accepted, all advertising would have to be prohibited: all advertising is ‘biased’ precisely because it aims to influence consumers’ opinions!]. The protectionist and corporative character of this approach (which in various member states, including Italy, was not really dismissed until the implementation of EU Directive no. 55 of 1997) is highlighted, first of all, by the quite different tradition of the English-speaking countries, where the value of market transparency inspired also the rules on ‘slander of goods’, in the light of the old common law principle whereby ‘the law will not permit a man to recover damages in respect of an injury to a character which he either does not or ought not to possess’ (McPherson v. Daniels, 1829). That character also emerges by comparison with the provision of the Paris Convention (as revised at the Hague in 1925) which censors as unfair the false allegations of a discrediting nature. Finally, bearing in mind that modern criminal laws usually grant a defence for personal defamation based on true facts if the defamed person is a public official, we might conclude that the criticized approach to unfair competition protected the reputation of a dishwashing powder more intensely than criminal law does with that of a human being . . . See also below, paragraph 5, about communication standards.

*

I wish to thank Dr. Emanuela Arezzo for her contribution to the final drafting of this Chapter.

39. 40. 41.

42. 43. 44. 45.

Bibliographical notes CHAPTER 1 A preliminary general overview of the historical evolution of intellectual (formerly: ‘industrial and intellectual’) property law from its command-economy origins to a regulatory framework based on equal rights and duties for entrepreneurs (in the classical system, consumers’ interests are indirectly protected: see Chapters 4 and 5), may be gleaned from a series of works that include: F. PRAGER, A History of Intellectual Property from 1545 to 1787, J. Pat. Off. Soc., 1944, 711; P. O. LONG, Invention, Authorship, ‘Intellectual Property’, and the Origins of Patents: Notes Toward a Conceptual History, Tech. and Culture, 1991, 846; P. A. DAVID, The Evolution of Intellectual Property Institutions, in A. AGANBEGYAN et al., Economics in a Changing World. Vol. 1: System Transformation: Eastern and Western Assessments, London, 1994; B. SHERMAN and L. BENTLY, The Making of Modern Intellectual Property Law, Cambridge, 1999. As recalled in the chapter, modern IP law was shaped to large extent (not only at the level of the coordination and/or harmonization of national legal frameworks, but also in terms of common substantive principles) by the ground-breaking international conventions of the late 1800s: the Paris Convention of 1883 on ‘industrial property’ and the Berne Convention of 1886 on copyright. These conventions marked the first structured response to the ever-increasing integration of the world’s most industrialized economies, that was both symbolized and stimulated by the great ‘Universal Expositions’ at the turn of the century (see Y. PLASSERAUD and F. SAVIGNON, Paris 1883. Genèse du droit unioniste des brevets, Paris, 1981; L. AIMONE and C. OLMO, Le esposizioni universali 1851–1900. Il progresso in scena, Turin, 1990). A general well-structured overview of these conventions may be found in S. P. LADAS, The International Protection of Industrial Property, Cambridge, 1930; V. DE SANCTIS, La Convenzione universale del diritto d’autore, Rome, 1953; A. BOGSCH, The Law of Copyright Under Universal Copyright Convention, Geneva, 1972; F. K. BEIER, One Hundred Years of International Cooperation – The Role of the Paris Convention in the Past, Present and Future, IIC, 1984, 1; H. PUESCHEL, 100 Jahre Berner Union, Leipzig, 1986; S. RICKETSON, The Berne Convention for the Protection of Literary and Artistic Works: 119

120

Intellectual property and competition law

1886–1986, Centre for Commercial Law Studies, Queen Mary College, London, and Kluwer, London, 1987. The aforesaid conventions enshrine the regulatory dualism, typical of the classical paradigm, between ‘industrial’ (patents, trademarks) and ‘intellectual’ (copyright) property. On such dualism and its contemporary ‘crisis’, see J. WILEY, Copyright at the School of Patent, Univ. Chicago L. Rev., 1991, 119; R. C. DREYFUSS, A Wiseguy’s Approach to Information Products: Muscling the Copyright and Patent into a Unitary Theory of Intellectual Property, S. Ct. Rev., 1992, 195; H. COHEN JEHORAM, Hybrids on the Borderline Between Copyright and Industrial Property Law, Rev. int. droit d’auteur, 1992, 75; W. J. GORDON, On Owning Information: Intellectual Property and the Restitutionary Impulse, Va. L. Rev., 1992, 149. A special mention is due to J. H. REICHMAN, Legal Hybrids Between the Patent and Copyright Paradigms, in Columbia L. Rev. 1994, 2432; ID., Charting the Collapse of the Patent–Copyright Dichotomy: Premises for a Restructured International Intellectual Property System, Cardozo Arts & Entertainment L.J., 1995, 475; W. CORNISH, Intellectual Property. Patents, Copyright, Trademarks and Allied Rights, London, 2003; J. C. GINSBURG and R. P. MERGES, Foundations of Intellectual Property, NY, 2004. In its turn, the crisis of the classical dualism is largely the by-product of the emerging ‘overprotectionist’ trends that reflect corporate policies (mainly short-term) of increasingly intense exploitation – economical and financial – of the monopolistic potential of intellectual property rights (for a comprehensive view see S. G. WINTER, Knowledge and Competence as Strategic Assets, in The Competitive Challenge (D. J. TEECE ed.) Cambridge MA, 1987; O. GRANSTRAND, The Economics and Management of Intellectual Property – Towards Intellectual Capitalism, Cheltenham, 1999; see also, for a short specific overview of the financial aspects, W. ANSON, How Intangibile Assets Drive Capitalization, Les Nouvelles, 1999, 133). Of course, such policies (often referred to as ‘Intellectual Asset Management’) are just a part, albeit significant, of a much wider fabric of social processes and economic factors (among them, capital intensive innovation-based competitive strategies) driving industrialized countries’ economies towards oligopolistic settings, hence also steering the evolution of contemporary commercial law towards (basically) US-type paradigms. For a broad overview of said factors and processes, and their impact on the transnational legal framework, see J. R. COMMONS, I fondamenti giuridici del capitalismo, Bologna, 1981; T. E. CARBONNEAU, Lex mercatoria and Arbitration, Dobbs Ferry, 1990; C. R. FRISCHTAK, Harmonization Versus Differentiation in Intellectual Property Rights Regime, in Global Dimension of Intellectual Property Rights in Science and Technology, MITCHEL B. WALLERSTEIN et al. (eds.), 1993; M. SHAPIRO, The Globalization of Law, Indiana J. of Global Studies, 1993, 7;

Bibliographical notes

121

D. M. TRUBEk, Y. D. DEZALAY, R. BUCHANAN and J. R. DAVIS, Global Restructuring and the Law: The Internalization of Legal Fields and Creation of International Arenas, Madison, WI, 1993; Y. DEZALAY and B. G. GARTH, Dealing with Virtue. International Commercial Arbitration and the Construction of a Transnational Legal Order, Chicago/London, 1996; S. SASSEN, Losing Control?, New York, 1996; R. M. BRUNELL, Appropriability in Antitrust: How Much is Enough, Antitrust Law Journal, 2001, 1; M. SHAPIRO, Administrative Law Unbounded: Reflections on Government and Governance, Indiana Journal of Global Studies, 8, 2001, 369; S. D. ANDERMAN, EC Competition Law and Intellectual Property Rights in the New Economy, Antitrust Bulletin, 2002, 285–308; K. E. MASKUS and J. H. REICHMAN, The Globalization of Private Knowledge Goods and the Privatization of Global Public Goods, Journal of International Economic Law, 7, 2004, 279–320; M. A. LEMLEY, Property, Intellectual Property, and Free Riding, in Stanford Law and Economics Olin Working Paper No. 291, 2004; K. SELL, Private Power, Public Law: The Globalization of Intellectual Property Rights, Cambridge, 2005. Finally, on the making of the TRIPS Agreement and the early perceptions of its impact and significance, see D. GERVAIS, The TRIPs Agreement: Drafting History and Analysis, London, 1998; M. P. RYAN, Knowledge Diplomacy – Global Competition and the Politics of Intellectual Property, Washington D.C., 1998. See also H. P. KUNZ-HALLSTEIN, The U.S. Proposal for a GATT Agreement on Intellectual Property and the Paris Convention for the Protection of Industrial Property, ‘GATT or WIPO? New Ways in the International Protection of Intellectual Property’, Vol. 11, IIC Studies,75, Weinheim, 1989; T. STEWART (ed.), The GATT Uruguay Round: A Negotiating History, Deventer-Boston, 1993; A. Bercovitz, El derecho de autor en el Acuerdo de TRIPs, in Num Novo Mundo do Direito de Autor? Lisbon, 1994; C. CORREA, Intellectual Property Rights and Foreign Direct Investment, Int’l J. of Technological Management, 1995, 214; M. BLAKENEY, Trade-Related Aspects of Intellectual Property Rights: A Concise Guide to the TRIPs Agreement, London, 1996; J. STRAUS, Implications of the TRIPs Agreement in the Field of Patent Law, in F. K. BEIER and G. SCHRICKER (eds.), From GATT to TRIPs, Weinheim, 1996; S. K. VERMA, TRIPs – Development and Transfer of Technology, IIC, 1996, 353; P. KATZENBERGER, TRIPs and Copyright Law, in ‘From GATT to TRIPs’, Weinheim, 1996; H. RANGEL ORTIZ, Intellectual Property and NAFTA, with reference to TRIPs and Mexican Law, IIC, 1996, 771; C. CORREA and A. YUSUF, Intellectual Property and International Trade: The TRIPs Agreement, London, 1998 (Chapter 2).

122

Intellectual property and competition law

CHAPTER 2 ‘In Great Britain, the individual inventor of a new product or of a new process may obtain the exclusive right to it, by obtaining what is called a patent. While the patent remains in force, the absence of competitors enables him to raise his price far above the ordinary return of his outlay with interest, and the wages of his own industry. Thus he receives a premium from the government, charged upon the consumers of the new article . . .’. So said in 1803 JEAN BAPTISTE SAY in A Treatise on Political Economy; Or The Production, Distribution and Consumption of Wealth (Book I, Chapter XVII), anticipating some of the reasons of the classical school’s hostility to ‘intellectual property’ (for a restatement, and confutation of such reasons see, inter alios, F. K. BEIER, The Significance of the Patent System for the Technical, Economic and Social Progress, IIC, 1980, 563). The modern critic uses sophisticated tools and strongly differentiated ‘answers’ (usually stemming from different political/economic and jurispolitical approaches) to investigate the broad spectrum of effects that intellectual property in general, and patent rights in particular, produce or help to produce vis-à-vis social welfare issues and objectives – ranging from the promotion of scientific research and the circulation of its results to the incentives for technological innovation (especially in terms of the allocative efficiency of intellectual property compared with the costs of R&D, and the volume of resources actually or potentially destined for innovation), to the impact on the market competitive scenarios, with special reference to the competitive stimulus to subsequent innovation (or rather, the stimulus to further innovation by both the first inventor and his competitors), and finally, the benefits for consumers, especially in terms of prices, as well as of the variety and quality of the goods offered. Defying the scepticism of GEORGE PRIEST, who claims that economic analysis of intellectual property lacks an empirical basis (in his view it is founded on ‘little more than assumptions’, and consequently ‘has taught us almost nothing’: ID., What Economists Can Tell Lawyers About Intellectual Property: Comment on Cheung, in Research in Law and Economics: The Economics of Patents and Copyrights, J. P. PALMER and R. O. ZERBE (eds.), Vol. 8, 1986, 19), many studies of law and economics conducted ‘before, during and after’ Chicago focus on the effects of the patent in relation to the issues mentioned above, with a particular emphasis on IP law’s ‘intersection’ with the antitrust legislation (see esp. Chapter 5 and the corresponding bibliographical notes). In this perspective, with special reference to patents (but with frequent hints also to copyright – see here Chapter 3 and the corresponding bibliographical note), I would suggest that the overview analysis starts from classical contributions such as those by J. A. SCHUMPETER, The Theory of Development,

Bibliographical notes

123

Cambridge, MA, 1934; E. H. CHAMBERLIN, The Theory of Monopolistic Competition, London, 1937; F. MACHLUP and E. PENROSE, The Patent Controversy in the Nineteenth Century, J. of Econ. History, 1950, 1 et seq.; E. PENROSE, The Economics of the International Patent System, Baltimore, MD, 1951; F. MACHLUP, An Economic Review of the Patent System, Study No. 15 of the Subcommittee on Patents, Trademarks and Copyrights, US Senate, 85th Congress, Washington, DC, 1958; W. D. NORDHAUS, Invention, Growth, and Welfare: A Theoretical Treatment of Technological Change, Cambridge, MA, 1969; K. J. ARROW, Economic Welfare and the Allocation of Resources for Invention, in The Rate and Direction of Incentive Activity: Economic and Social Factors, Princeton, NJ, 1962, 609 et seq. See also W. L. BALDWIN and G. L. CHILDS, The Fast Second and Rivalry in Research and Development, Southern Econ. J., 1969, 18; J. HIRSHLEIFER, The Private and Social Value of Information and the Reward to Innovative Activity, Am. Econ. Rev., 1971, 561; J. SCHMOOKLER, Patents, Invention and Economic Change, Cambridge, MA, 1972; C. T. TAYLOR and Z. A. SILBERTSON, The Economic Impact of the Patent System, Cambridge, 1973; E. KITCH, The Nature and Function of the Patent System, J. of Law and Econ., 1977, 265; ID., The Law and Economics of Rights in Valuable Information, J. of Legal Studies, 1980, 683; A. BERCOVITZ and T. BRAUN, The Economic Role of Industrial Property, EIPR, 1979, 265; F. M. SCHERER, Industrial Market Structure and Economic Performance, Cambridge, MA, 1980; ID., Innovation and Growth: Schumpeterian Perspectives, Cambridge, MA, 1984; ID., Antitrust, Efficiency, and Progress, in Revitalizing Antitrust in its Second Century, H. FIRST, E. M. FOX and R. PITOFSKY (eds.), New York, Westport, CT, London, 1991, 130; M. KAMIEN and N. SCHWARTZ, Market Structure and Innovation, Cambridge, 1982; R. R. NELSON and S. G. WINTER, An Evolutionary Theory of Economic Change: A Study of the British Experience, Cambridge, MA, 1982; M. LEHMANN, Diritto di brevetto e teoria del ‘Property Right’ – una analisi economica e giuridica, Studi Franceschelli, Milan, 1983, 65; ID., La teoria dei Property Rights e la protezione della proprietà intellettuale e commerciale – una analisi giuridica ed economica, Riv. dir. ind., 1984, I, 32; L. KAPLOW, The Patent Antitrust Intersection: A Reappraisal, Harvard L. Rev., 1984, 1815; S. A. LIPPMAN and K. F. MCCARDLE, Dropout Behaviour in R&D Races with Learning, Rand J. Econ., 1987, 287; J. B. KOBAK, Intellectual Property, Competition Law and Hidden Choices Between Original and Sequential Innovation, Va. J. of L. & Tech., 1988, 6; M. ADELMAN, The New World of Patents Created by the Court of Appeals for the Federal Circuit, U. of Mich. J. L. Ref: 1988, 979; J. A. ORDOVER, A Patent System for Both Diffusion and Exclusion, J. Econ. Persp., 1991, 43; S. M. BESEN and L. J. RASKIND, An Introduction to the Law and Economics of Intellectual Property, J. of Econ. Persp., 1991, 3; S. SCOTCHMER, Standing on the Shoulders of Giants:

124

Intellectual property and competition law

Cumulative Research and the Patent Law, J. Econ Persp., 1991, 29; T. M. JORDE and D. J. TEECE, Antitrust, Innovation and Competitiveness, New York, 1992; J. R. GREEN and S. SCOTCHMER, On the Division of Profit in Sequential Innovation, Rand J., op cit., 1995, 20; H. F. CHANG, Patent Scope, Antitrust Policy, and Cumulative Innovation, ibid., 1995, 34; T. LEWIS and D. YAO, Some Reflections on the Antitrust Treatment of Intellectual Property, Antitrust L. J., 1995, 603; A. FONSECA, Innovation, Competition and Intellectual Property, Rev. direito econômico, 1997, 63; M. SCHANKERMANN, How Valuable is Patent Protection? Estimates by Technology Field, Rand J. Econ., 1998, 77; S. D. ANDERMAN, EC Competition Law and Intellectual Property Rights – The Regulation of Innovation, Oxford, 1998; W. K. TOM and J. A. NEWBERG, Antitrust and Intellectual Property: From Separate Spheres to Unified Field, Antitrust L. J., 1998, 167; C. LEPORELLI and G. M. REY, Innovazione e concorrenza nel mercato delle tecnologie dell’informazione, in La concorrenza tra economia e diritto, N. LIPARI and I. MUSU (eds.), Bari, 2000, 123; G. L. ROBERTS and J. PUTNAM, Allegations of Harmony between IP and Competition Policies: In Search of the Last Chord, in Papers of the Canadian Bar Ass.’n Annual Fall Conference on Competition Law – 1999, G. F. LESLIE (ed.), 2000, Huntington, N.Y., 313; R. D. CORLEY, IP and Competition Law: Enforcement Challenges of the Information Economy, ibid., 327; R. P. MERGES, P. S. MENELL and M. LEMLEY, Intellectual Property in the New Technological Age, Gaithersburg, NY, 2000; J. A. GOMEZ SEGADE, Tecnología y Derecho, Madrid, 2001; F. S. KIEFF, Property Rights and Property Rules for Commercializing Inventions, Minn. L. Rev., 2001, 697; V. KORAH, The Interface Between Intellectual Property and Antitrust: The European Experience, Antitrust L. J., 2002, 801; A. GOH and J. OLIVIER, Optimal Patent Protection in a Two-Sector Economy, International Economic Review, Vol. 43, 2002, 1191; S. MAURER and S. SCOTCHMER, The Independent Invention Defence in Intellectual Property, Economica, 2002, 535; C. LONG, Patent Signals, Univ. Chicago L. Rev., 2002, 625; J. S. MILLER, The Bitter Has Some Sweet: Potential Antitrust Enforcement Benefits from Patent Law’s Procedural Rules, Antitrust L. J., 2003, 875; A. FONT GALARZA, Interface between Antitrust and Intellectual Property Rights, Int. Business Lawyers, 2003, 4; K. A. MOORE, R. D. TRUNKEY, J. R. ALLISON and MARK A. LEMLEY, Valuable Patents, in George Mason Law & Economics Research Paper No. 03-31 and UC Berkeley Public Law Research Paper No. 133, 2003; W. J. GORDON, Intellectual Property, in The Oxford Handbook of Legal Studies, Oxford, 2003, 617; P. MOSER, How Do Patent Laws Influence Innovation? Evidence from Nineteenth-Century World Fairs, Massachusetts Institute of Technology (MIT) – Sloan School of Management, National Bureau of Economic Research (NBER) – Working Paper No. W9909, 2003; A. KUR, A New Framework for Intellectual Property Rights – Horizontal Issues, IIC,

Bibliographical notes

125

2004, 15; A. GEIGER, Patents, Trade Marks, Copyrights – a Mission for Article 82 EC?, ECLR, 2004, 311; V. FALCE, Sulle fondazioni filosofiche delle moderne dottrine economiche dell’innovazione, Riv. dir. ind., 2004, 125; V. DENICOLÒ and L. A. FRANZONI, The Contract Theory of Patents, International Rev. of Law & Economics, Vol. 23, No. 4, 2004, 365; B.-W. LIN and J. S. CHEN, Corporate Technology Portfolios and R&D Performance Measures: A Study of Technology Intensive Firms, R&D Management, Manchester, Vol. 35, 2005, 157. For a specific analysis of the efficiency of the intellectual property system in meeting the interests of the consumers’ community see J. HAUSMAN, Exact Consumer’s Surplus and Deadweight Loss, Am. Econ. Rev., 1981, 662; and J. HAUSMAN and G. K. LEONARD, Efficiencies from the Consumer Viewpoint, Geo. Mason L. Rev., 1999, 707; G. PARCHOMOVSKY and P. SIEGELMAN, Towards an Integrated Theory of Intellectual Property, Fordham Law & Economics Research Paper No. 18, 2002; and C. LONG, Patent Signals, University of Chicago L. Rev., Vol. 69, No. 2, 2002, 625. The specific issue of the relationship between intellectual property (especially patents) and scientific research has extensively been dealt with by numerous essays in law and economics. These include H. GARRETT, The Tragedy of Commons, Science, 1968, 1243; B. D. WRIGHT, The Economics of Invention Incentives: Patents, Prizes, and Research Contracts, Am. Econ. Rev., 1983, 691; P. DASGUPTA and P.A. DAVID, Information Disclosure and the Economics of Science and Technology, in Arrow and the Ascent of Modern Economic Theory, G. FEIWEL (ed.), New York, 1987, 519; R. C. LEVIN et al., Appropriating the Returns from Industrial Research and Development, Brookings Papers on Econ. Activity, 1987, 783; R. EISENBERG, Patents and the Progress of Science: Exclusive Rights and Experimental Uses, Univ. Chicago L. Rev., 1989, 56; V. WEIL and J. W. SNAPPER (eds.), Owning Scientific and Technical Information, London, 1989 (with special reference to the essay by M. H. DAVIS entitled Patents, Natural Rights and Natural Property); P. A. DAVID, The Digital Technology Boomerang: Intellectual Property Rights Protection, and the Enclosing of the ‘Public Knowledge Commons’ in Science, Report submitted to the Innovation Policy Colloquium, NYU School of Law, 13 April, 2000 (mimeo); K. W. DAM, Intellectual Property and the Academic Enterprise, Univ. Chicago Law and Econ. Working Papers, 1998 (No. 68); and L. GEORGHIOU, Science, Technology and Innovation Policy for the 21st Century, Science and Public Policy, 1998, 135. Finally, for further reference, see also the ‘Etan Report’ by the EC Commission (DG XII) entitled Intellectual Property Rights and Science and Technology Policy, 1999; A. AGRAWAL, University-to-Industry Knowledge Transfer: Literature Review and Unanswered Questions, Int. J. of Management Reviews, Vol. 3, 2001, 285; P. SANYAL, Understanding Patents: The Role of R&D Funding Sources and the Patent Office, Economics of Innovation and New Technology, 12, No. 6, 2002,

126

Intellectual property and competition law

507; K. DEBACKERE, A. VERBEEK, M. LUWEL and E. ZIMMERMANN, Measuring Progress and Evolution in Science and Technology – II: The Multiple Uses of Technometric Indicators, Int. J. of Management Reviews, Vol. 4, 2002, 213; J. H. REICHMAN and P. UHIR, A Contractually Reconstructed Research Commons for Scientific Data in a Highly Protectionist Intellectual Property Environment, Law and Contemp. Problems, 2003, 317; A. RAI and R. EISENBERG, Bayh–Dole Reform and the Progress of Biomedicine, Law and Contemp. Problems, 2003, 289; R. J. MANN, Do Patents Facilitate Financing in the Software Industry?, Texas L. Rev., Vol. 83, 2005, 961. It goes without saying that the relationship between IPRs and scientific research is central to the current debate on the patenting of biotechnological inventions, a driving sector for the development of the patent system. (Early proposals designed to grant copyright protection to biotechnological innovations, put forward especially in the USA in order to overcome the limitations on patentability seem to have lost momentum (see references in the bibliographical notes to Chapter 3).) On this subject see: Y. KO, An Economic Analysis of Biotechnology Patent Protection, Yale L. J., 1992, 777; B. LOONEY, Should Genes Be Patented? The Gene Patenting Controversy: Legal, Ethical, and Policy Foundations of an International Agreement, Law and Policy in Int’l Bus., 1994, 231; F. K. BEIER and R. MOUFANG, Patentability of Human Genes and Living Organisms, Riv. dir. ind., 1994, I, 340; B. V. OLSEN, The Biotechnology Balancing Act: Patents for Gene Fragments, and Licencing ‘Useful Arts’, Albany L. J. of Sc. & Tech., 1997, 295; M. A. HELLER and R. S. EISENBERG, Can Patents Deter Innovation? The Anticommons in Biomedical Research, Science, 1998, 698; A. OSER, Patenting (Partial) Gene Sequences Taking Particular Account of the EST Issue, IIC, 1999, 1; G. SENA, Directive on Biotechnological Inventions: Patentability of Discoveries, IIC, 1999, 731; H. RANGEL ORTIZ, La patentabilidad de las invenciones derivadas del proyecto del genoma humano en el Derecho contemporáneo, Actas de Derecho Industrial y Derecho de Autor, 2001, 297; T. SAMPSON, Rewriting the Genetic Code: The Impact of Novel Nucleotides on Biotechnology Patents, EIPR, 2002, 409; V. DI CATALDO, Biotecnologie e diritto. Verso un nuovo diritto, e verso un nuovo diritto dei brevetti, in Contratto e impresa, 2003, 319; G. DUTFIELD, Intellectual Property Rights and the Life Science Industries: A Twentieth Century History, Ashgate, 2003; J. CARBONE, Ethics, Patents and the Sustainability of the Biotech Business Model, Int. Rev. of Law, Computers & Technology, 2003, 203; M. RICOLFI, La brevettabilità delle invenzioni relative agli organismi geneticamente modificati, Riv. dir. ind., 2003, I, 5; M. RIMMER, Myriad Genetics: Patent Law and Genetic Testing, EIPR, 2003, 20; B. SHERMAN, Regulating Access and Use of Genetic Resources: Intellectual Property Law and Biodiscovery, EIPR, 2003, 301; W. VAN DEN DAELE, R. DÖBERT and A. SEILER,

Bibliographical notes

127

Stakeholder Dialogue on Intellectual Property Rights in Biotechnology: A Project of the World Business Council for Sustainable Development, IIC, 2003, 932; G. LAURIE, Patenting Stem Cells of Human Origin, EIPR, 2004, 59; R. COOPER FELDMAN, The Open Source Biotechnology Movement: Is it Patent Misuse?, Minnesota J. of Law, Science & Technology, Vol. 6, 2004; G. GUGLIELMETTI, Tutela ‘assoluta’ e ‘relativa’ del brevetto sul nuovo composto chimico, originalità dell’invenzione e dinamiche della ricerca, in Studi in onore di A. Vanzetti, Milano, 2004, I, 765. In this context, it might be interesting to reckon with the ongoing debate in Italy, where the claim that more extensive exclusive rights should be granted over the results of scientific research has been developed in particular by Giuseppe Sena and his disciples (see in particular G. SENA, op. cit.; G. DEL CORNO, Prime decisioni in materia di invenzioni biotecnologiche, ibid., 1998, II, 314; G. GUGLIELMETTI, La brevettazione delle scoperte-invenzioni, Riv. dir. ind., 1999, I, 97, who sets the patentability threshold at the point ‘when research reaches a stage at which the presence of sufficiently well-defined properties in the result produced could be said to be “reasonably” probable. . . . It does not matter if they are unsuitable or not advantageous (or even harmful if applied immediately), or insufficient for immediate exploitation of the product’, ibid., p. 140; my italics). This line of thought was substantially confirmed by the Milan High Court, in its judgment of 11 November 1999, in the Chiron case, in Giur. ann. dir. ind. 1999, No. 4030. The Milan Court granted the patentability of a discovery (identification of the genetic structure of a virus) relating to a specific industrial application deriving immediately from the identification of the ‘antigen’ site in the virus, as this identification allowed an immediate technical application, namely the manufacture of an immunodiagnostic kit (although the manufacturing specification of the application was not ‘original’ in itself. Consistently with the prevailing approach, the Court therefore held that the requirements for validity of the patent (especially the requirement of an inventive step) applied to the discovery stage rather than the application stage. This judgment adopts the approach taken by the appeals Commission of the EPO (as mentioned in the Case Note to the said judgment, loc. cit.), and does not conflict (in formal terms) with the principle incorporated in article 3 of the Biotechnology Directive, which allows the patentability of isolated biological material even though it already exists in nature. In practice, the judgment reflects a policy of defending the need to remunerate investments in research despite the undoubtedly ‘fleeting’ nature of the requirement of inventive step in the field in question (this expression is borrowed from G. BIANCHETTI and G. PIFFERI, Il requisito evanescente dell’attività inventiva delle invenzioni chimiche e biotecnologiche, Dir. ind., 2000, 10; more on this point in F. K. BEIER, The Inventive Step in Its Historical Development, IIC, 1986, 301). However, a doubt remains: in the absence of a

128

Intellectual property and competition law

further innovative development specifically aimed at the industrial application of the discovery, how can the ‘immediate application’ of the discovery be demonstrated except by mere identification of an element of the discovery, namely (part of) the description of the discovery itself? (If this is the case, then referring, as the judgment does, to article 12 of the Italian Patents Act – now article 45 of the new (2005) Italian ‘Code of Industrial Property’ – which excludes from patentability discoveries ‘as such’, or to article 2585 of the Italian Civil Code, which states the need for ‘immediate industrial results’ to be obtained from the technical application of a scientific principle, appears to be almost a play on words, with risky pro-monopolistic implications, because this immediacy refers to the results of the application, as a ‘work of man’, not to the scientific principle in itself, which is common property.) Besides biotechnologies, ‘Information Technologies’ (IT) fuel the debate on IP on results of research work, in particular calling into question established methods of evaluating the allocative and competitive efficiency of ‘proprietary’ solutions (on this topic, see the comments by S. A. LIPMANN and K. F. MCCARDLE, Dropout Behaviour in R&D Races with Learning, Rand J. Econ., 1987, 287; R. WILSON, Fishing for Knowledge, op. cit.; L. BECKER, Deserving to Own Intellectual Property, Chicago-Kent L. Rev., 1993, 609; F. M. SCHERER, The Innovation Lottery, Report presented to the Conference on Intellectual Products: Novel Claims to Protection and Their Boundaries, Florence, 25 June 1998; and finally, R. P. MERGES, P. S. MENELL and M. LEMLEY, Intellectual Property in the New Technological Age, op. cit.; and M. LEMLEY, P. S. MENELL, R. P. MERGES and P. SAMUELSON, Software and Internet Law, Gaithersburg, NY, 2000; R. PLOTKIN, Computer Programming and the Automation of Invention: A Case for Software Patent Reform, UCLA J. of Law and Technology, Vol. 7, 2003 and Boston Univ. School of Law Working Paper No. 04-16; D. L. BURK and M. A. LEMLEY, Designing Optimal Software Patents, Minnesota Legal Studies Research Paper No. 05-11, Intellectual Property Rights in Frontier Industries: Software and Biotechnology, Robert Hahn (ed.), 2005. For some comments about the substantive issues raised by the Proposal for a Directive of the European Parliament and the Council on the patentability of computer-implemented inventions, proposed by the European Commission on 20 February 2002 but rejected in July 2005 by the European Parliament, see G. GUGLIELMETTI, La Proposta di Direttiva sulla brevettazione delle invenzioni in materia di software, Riv. dir. ind., 2002, I, 438; T. HOEREN, European Union Commission and Recent Trends in European Information Law, in Rutgers Computer and Tech. L. J., 2003, 1; E. PANAGIOTIDOU, The Patentability of Computer Programs, According to the Commission New Proposal for a Directive and to EPO Boards of Appeal Decisions, Computer and Telecommunication L. R., 2003, 9 (5), 126; D. BOOTON and P. MOLE, The

Bibliographical notes

129

Action Freezes? The Draft Directive on the Patentability of Computer-implemented Inventions, IPQ, 3, 2002, 289; G. GHIDINI, E. AREZZO, C. DE RASIS and P. ERRICO, Il software tra brevetto e diritto d’autore. Primi appunti sulla proposta di direttiva comunitaria sulle invenzioni attuate per mezzo di elaboratori elettronici, Riv. dir. ind., I, 2005, 46. These ‘new technologies’ possess some characteristic features that, while magnifying the competitive value of ‘innovation’ vs. ‘production’ and ‘distribution’ in the strict sense (this also owing to the fact that the rule of ‘exhaustion’ attenuates overpricing of goods which incorporate intangible creations: see M. RICOLFI, Le nuove frontiere della proprietà intellettuale. Da Chicago al cyberspazio, in G. CLERICO and S. RIZZELLO (eds.), Diritto e Economia della Proprietà Intellettuale, Padua, 1998, 83 et seq., 89 et seq.) have encouraged claims of reinforced proprietary protection. As far as computer programs in particular are concerned, reference should be made to the substantial elimination of natural ‘lead time’ of first innovator vs. followers, due in its turn to the immediacy, and the ease and perfection of digital reproduction, as well as to the ‘technical’ erosion of industrial secrecy as a means of protection of software-related innovation, which ‘bear the know-how on its surface’ (see J. H. REICHMAN, op. cit. in the bibliographical notes to Chapter 1). As to biotechnologies, chief reference is made to the closer proximity between ‘discovery’ and ‘invention’ as well as to the ‘self-replicating’ nature of biotechnological materials. Within this general framework, mention should be made to some contributions relating to specific regulatory profiles of substantial impact as well as systematic significance: (a) On the scope (extent) of patent rights, often interacting with that of the duration of the patent (several scholars criticize the ‘one-size-fits-all’ standard) see D. J. MCFETRIDGE and M. RAFIQUZZAMAN, The Scope and Duration of the Patent Right and the Nature of Research Rivalry, Res. in L. and Econ., 1986, 91; R. GILBERT and C. SHAPIRO, Optimal Patent Length and Breadth, in Univ. of California, Berkeley, Department of Economics, Working Paper No. 89, January 1989); R. P. MERGES and R. R. NELSON, On the Complex Economics of Patent Scope, Columbia L. Rev, 1990, 839; P. KLEMPERER, How Broad Should the Scope of Patent Protection Be?, Antitrust L. J., 1990, 113; C. MATUTES, P. REGIBEAU and K. ROCKETT, Optimal Patent Design and the Diffusion of Innovations, Rand J. of Econ., 1996, 60; J. H. BARTON, Patents and Antitrust: A Rethinking in Light of Patent Breadth and Sequential Innovation, Antitrust L. J., 1997, 449; and M. A. LEMLEY, The Economics of Improvement in Intellectual Property Law, Texas L. Rev., 1997, 989; T. O’DONOGHUE, S. SCOTCHMER and J. F. THISSE, Patent Breadth, Patent

130

Intellectual property and competition law

Life, and the Pace of Technological Progress, J. of Econ. & Manag. Strategy, 1998, 1; V. DI CATALDO, Fra tutela assoluta del prodotto brevettato e limitazione ai procedimenti descritti ed agli usi rivendicati, Riv. dir. ind., 2004, 111; M. A. CARRIER, Cabining Intellectual Property Through a Property Paradigm, Duke L. J., Vol. 54, No. 1, 2004; A. G. ORLOV, Towards Designing an Ideal Patent System, Economic Affairs, London, Vol. 24, 2004, 39. This aspect reacts in turn with the definition of the infringing ‘equivalents’. Here, careful consideration should be given to the proposals (see e.g. E. STEINHAUSER, Using the Doctrine of Equivalents to Provide Broad Protection for Pioneer Patents: Limited Protection for Improvement Patents, Pace L. Rev., 1992, 491) aiming to broaden the concept of ‘equivalent’ in order to protect the most innovative patents (‘pioneer inventions’), thus granting a ‘hunting licence’ over the derivative innovation in favour of the pioneering inventor (Graver Tank & Mfg. Co. v. Linde Air Prods. Co., 339 U.S. 605, 1950). See further G. GUGLIELMETTI, La contraffazione del brevetto per equivalenti, Riv. dir. ind., 2000, I, 112. (b) As regards the aspect of disclosure and, symmetrically, that of (limitations on protection of) secrecy (in respect of which we mentioned, in the main text, the tendency to introduce industrial secrets into the intellectual property family): see H. H. PERRIT Jr., Trade Secrets, New York, 1994; and S. J. SOLTYSINSKI, Are Trade Secrets Property?, IIC, 1986, 331), I suggest D. D. FRIEDMAN, W. LANDES and R. A. POSNER, Some Economics of Trade Secret Law, J. Econ. Persp., 1991, 61; R. A. EPSTEIN, Trade Secrets as Private Property: Their Constitutional Protection, in U. Chicago Law & Economics, Olin Working Paper No. 190, 2003; N. ERKAL, On the Interaction between Patent Policy and Trade Secret Policy, Australian Economic Rev., Vol. 37, 2004, 427; as well as the earlier contribution by C. FREEMAN, The Economics of Industrial Innovation, Harmondsworth, 1974. (c) As to technology’s transfer, basically by means of patent and know-how licences, the European Commission has recently adopted regulation 772/2004/CE. For an overview, see the references to Chapter 5. Within the general framework of technology transfer, the subject of non-voluntary licences is hotly debated. See in particular, for a radical proposal to reform the patent paradigm in its entirety, vis-à-vis all kinds of innovation, W. KINGSTON, Compulsory Licensing with Capital Payments as an Alternative to Monopoly Grants for Intellectual Property, Res. Pol., 1994, 1275 (the author also states that a system of fees based on capital payments is more efficient than one based on royalties). Special attention should be devoted to the well known works by J. H. REICHMAN, starting from Saving the Patent Law from Itself: Informal Remarks

Bibliographical notes

131

Concerning the Systemic Problems Afflicting Developed Intellectual Property Regimes, in F. SCOTT KIEFF (ed.), Perspectives on Properties of the Human Genome Project, Oxford, 2003, 289 (here there are also exhaustive references to the author’s previous essays on the subject), where the author supports the perspective of a straight liability rule for sub-patentable innovation (that at know-how level). See further J. H. REICHMAN and C. HASENZAHL, Non-voluntary Licensing of Patented Inventions: The Law and Practice of the United States July 2003 (mimeo). Non-voluntary licenses play a specific role in the international perspective (T. EINHORN, The Impact of the WTO Agreement on TRIPs (Trade-related Aspects of Intellectual Property Rights) on EC Law: A Challenge to Regionalism, CMLR, 1998, 1069, para. 5.2.) especially as a means of providing Developing Countries with relevant advanced technology and products, such as essential drugs. On these burning issues, on which also focuses the ‘Development Agenda’ discussed at WIPO (see Chapter 2, note 51), see D. MATTEWS, WTO Decision on Implementation of Paragraph 6 of the Doha Declaration on the TRIPS Agreement and Public Health: A Solution to the Access to Essential Medicines Problem?, JIEL, 2004, 73; P. VANDOREN and J. C. VAN EECKHAUTE, The WTO Decision on Paragraph 6 of the Doha Declaration on the TRIPs Agreement and Public Health – Making It Work, J. World Intell. Prop., 2003, 789; F. M. SCHERER and J. WATAL, Post-Trips Options for Access to Patented Medicines in Developing Nations, J. Int’l Econ. L., 2002, 913; G. GHIDINI, Developing Countries’ Access to Patented Essential Medicines. A Possible Alternative to Compulsory Licences, Studies for Alberto Bercovitz (AIPPI Spain), Barcelona, 2005; C. V. CHIEN, Cheap Drugs at What Price to Innovation: Does the Compulsory Licensing of Pharmaceuticals Hurt Innovation?, Berkeley Tech. L. J., 2003, 1; M. R. ISLAM, The Generic Drug Deal of the WTO From Doha to Cancun – A Peripheral Response to a Perennial Conundrum, J. World Intell. Prop., 2004, 675; G. CURCI and M. VITTORI, Improving Access to Live Saving Patented Drugs – Between Compulsory Licensing and Differential Pricing, ivi, 2004, 739. On this issue, it is also important to mention the recent EC Regulation proposal on ‘compulsory licensing of patents relating to the manufacture of pharmaceutical products for export to countries with public health problems’ (available at http://europa.eu.int/comm/internal_market/en/indprop/patent/medicines .htm), implementing within EU the WTO decision of 30th August 2003, under which national authorities can grant non-voluntary licences for producing and exporting generic drugs to poor countries if certain conditions are met (for a comment see P. VANDOREN and P. RAVILLARD, A New EC Initiative to allow Export of Medicines Under Compulsory Licences to Poor Countries, in J.

132

Intellectual property and competition law

World Intell. Prop., 2005, 103). See also the more recent Report of the Committee on International Trade, European Parliament on the proposal for a regulation of the European Parliament and the Council on compulsory licensing of patents relating to the manufacture of pharmaceutical products for export to countries with public health problems (COM(2004)0737 – C60168/2004-2004/0258(COD)). For a distinct approach (maintaining IPRSs’ full ownership vs. acceptance of a substantial price regulation) see Chapter 2, note 51. As to the highly debated Proposal for a Council Regulation on the Community Patent of 1 August 2000, aimed to introduce – as was done for trademarks – a ‘Community patent’ – the overview might well start from the preparatory works (available at web site http://www.european-patentoffice.org/epo/diplconf/proposal.htm) and the Commission Communication of 5 February 1999, Promoting Innovation through Patents. The Follow-up to the Green Paper on the Community Patent and the Patent System in Europe. On this project (actually slowed-down by its too heavy administrative costs), see H. ULLRICH, Patent Protection in Europe: Integrating Europe into the Community or the Community into Europe?, European L. J., Vol. 8, 2002, 433. See also S. R. HUEBNER, Community Patent and Translation Costs, EIPR, 2003, 543; N. HOELDER, Opinion – The Community Patent – Break-through or Set Back?, EIPR, 2004, 43.

CHAPTER 3 In approaching the history of copyright, one should first of all distinguish the continental system, traditionally based on the doctrine of the ‘creative personality’ (that Joseph Kohler derived from Otto von Gierke, who derived it from Hegel, who sourced it from Kant), from the Anglo-Saxon one – in which, as already noted, copyright is traditionally linked to the concept (dating back to J. LOCKE, An Essay Concerning the True Original Extent and End of Civil Government, 1690) that ‘labour’ is the legitimizing basis of individual property. For the former, the research can well start from the works of H. HUBMANN, Urheber-und Verlagsrecht, Monaco, 1966; C. COLOMBET, Propriété litteraire et artistique, Paris, 1986; A. BERTRAND, Le droit d’auteur et les droits voisins, Paris, 1999. For the latter, from J. COPINGER and SKONE, On Copyright, London, 1980; M. and D. Nimmer, Nimmer on Copyright, New York, 1995; W. CORNISH, Copyright Across the Quarter-Century, IIC, 1995, 801; ID:, Intellectual Property: Patents, Copyright, Trade Marks and Allied Rights, London, 2003. Also noteworthy: M. M. WALTER, Europaeisches Urheberrecht, Vienna–New York, 2001; R. P. MERGES, P. S. MENELL and M. LEMLEY, Intellectual Property in the New Technological Age, op. cit.; R. A.

Bibliographical notes

133

GORMAN and J. C. GINSBURG, Copyright for the Nineties, Charlottsville, VA, 1993; J. C. GINSBURG and R. P. MERGES, Foundations of Intellectual Property, N.Y., 2004. That dichotomy, however, is a historic relic. As pointed out in the chapter, the differences between the Anglo-Saxon and continental approaches, whilst not exactly the fruit of a ‘faux débat théorique’ (in this sense, see A. BERTRAND, Le droit d’auteur, etc. op. cit., 51 et seq.), seem, in any event, to be fading away: on this point, see U. LOEWENHEIM, Copyright in Civil Law and Common Law Countries: A Narrowing Gap, AIDA, 1994, 161 et seq.; J. C. GINSBURG, A Tale of Two Copyrights: Literary Property in Revolutionary France and America, Tulane L. Rev., 1990, 991 et seq.) and L. NGOMBE, Droit naturel, droit d’auteur francais et copyright americaine, Rev. Int. Dr. Aut., 2002, 127. Therefore, instead of focusing on the principles of natural law (in respect of which one may see, amongst the many, M. RADIN, Property and Personhood, Stanford L. Rev., 1982, 957; J. HUGHES, The Philosophy of Intellectual Property, Geo. L. J., 1988, 287; A. C. YEN, Restoring the Natural law: Copyright As Labor and Possession, Ohio State L. J., 1990, 517; T. G. PALMER, Are Patents and Copyrights Morally Justified? The Philosophy of Property Rights and Ideal Objects, Harvard J. L. & Pub. Policy, 1990, 817; W. J. GORDON, A Property Right in Self-expression: Equality and Individualism in the Natural Law of Intellectual Property, Yale L. J., 1993, 1533; in Italy, P. RESCIGNO, Proprietà-Dir. privato, Enc. dir., Milan, 1988, 254, especially 280; A. DONATI, La fondazione giusnaturalistica del diritto sulle opere dell’ingegno, AIDA, 1997, 419) modern research ought to focus on the (various) economic and systematic profiles of a legal paradigm that is now largely ‘globalized’, save for a few, albeit sometimes important, differences between legal frameworks: for instance in terms of the meaning and degree of the ‘creative character’ required for protection (see here G. SCHRICKER, Farewell to the ‘Level of Creativity’ (Schoepfungshoehe) in German Copyright Law?, IIC, 1995, 41) . Such profiles have been dealt with in specific noteworthy works adopting various approaches in terms of legal policy: see, in particular, R. M. HURT and R. M. SCHUCHMAN, The Economic Rationale of Copyright, Am. Econ. Rev., 1966, 421, denying the justification of copyright as ‘necessary remuneration’ (for both authors and publishers), with an appendix (Discussion) that, on page 436, touches on R. W. FRASE’S doubts about the ‘sound foundation of facts’ of the authors’ position; see also, R. W. FRASE, The Economic Rationale of Copyright, Am. Econ. Rev., 1966, 434; W. R. JOHNSON, The Economics of Copyright, J. Pol. Econ., 1985, 158; W. LANDES and R. A. POSNER, An Economic Analysis of Copyright Law, J. of Legal Studies, 1989, 325; ID., Indefinitely Renewable Copyright, U. Chicago L. Rev., 2003, 471; F. H. EASTERBROOK, Intellectual Property Is Still Property, Harvard J. of Law and

134

Intellectual property and competition law

Public Policy, 1990, 108; J. LITMAN, Copyright as Myth, U. Pittsburgh L. Rev., 1991, 235; P. JASZI, Toward a Theory of Copyright: The Metamorphoses of ‘Authorship’, Duke L. J., 1991, 455; T. PRICE, The Economic Importance of Copyright, London, 1993; M. ROSE, Authors and Owners: The Invention of Copyright, Cambridge/London, 1993; ID., Copyright and Its Metaphors, UCLA L. Rev., 2002, 1; J. LADDIE (former Judge of the Royal Court of Justice – editor’s note), Copyright: Over-strength, Over-regulated, Over-rated?, EIPR, 1996, 253; K. BOWREY, Who’s Writing Copyright’s History?, ivi, 1996, 322; J. COHEN, Some Reflections on Copyright Management Systems and Laws Designed to Protect Them, Berkeley Tech. L. J., 1997, 161; M. LEMLEY, Romantic Authorship and the Rhetoric of Property, Texas L. R., 1997, 873; M. PENDLETON, The Danger of Protecting Too Much: A Comparative Analysis of Aspects of Intellectual Property in Hong Kong, Britain and the United States, ivi, 2000, 69; W. J. GORDON and R. G. BONE, ‘Copyright’, in B. BOUCKAERT and G. DE GEEST (eds.), ‘Encyclopaedia of Law and Economics’, Cheltenham, 2000; P. S. MENELL, Intellectual Property: General Theories, in B. BOUCKAERT and G. DE GEEST (eds.), Encyclopaedia of Law and Economics, Cheltenham, 2000; R. TOWSE, Creativity, Incentive and Reward. An Economic Analysis of Copyright and Culture in the Information Age, Cheltenham, 2001; J. C. GINSBURG, How Copyright Got a Bad Name for Itself, Columbia Journal of Law and the Arts, 2002, 61; ID., The Concept of Authorship in Comparative Copyright Law, DePaul L. Rev., 2003, 1063; W. J. GORDON and R. WATT (eds.), The Economics of Copyright. Developments in Research and Analysis, Cheltenham, 2003; J. BOYLE, The Second Enclosure Movement and the Construction of the Public Domain, 2003, at http://www.law.duke.edu/ journals/66LCPBoyle (also in Law and Contemp. Problems, 2003, 33); K. J. KOELMAN, Copyright Law and Economics in the EU Copyright Directive: Is the Droit d’Auteur Passe?, IIC, 2004, 603. All these works provide precious insight into the economic meaning of international rules (periodic updates of which can be found in the series Copyright Laws and Treaties of the World, compiled by UNESCO and published, since 1956 in Washington DC, by the Bureau of National Affairs). These economic considerations underlie the overprotectionist content of Directive 2001/29/EC of the European Parliament and of the Council on the harmonization of certain aspects of copyright and related rights in the information society, whose context and background may be gleaned from previous Directives 98/1993 and 92/100, as well as from the EC Commission’s Green Paper of 19 July 1995 on Copyright and Related Rights in the Information Society (COM (95) 382). The regulatory evolution of the so-called neighbouring rights (droits voisins), ought to be approached – starting with international sources (treaties and directives) – on the basis of constant ‘comparison’ with copyright in the strict sense. In Italian law, an overview from this standpoint (that also high-

Bibliographical notes

135

lights the distinction between exclusive rights and rights of so-called mere remuneration: see M. BERTANI, L’evoluzione dei rapporti tra autori, artisti e fonografici, Dir. aut., 1994, 194 et seq.; D. SARTI, Diritti esclusivi e circolazione dei beni, Milan, 1996, 424, and note 2), is provided by E. PIOLA CASELLI, Sul regolamento dei conflitti fra il diritto d’autore e taluni diritti vicini o similari, Dir. aut., 1937, 155 et seq., 307 et seq.; 1939, 9 et seq.; V. DE SANCTIS, Autore (diritti connessi), Enc. dir., IV, 431; ID., La Convenzione internazionale per la protezione degli artisti interpreti o esecutori, dei produttori di fonogrammi e degli organismi di radiodiffusione, Dir. aut., 1962, 443; M. FABIANI, Artista, interprete o esecutore, Digesto delle discipline privatistiche. Sezione commerciale, I, Turin, 1987, 259 et seq. International commentaries on the subject include H. DESBOIS, A. FRANCON and A. KEREVER, Les conventions internationales du droit d’auteur et des droits voisins, Paris, 1976; A. BERTRAND, op. cit., Chapter 16; C. Colombet, Les droits voisins, in the compilation Droit d’auteur et droits voisins, IRPI, Paris, 1986, 125; ID., Grands principes du droit d’auteur et des droits voisins dans le monde, Paris, 1992; P. W. HERTIN, Verwandte Schutzrechte, Cologne, 1998; G. SCHRICKER, Einleitung, in G. SCHRICKER, Urheberrecht-Kommentar, Munich, 1999. See also the recent essay by O. MORGAN, The Problem of International Protection of Audiovisual Performances, IIC, 2002, 810; P. KAMINA, Towards New Forms of Neighbouring Rights Within the European Union?, in D. VAVER and L. BENTLY (eds.) Intellectual Property in the New Millenium – Essays in Honour of William R. Cornish, Cambridge, 2004, 280. In common law systems under which the distinction is not formally codified, commentators however tend to place it essentially within the general category of ‘copyright’ (see R. ARNOLD, Performers’ Rights and Recording Rights, Oxford, 1990; H. COHEN JEHORAM, The Relationship Between Copyright and Neighboring Rights, Rev. int. dr. aut., 1990, 103), whilst underlining (as in W. CORNISH, Intellectual Property, op. cit., 548) that recording rights are held by the record company and not by the author. The issue of the circulation of intellectual property rights (including the scope of the principle of exhaustion) as regards products (‘tangible media’) incorporating intellectual property, entails problems of control over distribution in quantitative and territorial terms (the separate issue of ‘virtual’ circulation over electronic networks is dealt with further below), as well as of ‘collective bargaining’ of copyrights. On the first profile see H. G. KOPPENSTEINER, Zum Erschoepfungsgrundsatz im Patent- und Urheberrecht, GRUR Int., 1972, 413; U. JOOS, Die Erschoepfungslehre im Urheberrecht, Munich, 1991; S. ERCOLANI, Il diritto di circolazione dell’opera protetta e l’esaurimento comunitario, Dir. Aut., 2004, 1. With specific reference to computer software, see also T. DREIER, Verletzung urheberrechtlicher geschuetzer Software nach der Umsetzung der EG-Richtlinie, GRUR Int.,

136

Intellectual property and competition law

1993, 781 et seq. For the application of exhaustion principles to on line services, see E. TJONG TJIN TAI, Exhaustion and Online Delivery of Digital Works, EIPR, 2003, 207. On the second, among the most recent contributions, see, D. J. GERVAIS (ed.), Collective Management of Copyright and Related Rights, London, 2005. See also the recent Commission Recommendation (2005/737/EC) on collective cross-border management of rights and related rights for legitimate on line music services. Having dealt with these general references, let’s focus on the specific expressions of ‘technology copyright’, beginning with computer programs, i.e. software, the most relevant area where copyright has ‘trespassed’ in technological sectors, i.e. essentially utilitarian ones, to use the words of the US Federal Court of Appeals (2nd Circuit) in Computer Assocs. Int’l v. Altai (1992). The rich literature on the subject can be approached by starting with the reconstruction of the European scenario provided, from a comparative standpoint, by J. HUET and J. C. GINSBURG, Computer Programs in Europe: A Comparative Analysis of the 1991 EC Software Directive, Columbia J. of Transnat. L., 1992, 327. Then, I suggest an overview of the relationship/distinction between copyright and patent paradigms (see J. P. SUMNER, The Copyright/Patent Interface: Patent Protection for the Structure of Program Code, Jurimetrics J., 1989, 107; D. KARJALA, The Protection of Operating Software Under Japanese Copyright Law, ivi, 1988, 43; ID., Distinguishing Patent and Copyright Subject Matter, Conn. L. Rev., 2003, 439; L. B. SMITH AND S. O. MANN, Innovation and Intellectual Property Protection in the Software Industry: An Emerging Role for Patents?, U. Chicago L. Rev., 2004, 241; and G. GHIDINI and E. AREZZO, Patent and Copyrights Paradigms vis-à-vis Derivative Innovation: The Case of Computer Programs, IIC, 2005, 159), focusing on antitrust profiles, especially the ones related to the so-called merger doctrine, under which recourse to copyright is precluded in the case where the idea and its expression are closely intertwined (see here L. SPIVOCK, Does Form Follow Function? The Idea/Expression Dichotomy in Copyright Protection of Computer Software, UCLA L. R., 1988, 723) as well as to the issues of reverse engineering and the protection of the so-called ‘interfaces’. On these topics, see further D. S. CHISUM, Copyright, Computer Programs and the Apple Cases: A Compromise Solution, EIPR, 1983, 236; P. SAMUELSON, CONTU Revisited: The Case Against Copyright Protection for Computer Programs in Machine-readable Form, Duke L. J., 1984, 663; J. H. REICHMAN and P. GOLDSTEIN, On Copyright Law: A Realist’s Approach to a Technological Age, Stanford. L. Rev., 1991, 943; D. KARJALA, Copyright Protection of Computer Documents, Reverse Engineering, and Professor Miller, Dayton L. Rev., 1994, 975; M. LEMLEY, Convergence in the Law of Software Copyright?, High Tech. L. J., 1995, 1; D. S. CHISUM, R. COOPER DREYFUSS, P. GOLDSTEIN GORMAN, D. KARJALA, E. KITCH, P. MENELL,

Bibliographical notes

137

L. J. RASKIND, J. H. REICHMAN and P. SAMUELSON, Last Frontier Conference Report on Copyright Protection of Computer Software, Jurimetrics J., 1989, 15. See, further, R. H. LANDE and S. M. SOBIN, Reverse Engineering of Computer Software and U.S. Antitrust Law, in Symposium: High Technology, Antitrust & the Regulation of Competition, Harv. J. L. & Tech., 1996, 237; L. D. GRAHAM and R. O. ZERBE Jr, Economically Efficient Treatment of Computer Software: Reverse Engineering, Protection, and Disclosure, Rutgers Computer & Tech. L. J., 1996, 61; P. SAMUELSON and S. SCOTCHMER, The Law and Economics of Reverse Engineering, Yale L. J., 2002, 1575. Regarding the related issue of the ‘Open Source’ software, a phenomenon which has recently attracted increasing attention, both from the academic and practical point of view (and that is trying to undermine the ‘monopoly’ of proprietary software), see the works of D. MCGOWAN, Legal Implications of Open Source Software, U. Ill. L. Rev., 2001, 241; J. LERNER and J. TIROLE, Some Simple Economics of Open Source, Journal of Industrial Economics, 2002, 197; C. H. NADAN, Open Source Licensing: Virus or Virtue? Tex. Intel. Prop. L.J., 2002, 349; Y. BENKLER, Coase’s Pinguins, or, Linux and the Nature of the Firm, Yale Law J., 2002, 112; D. S. EVANS and B. J. REDDY, Government Preferences for Promoting Open-Source Software: A Solution in Search of a Problem, Mich. Telecomm. Tech. L. Rev., 2003, 313; J. W. WACHA, Open Software, Free Software and the General Public License, Computer and Internet Lawyer, Vol. 23, 2003, 20; S. DUSOLIER, Open Source and Copyright: Authorship Reconsidered?, Colum. J. L. & Arts, 2003, 281; R. P. MERGES, From Medieval Guilds to Open Source Software: Informal Norms, Appropriability Institutions, and Innovation, 2004, available at website http://ssrn.com/abstract=661543; S. WEBER, The Success of Open Source, Harvard, 2004; J. ZITTRAIN, Normative Principles for Evaluating Free and Proprietary Software, U. Chicago L. Rev., 2004, 265. From software to databases, and the much debated and criticized sui generis right instituted by EC Directive 96/9. For a general overview see T. DREIER, Die Harmonisierung des Rechtsschutzes von Datenbanken in der EG, GRUR Int., 1992, 739; R. H. WEBER, Schutz von Datenbanken – Ein neues Immaterialgueterrecht?, UFITA, 1996, 14; G. GUGLIELMETTI, La tutela delle banche dati con il diritto sui generis nella direttiva 96/9 CE, Contratto e impresa Europa, 1997, 177 et seq; U. LOEWENHEIM, Harmonisierung des Urherberrechts in Europa, GRUR Int., 1997, 291; O. HORNUNG, Die EUDatenbanken-Richtlinie und ihre Umsetzung in das deutsche Recht, Baden Baden, 1998; J. L. GASTER, Der Rechtsschutz von Datenbanken, Colonia, 1999; ID., The EC Sui Generis Right Revisited after Two Years: A Review of the Practice of Database Protection in the 15 EU Member States, Communications Law, 2000, 87; G. WESTKAMP, Protecting Databases under US and European Law, IIC, 2003, 772; E. DERCLAYE, Databases Sui Generis

138

Intellectual property and competition law

Right: Should We Adopt the Spin-off Theory?, EIPR, 2004, 402; ID., Databases Sui Generis Right: What is a Substantial Investment? A Tentative Definition, IIC, 2005, 2. In particular, DREIER shares the often vehement criticism that the EC Directive drew – from the time it was first proposed – in the US, where in the Feist case (1991) the Supreme Court held that copyright protection could not be extended to databases. In such a context, it is hardly surprising that the sui generis right, that extends protection to informal data, is viewed as ‘a legal monstrosity’ (J. H. REICHMAN, Legal Hybrids, etc. op cit., 2496). See further J. H. REICHMAN and P. SAMUELSON, Intellectual Property in Data?, Vanderbilt L. Rev., 1997, 51; J. H. REICHMAN, Database Protection in a Global Economy, Revue Internationale de Droit Economique, 2002, 455; J. H. REICHMAN and P. UHLIR, A Contractually Reconstructed Research Commons for Scientific Data in Highly Protectionist Intellectual Property Environment, Law and Contemporary Problems, 2003, 315. See also J. C. GINSBURG, Creation and Commercial Value: Copyright Protection of Works of Information, Columbia L. Rev., 1990, 1865 et seq. (this work was written before Feist and makes the case for dual copyright protection: full exclusive rights for works involving high creative content and a right ‘eroded’ by compulsory licensing in the case of low authorship works); ID., No ‘Sweat’? Copyright and Other Protection of Works of Information After Feist v. Rural Telephone, Col. L. Rev., 1992, 338; J. F. HAYDEN, Recent Development: Copyright Protection of Computer Databases After Feist, Harvard J. Law & Tech., 1991, 215; D. B. ROSLER, The European Union’s Proposed Directive for the Legal Protection of Databases: A New Threat to the Free Flow of Information, High Tech. L. J., 1995, 105 and 132 et seq.; J. LIPTON, Balancing Private Rights and Public Property in Databases, Berkeley Technology L. J., 2003, 773. As to industrial design, an international overview, focused on TRIPS, should include A. KUR, TRIPs and Design Protection, IIC Studies, From GATT to TRIPs, Vol. 18, Munich, 1996, 141; T. S. PATAKY, Industrial Designs, in International Chamber of Commerce (ed.), Intellectual Property & International Trade – A Guide to the Uruguay Round TRIPs Agreement, Paris, 1996, 1. Then, one should consider the North American approach, with special reference to the growing unwillingness of US Federal Circuit courts to strictly apply the functionality rule under which design patents cannot be granted for essentially functional products: here see J. H. REICHMAN, Design Protection and the New Technologies: The United States Experience in a Transnational Perspective, Baltimore L. Rev., 1991, 6 et seq., 40 et seq.; W. FRYER, III, Industrial Design Protection in the United States of America – Present Situation and Plans for Revision, J. Pat. & Trademk Off. Soc., 1988, 821; R. P. MERGES, P.S. MENELL and M. LEMLEY, Intellectual Property etc., op. cit., 333. Finally, as regards EC Directive 98/71, see C. H. JEHORAM, Cumulation

Bibliographical notes

139

of Protection in the EC Design Proposal, EIPR, 1994, 514; D. MUSKER, Community Design Law Principles and Practice, London, 2002; C. H. MASSA and A. STROWEL, Community Design: Cinderella Revamped, EIPR, 2003, 68; M. SCHLÖTELBURG, The Community Design, EIPR, 2003, 383; N. GARNIER, La Protection Juridique del Créations du Design, Revue Internationale du Droit d’Auteur, 2004, 3; MARTIN HOWE QC, Russell-Clarke on Industrial Designs, London, 2004. Let’s now approach the very hot issue(s) of e-copyright: i.e., the adaptation of copyright to digital reproduction and transmission technologies – an issue that also covers the question of so-called multimedia works (below). We shall start from the circulation of works over electronic networks (the Internet), a topic which introduces the prominent issue of the use of technological measures to protect copyright in the Internet (Digital Rights Management). See: Symposium Edition. Digital Right Management. What will DRM technologies mean for the Future of Information? Berkeley Technology L. J., 2003; A. OTTOLIA, Preserving Users’ Rights in DRM: Dealing with ‘Juridical Particularism’ in the Information Society, IIC, 2004, 491; D. L. BURK, Legal and Technical Standards in Digital Rights Management Technology, Minnesota Legal Studies Research Paper, No. 05-16, 2005; R. CASO, Digital Rights Management, Padova 2004; P. MARZANO, Diritto d’Autore e Digital Technologies, Milano, 2005; G. GHIDINI and M. L. MONTAGNANI, Esercizio del diritto d’autore e dei diritti connessi in ambiente digitale e dispositivi tecnologici di controllo dell’accesso ai contenuti, forthcoming in Quaderni di AIDA, Milano, 2006. In the European context, noteworthy contributions on the topic by commentators who often differ on legal policy include T. DREIER, Adjustment of Copyright Law to the Requirements of the Information Society, IIC, 1998, 623 (this article summarizes the in-depth research carried out by the Max Planck Institut of Munich for the German government and used in shaping legislative reforms aimed at addressing the new problems arising from the development of digital technology; the research results were later published in a compilation edited by G. SCHRICKER, Urheberrecht auf dem Weg zur Informationsgesellschaft, Baden, 1997); U. LOWENHEIM, Urheberrechtliche Probleme bei Multimedienanwendungen, GRUR, 1996, 830; T. C. VINJE, A Brave New World of Technical Protection Systems: Will There Still Be Room For Copyright?, EIPR, 1996, 431; J. PHILLIPS, The Diminishing Domain, ivi, 1996, 429; S. NORMAN, The Electronic Environment: The Librarian’s View, ivi, 1996, 71; M. RICOLFI, A Copyright for Cyberspace? The European Dilemmas, AIDA, 2000, 443; J. FARCHY and F. ROCHELANDET, Copyright Protection, Appropriability and New Cultural Behaviour, in R. TOWSE, Copyright in the Cultural Industries, Cheltenham, 2002, 178; S. DUSOLLIER, Exceptions and Technological Measures in the European Copyright Directive of 2001 – An

140

Intellectual property and competition law

Empty Promise, IIC, 2003, 62; N. BRAUN, The Interface between the Protection of Technological Measures and the Exercise of Exceptions to Copyright and Related Rights: Comparing the Situation in the United States and in the European Community, EIPR, 2003, 496; M. LEHMANN, The EC Directive on the Harmonisation of Certain Aspects of Copyright and Related Rights in the Information Society – A Short Comment, IIC, 2003, 521; S. VON LEWINSKI, Rights Management Information and Technical Protection Measures as Implemented in EC Member States, IIC, 2004, 844. For the US viewpoint(s), I suggest to consider, first of all, the institutional policies (see the structured overview by the US Information Infrastructure Task Force promoted by the Department of Commerce, entitled Intellectual Property and the National Information Infrastructure – The Report of the Working Group on Intellectual Property Rights, Washington, DC, 1995; and the Working Papers of the Public Workshop on Online Profiling (8 Nov. 1999), organized by Dept. of Commerce and the FTC, available through the FTC’s website: htpp://www.ftc.Gov) as well as the economic profiles (see here the essays collected by D. HURLEY and H. VARIAN in Internet Publishing and Beyond: The Economics of Digital Information and Intellectual Property, Cambridge, MA, 1998). Thereafter I would suggest reading, amongst the many, the works by P. GOLDSTEIN, Copyright’s Highway: The Law and Lore of Copyright from Gutenberg to the Celestial Jukebox, New York, 1994; the essays by N. ELKIN-KOREN, Copyright Law and Social Dialogue on the Information Superhighway: The Case Against Copyright Liability of Bulletin Board Operators, Cardozo Arts and Entertainment L. J., 1995, 345; E. DYSON, Intellectual Value, Wired, 1995, 137; J. BOYLE, Shamans, Software, and Spleens: Law and the Construction of the Information Society, Cambridge, MA, 1996; ID., Intellectual Property Policy Online: A Young Person’s Guide, Harvard J. of L. and Tech., 1996, 47; M. J. LITMAN, Revising Copyright for the Information Age, Oregon L. Rev., 1996, 19; L. P. WAYNER, Digital Copyright Protection, San Diego, 1997; D. A. RICE, Digital Information as Property and Product: U.C.C. Article 2B, Univ. Dayton L. Rev., 1997, 621; M. STEFIK, Shifting the Possible: How Trusted Systems and Digital Property Rights Challenge Us to Rethink Digital Publishing, Berkeley Tech. L. J., 1997, 137; P. SAMUELSON, Foreword to ‘Symposium: Intellectual Property and Contract Law for the Information Age’, Cal. L. Rev., 1998; ID., Intellectual Property and the Digital Economy: Why the Circumvention Regulations Need to Be Revised, Berkeley Tech. L. J., 1999, 519; D. J. HALBERT, Intellectual Property in the Information Age: The Politics of Expanding Ownership Rights, Westport, CT, 1999; L. LESSIG, Code and Other Laws of Cyberspace, New York, 1999; ID., The Future of Ideas: The Fate of the Commons in a Connected World, New York, 2001; ID., Free Culture. How Big Media Uses Technology and the Law to Lock Down Culture and Control Creativity, New York, 2004;

Bibliographical notes

141

L. JONES, An Artist’s Entry into Cyberspace: Intellectual Property on the Internet, EIPR, 2000, 79; And, of course, the already cited handbook by M. LEMLEY, P. S. MENELL, R. P. MERGES and P. SAMUELSON, Software and Internet Law, New York, 2000; J. LITMAN, Digital Copyright, New York, 2001; D. L. BURK and J. E. COHEN, Fair Use Infrastructure for Rights Management Systems, Harvard J. of L. and Tech, 2001, 43; D. NIMMER, Appreciating Legislative History: The Sweet and Sour Spots of the DMCA’s Commentary, Cardozo L. Rev., 2002, 909; A. D. THIERER and W. CREWS (eds.), Copyrights: The Future of intellectual Property in the Information Age, Washington, DC, 2002; P. S. MENELL, Envisioning Copyright Law Digital Future, NY School L. Rev., 2003, M. A. LEMLEY, Place and Cyberspace, Cal. L. Rev., 2003, 521; M. A. LEMLEY and R. A. REESE, Reducing Digital Copyright Infringement Without Restricting Innovation, Stanford L. Rev., 2004, 134. See also the Edited and Excerpted Transcript of the Symposium on the Law and Technology of Digital Rights Management (Berkeley Center for Law and Technology), Berkeley Technology L. J., 2003, 697. As hinted in the main text, one of the most significant and hotly debated aspects of copyright protection in the information technology sector(s), involves the network effects related to the use of standard connection and inter-operability technologies between computer and communications systems. For more detailed references see the notes to Chapter 5, below. As pointed out above, the advent of digital reproduction and transmission technology has also dramatically boosted the production of so-called multimedia works, i.e. ‘derivative’ works (on this point, see P. GOLDSTEIN, Derivative Rights and Derivative Works in Copyright, J. Copyright Society, 1983, 209), consisting of a combination of works or – more commonly – portions of pre-existing works, generally expressed through a wide variety of media (literature, music, painting, cinema, etc.: see, especially, L. NIVARRA, Le opere multimediali su Internet, AIDA, 1996, 131; see also U. LOEWENHEIM, Multimedia and the European Copyright Law, IIC, 1996, 45, for a theory of multimedia works as databases). The number and variety of works and portions thereof that digital technology allows to assemble has led to a ‘crisis’ in the traditional model of individual agreements for obtaining the consent of the holders of copyright and related rights on specific works (see P. SAMUELSON, Digital Media and the Changing Face of Intellectual Property Law, Rutgers Computer and Tech. L. J., 1990, 4; A. GROGAN, Acquiring Content for New Media Works: The Rights and Acquisition Process and Contract Drafting Consideration, in J. BAUMGARTEN, M. EPSTEIN and A. GROGAN (eds.), Online Law: Emerging Legal and Business Issues, New York, 1996). In short, such a crisis can be resolved on two – for some, alternative, for others, concurring – fronts. One involves recourse to compulsory licensing mechanisms, on the basis of models already tested in the copyright sector

142

Intellectual property and competition law

(even in the US, see R. COOPER DREYFUSS and R. ROSENTHAL KWALL, Intellectual Property – Trademark, Copyright and Patent Law, Westbury, NY, 1996, 437; B. RINGER, Technology and Copyright, Mt Airy, MD, 1979, 200. See further, J. H. REICHMAN and P. SAMUELSON, Intellectual Property on Data?, op. cit., who propose the introduction of compulsory licences for extracting information from databases). The other involves a management system of copyrights based on ‘collecting societies’ or ‘agencies’ professionally in charge of obtaining the many necessary consents for the use of the large number of various (portions of) copyrighted works. On this issue see, amongst the many, R. P. MERGES, Intellectual Property and Digital Content: Notes on a Scorecard, Riv. dir. ind., 1998, I, 261; A. I. STAMATOUDI, Copyright and Multimedia Products. A Comparative Analysis, Cambridge, 2001. Among the Italian scholars, R. PARDOLESI, Antitrust e multimedialità, AIDA, 1995, 93; G. GHIDINI and M. F. QUATTRONE, Opere multimediali e copyrights di terzi, Riv. dir. ind., 1998, I, 5. This issue is often intertwined (precisely as a result of the large number and variety of copy and neighbouring rights that protect the works ‘assembled’ into multimedia products) with the question of whether or not consent for ‘traditional’ uses ought to be extended to uses involving dissemination over electronic networks. In Italian law, this extension does not apply, in light of the general principle of the ‘independence’ of each individual exclusive faculty granted to copyright owners (article 19 of the Italian Copyright Act). Lastly, and just for the record, a short mention may be made of those proposals – hopefully sunsetting – which express the most ‘daring’ attempt to use copyright as a means of circumventing the limits of the patent ‘monopoly’. I am referring to proposals that mainly flourished in the 1980s, but have still not been entirely abandoned, to extend copyright protection even to genetic mapping and ‘biotechnology works’ in general. See, for an overview of supporters and critics of such ‘theories’, I. KAYTON, Copyright in Genetically Engineered Works, G. Wash. L. Rev., 1982, 191; D. SMITH, Copyright Protection for the Intellectual Property Rights to Recombinant Deoxyribonucleic Acid: A Proposal, St. Mary’s L. J., 1988, 1083; D. L. BURK, Copyrightability of Recombinant DNA Sequences, Jurimetrics J., 1989, 469; D. M. HOGLE, Copyright for Innovative Biotechnological Research: An Attractive Alternative to Patent or Trade Secret Protection, High Tech L. J., 1990, 75; J. G. SILVA, Copyright Protection of Biotechnology Works: Into the Dustbin of History?, Boston College Intell. Prop. & Tech. Forum, 2000, http://www.bc.edu/bc_org/avp/law/st_org/iptf/; M. RIMMER, Beyond Blue Gene: Intellectual Property and Bio-informatics, IIC, 2003, 31; S. R. WILSON, Copyright Protection for DNA Sequences: Can the Biotech Industry Harmonize Science with Song?, Jurimetrics, 2004, 409.

Bibliographical notes

143

CHAPTER 4 A reconstruction of the history of trademarks, and the early debates on the legally protected function of the sign in the legislation that followed the first industrial revolution, might well begin with such classic authors as J. KOHLER, Warenzeichenrecht, Leipzig, 1910; E. POUILLET, Traité des marques de fabrique, Paris, 1912; M. Amar, Dei nomi, dei marchi e degli altri segni e della concorrenza nell’industria e nel commercio, Turin, 1893; E. BOSIO, Trattato dei marchi e dei segni distintivi di fabbrica, Turin, 1904. For more specific analyses see the contributions by E. S. ROGERS, Some Historical Matter Concerning Trademarks, Michigan L. Rev., 1910, 29, reprinted in TMR (The Trademark Reporter), 1972, 239; F. I. SCHECHTER, The Historical Foundations of the Law Relating to Trademarks, New York, 1925; S. A. DIAMOND, The Historical Development of Trademarks, TMR, 1983, 222; B. SHERMAN and L. BENTLY, The Making of Modern Intellectual Property Law, Cambridge, 1999; N. DAWSON and A. FIRTH (eds.), Trade Marks Retrospective, London, 2000. For a reconstruction (of international scope) of the debate relating to the legal protection of the distinguishing function and other functions of the trademark (especially those of quality guarantee and promotion/advertising, already emphasized by F. I. SCHECHTER, The Rational Basis of Trademark Protection, Harvard L. Rev., 1927, 813), see the contributions (some of which focus on an economic analysis of the ‘monopolistic’ effects of signs) by W. R. CORNISH and J. PHILLIPS, The Economic Function of Trade Marks: An Analysis with Special Reference to Developing Countries, IIC, 1982, 41; F. K. BEIER, Die Funktionen der Marke, 1976; ID., Markenrechtliche Abhandlungen, Cologne, Berlin, Bonn and Munich, 1986, 28; W. LANDES and R. A. POSNER, Trademark Law: An Economic Perspective, J. of Law and Economics, 1987, 265 et seq.; W. P. KRATZKE, Normative Economic Analysis of Trademark Law, Memphis St. U. L. Rev., 1991, 199; D. L. BURK, Trademark Doctrines for Global Electronic Commerce, S. Carolina L. Rev., 1998, 695; G. PICKERING, Trade Marks in Theory and Practice, Oxford, 1998; W. CORNISH, Intellectual Property – Patents, Copyright, Trademarks and Allied Rights, London, 2003; M. LEMLEY, The Modern Lanham Act and the Death of Common Sense, Yale L.J., 1999, 1687; J. LITMAN, Breakfast with Batman: The Public Interest in the Advertising Age, ibid., 1999, 1717; T. B. LEARY, The Significance of Variety in Antitrust Analysis, 2001, at http://www.ftc.gov/speeches/leary; J. PHILLIPS, Trade Mark Law: A Pratical Anatomy, Oxford, 2003; J. DAVIS, To Protect or Serve? European Trade Mark Law and the Decline of the Public Interest, EIPR, 2003, 180–187. As to Italian literature, see, first and foremost, A. VANZETTI, Funzione e natura giuridica del marchio, Riv. dir. comm., 1961, I, 16; Cessione del marchio, ibid., 1959, I, 385; Equilibrio d’interessi e diritto al marchio, ibid.,

144

Intellectual property and competition law

1960, I, 254, where the author developed the theory (which became established in case law and jurisprudence until the 1992 reform) that indication of origin is the only legally protected function, and that the scope of trademark protection (including the goods protected) is consequently limited to the sphere in which the sign can perform that function. Further relevant contributions include G. SENA, Marchio di impresa (natura e funzione), Digesto IV ed. (Disc. priv., Sez. comm.), IX, Turin, 1993, 292 et seq.; ID., Il nuovo diritto dei marchi – marchio nazionale e marchio comunitario, Milan, 1998; C. GALLI, Funzione del marchio e ampiezza della tutela, Milan, 1996. Next, specific attention should be devoted to the legislative development that redesigned trademark law in Europe, beginning with Directive 89/104 to Approximate the Laws of the Member States relating to Trademarks, mainly aimed at protecting the trademark as an asset per se, even beyond its link to the firm, thereby allowing a much wider exploitation of its inherent ‘selling power’ – proportionate to its fame and reputation – and investments in advertising. Here, an in-depth analysis, also focused on ‘monopolistic’ implications, should be devoted to one of the most salient profiles of the European evolution, i.e. that of the enlarged protection of ‘renowned’ trademarks beyond the risk of passing-off. Amongst the many, see T. D. DRESCHER, The Transformation and Evolution of Trademarks – From Signals to Symbols to Myth, TMR, 1992, 301; D. TATHAM and W. RICHARDS, ECTA Guide to EU Trade Mark Legislation, London, 1998; C. GIELEN, Harmonization of Trademark Law in Europe: The First Trademark Harmonization Directive of the European Council, EIPR, 1992, 262; A. BERTRAND, French Trademark Law: From the Well-known Brand to the Famous Brand, EIPR, 1993, 142; M. BLAKENEY, Well-known Marks, EIPR, 1994, 481; P. PRESCOTT, Has the Benelux Trade Mark Law Been Written into the Directive?, ibid., 1997, 99; K. M. SAUNDERS, Confusion is the Key: A Trademark Law Analysis of Keyword Banner Advertising, Fordham Law Rev., 2002, 543. Amongst the Italian authors, see A. VANZETTI, Il diritto italiano dei marchi dopo l’attuazione del Protocollo di Madrid: prospettive e confronto con i sistemi sovranazionali, Proceedings of the Conference ‘Il diritto dei marchi – novità legislative di fine millenio’, Rome, 20–21 January 2000, Minindustria, 9; G. CAVANI, Commento generale alle informe, in G. GHIDINI (ed.), La riforma della legge marchi, Padua, 1995, 11, esp. 25–27; C. MAYR, Marchio ed antitrust, in A. FRIGNANI, R. PARDOLESI, A. PATRONI GRIFFI and L. C. UBERTAZZI (eds.), Diritto antitrust italiano, Bologna, 1992, 489; V. FALCE, La funzione attrattiva del marchio. Profili di rilievo concorrenziale, forthcoming in Quaderni di AIDA, Milano, 2006. For a comparative assessment of European development and modern US law, I suggest the precursor seminal article by R. BROWN, Advertising and the Public Interest: Legal Protection of Trade Symbols, Yale L. J., 1948, 1165

Bibliographical notes

145

(reprint: op. cit. 1999, 1619); see also the useful Comment entitled Marks, Trademark Protection under the ‘Natural Area of Business Expansion’ Doctrine, Notre Dame Lawyer, 1978, 869. Further, M. LEMLEY, The Modern Lanham Act, op. cit.; F. W. MOSTERT, Famous and Well Known Marks: An International Analysis, New York, 2004; J. T. MCCARTHY, Dilution of a Trademark: European and United States Law Compared, Trademark Rep., 2004, 1163. On an historical perspective, the development of the enlarged protection of ‘renowned’ trademarks beyond the risk of confusion, might well be approached by recalling the common law doctrine of dilution, the earlier traditional basis for the protection of well-known trademarks (as confirmed by the Federal Trademark Dilution Act 1995). On such doctrine (which includes ‘blurring’ and ‘tarnishing’ dilution) see K. B. MCCABE, Dilution By Blurring: A Theory Caught in the Shadow of Trademark Infringement, Fordham L. Rev., 2000, 1827; T. R. MARTINO, Trademark Dilution, Oxford, 1997; R.D. LITOWITZ and D.A. RETTEW, What is ‘Dilution’ under the New US Federal Trademark Dilution Act?, EIPR, 1996, 618; M. B. HANSON and W. C. WALLS, Protecting Trademark Goodwill: The Case for a Federal Standard of Misappropriation, TMLR, 1991, 480; M. J. KAPLAN, Antidilution Statutes and the First Amendment, Southwestern Univ. L. Rev., 1992, 1139; and B. W. PATTISHALL, The Dilution Rationale for Trademark–Trade Identity Protection, Its Progress and Prospects, TMLR, 1977, 607. See also E. H. LITOWITZ and E. A. RETTEW, op. loc. cit.; B. A. JACOBS, Trademark Dilution on the Constitutional Edge, Columbia Law Review, 2004, 161; I. SIMON, Dilutive Trade Mark Applications: Trading on Reputation or Just Playing Games?, EIPR, 2004, 67; D. J. FRANKLYN, Debunking Dilution Doctrine: toward a Coherent Theory of the Anti-free-rider Principle in American Trademark Law, Hastings L. J., 2004, 117. As hinted in the main text, concern about truthfulness of products’ origin (at national level: that of the country of registration) by the abandonment of the classical principle ‘one mark–one firm’, comes into question even vis-àvis the international circulation of branded goods, as a consequence of the dominant legal doctrine that restricts the scope of the ‘exhaustion’ principle to the European Economic Area. I fully share the opinion that the immanent tension between ‘free trade’ and the ‘territoriality’ of trademark law should not be addressed so as to imply that non-counterfeited products directly imported in European markets from outside the European Economic Area should be legally equated to non-original ones. This simply amounts to ‘Europrotectionism’! (I refer here to ‘physical’ circulation: for the separate subject of ‘trademark circulation’ over digital networks, see the excellent specific articles by D. BURK, Trademark Doctrines for Global Electronic Commerce, op. cit.; T. BETTINGER and D. THUM, Territorial Trademark Rights

146

Intellectual property and competition law

in the Global Village – International Jurisdiction, Choice of Law and Substantive Law for Trademark Disputes on the Internet, IIC, 2000, 162 and 285, and, in parte qua, M. LEMLEY, P. S. MENELL, R. P. MERGES and P. SAMUELSON, Software and Internet Law, op. cit. (in bibliographical notes to Chapter 3). Nevertheless, as well known, such doctrine has been confirmed by the Directive (article 7.1) and has been so far consistently upheld by the Court of Justice, from Centrafarm (case C-15/74, 31 October 1974, Centrafarm BV and others/Sterling Drug, Rec., 1974, 1147) to Silhouette (case C-355/96, 16 July 1998, Rec., 1998, I-4799). On this issue, for detailed recent analyses and references to the case law and jurisprudence, see C. HEATH, Parallel Imports and International Trade, IIC, 1997; W. R. CORNISH, Trade Marks Portcullis for the EEA?, EIPR, 1998, 172; M. TAVASSI, Orientamenti giurisprudenziali in ambito comunitario e nazionale in tema di esaurimenti di diritti di proprietà industriale, Contratto e impresa/Europa, 2000, 781; C. STOTHERS, International Exhaustion of Trademarks and Consent in the EEA, EIPR, 2001, 344; D. SINDICO, On Parallel Importation, TRIPs and European Court of Justice Decisions, The Journal of World Intellectual Property, 2002, 505. The approach upheld in the Silhouette case was confirmed by the Court of Justice in the subsequent Sebago case (case C-173/98, 1 July 1999, Sebago Inc. and Ancienne Maison Dubois et Fils SA / G-B Unic SA, Rec., 1999, I-4103). The Italian Court of Cassation, in its judgment of 18 November 1998, No. 11603, in the Jolka/Colgate-Palmolive case (Giur. ann. dir. ind., 1998, No. 3740) also upheld the principle laid down by the Court of Justice in the Silhouette judgment, stating that ‘while the owner of the right cannot object to the circulation in Italy of products previously placed on the market by him (or by parties authorized to do so) in a European Union country (“Community exhaustion”), he can object to the import of products from a non-EU country which are marked (even lawfully) with its trademark, provided that he (or another authorized party) has not consented to the further introduction of those goods onto the European market’. The protectionist nature of the doctrine, whose awareness peeps through the Conclusions of the Advocate-General (Jacobs) in Silhouette (§ 47), is not dispelled by the justification put forward, i.e. ‘the possible absence of reciprocity where the Community unilaterally establishes the rule of international exhaustion’ (point 51). First of all, applying intrinsically just principles should not depend on ‘reciprocity’ . . . Then, anyway, the argument ignores the seeming acceptance by the USA (3rd Restatement of the Law of Unfair Competition, para. 24) and Japan (decision of the Tokyo District Court in the Parker case in 1965) of the theory of international exhaustion of trademark rights (the ‘universalist’ approach, inter alia, was later also confirmed in relation to other types of intellectual property rights, namely patents – according

Bibliographical notes

147

to the decision of the Japanese Supreme Court on 1 July 1997, in the Aluminium Wheel case, IIC, 1998, 331 – and copyright, according to the US Supreme Court judgment issued on 9 March 1998 in the Quality King case, IIC, 1998, 472). On this issue, for a broader international overview of the doubts and dissent aroused by the dominant European approach, see H. COHEN JEHORAM, Prohibition of Parallel Imports through Intellectual Property Rights, IIC, 1999, 495; H. NORMAN, Parallel Imports from Non-EEA Member States: The Vision Remains Unclear, EIPR, 2000, 159; J. JONES, Does an Opportunity Still Exist for the Development of a Doctrine of International Exhaustion at a Community Level under Articles 28 and 30?, ibid., 2000, 171; V. CHIAPPETTA, The Desirability of Agreeing to Disagree: The WTD, TRIPS, International IPR Exhaustion and a Few Other Things, Michigan J. of Int’l L., 2000, 333. After Silhouette, a more advanced approach was taken by AdvocateGeneral C. STIX-HACKL in the joined cases of Zino Davidoff SA v. A & G Imports Ltd, Levi Strauss & Co and Levi Strauss (UK) Ltd v. Tesco Stores, Tesco plc and Costco Wholesale UK Ltd (joined cases C-414/99, C-415/99 and C-416/99). In her opinion issued on 5 April 2001, Advocate-General STIXHACKL ruled that a retail chain (the UK supermarket chain Tesco) could import Levi jeans from non-EU countries and sell them in the UK at lower prices than those charged by authorized distributors, although she imposed a series of limitations on this entitlement. In particular, she stated that the right of the owner of the trademark to control the initial distribution of the trademarked product is not unlimited if importers have interests which also deserve protection. Thus in the case of parallel imports from third countries, it will be up to the national courts to establish, on the basis of the facts of the case, whether the conduct of the trademark owner can be considered a legitimate exercise of its right to control the distribution of the product. About the interpretation of the article 7 see also the recent ECJ judgments, Peak Holding AB/AxolinElinor AB (case C-16/03, 30 November 2004). Finally, some doubts have been aroused in the Commission itself. Upholding an application by the Swedish government, it commissioned a study of the effects of a possible extension of the principle of exhaustion of trademarks to parallel imports from third countries (NERA, The Economic Consequences of the Choice of Regime of Exhaustion in the Area of Trademarks, London, February 1999). This study was followed by a consultation stage, which involved European Parliament, interested parties, chiefly organizations representing rightsholders, consumers and parallel traders, and by the preparation of a working paper in which the Commission examined the possible abuses of trade mark rights within the EU in the context of Community exhaustion (21 May 2003, available at website http://www. europa.eu.int/comm/internal_market/en/indprop/tm/docs/sec-2003-575/

148

Intellectual property and competition law

sec-2003-75_en.pdf). This report, which takes in consideration three categories of possible abuses – problems that appear to relate to selective distribution systems, problems of abusive refusal to license trade marks, and problems of trade mark infringements themselves – concludes that there are not deficiencies in current legal provision relating to possible abuses of trademarks within the EU. On this issue, see T. HEIDE, Trade Marks and Competition Law after Davidoff, EIPR, 2003, 163; C. R. MANDLY, Jr, Article 82 of the E.C. Treaty and Trademark Rights, Trademark Rep., 2003, 1314.

CHAPTER 5 Intellectual Property and Antitrust The interplay between intellectual and industrial property rights and competition law represents today one of the most controversial issues in Europe as well as in the United States. For an in-depth overview of the European debate since the very beginning I recommend, to begin with (more references below): S. ANDERMAN, EC Competition Law and Intellectual Property Rights, Oxford, 2000; A. FRIGNANI and M. WAELBROECK, European Competition Law, Ardsley, NY, 1999; M. TAVASSI, Diritti della proprietà industriale e antitrust nell’esperienza comunitaria e italiana, Riv. dir. ind., Nos 4–5, 1997, 147. For an overview of the North American debate see, in particular, comments pointed out by W. M. BAXTER, Legal Restriction on the Exploitation of the Patent Monopoly: an Economic Analysis, Yale L. J., 1966, 267; L. KAPLOW, The Patent Antitrust Intersection: A Reappraisal, Harvard L. Rev., 1984, 1815 (more broadly on the economic analysis of patents and the likely effects of excluding faculties therein see earlier references to Chapter 2). H. HOVENKAMP, United States Antitrust Policy in an Age of IP Expansion, U Iowa Legal Studies Research Paper No. 04-03, 2005 at http://ssrn.com/abstract=634224; R. PERITZ, Rethinking U.S. Antitrust and Intellectual Property Rights, NYLS Legal Studies Research Paper No. 04/05-22, at http://ssrn.com/abstract=719745. With the Volvo and Magill judgments European Courts, for the first time, were faced with the issue of whether and when an intellectual property right can be ‘abused’, i.e. employed (from a dominant company) in such a way to unduly restrict competitive equilibria far beyond the legal boundaries afforded by the very same right. Amongst most significant comments to both cases, I’d like to point out: T. VINJE, Magill: Its Impact on the Information Technology Industry, 14 EIPR, 1992, 397; M. DOLMANS, Copyright/Competition: Article 86 – Refusal to License May Infringe Competition Rules, EIPR, 1995, 17(5), 150; C. G. MILLER, Magill: Time to

Bibliographical notes

149

Abandon the ‘Specific Subject-matter’ Concept, EIPR, 1994, 16(10), 415–421; M. RICOLFI, Diritto d’autore ed abuso di posizione dominante, Rivista di Diritto d’Autore, 2001, Nos 4–5, 160. As is well known, with the NDC Health v. IMS Health judgment the European Court of Justice restated the peculiar elaboration of the essential facility doctrine as set out in Magill (please note that the ECJ has never explicitly mentioned the ef doctrine), where the likely intervention of antitrust instruments into the core of intellectual property rights’ excluding faculties was directly linked to the cumulative presence of so called exceptional circumstances: amongst which the lack (within the market) of ‘[. . .] new products or services not offered by the owner of the intellectual property right and for which there is a potential consumer demand’ (for a critical overview of the case see E. DERCLAYE, The IMS Health Decision: A Triple Victory, World Competition, 2004, 397; B. ONG, Anti Competitive Refusals To Grant Copyright Licences: Reflections on the Ims Saga, EIPR, 2004, 505–514; E. AREZZO, Competition Policy and IPRs: An Open Debate over an Ever Green Issue, Dir. Aut. 2004, 315). This restrictive position has been welcomed by some scholars who have long argued for the impossibility of comparing (intangible) intellectual property rights with material infrastructure, often built up with huge State fundings (see V. KORAH, The Interface between Intellectual Property and Antitrust: The European Experience, Antitrust L. J., 2001, 805; J. T. LANG, Compulsory Licensing of Intellectual Property in European Community Antitrust Law, paper delivered for the Department of Justice/Federal Trade Commission Hearings, Washington DC, available at http://www.ftc.gov/opp/intellect/020522langdoc.pdf). Seemingly, such an approach seems to fit perfectly with the North American trend where the essential facility doctrine has been developed with regard to physical infrastructures whose owners are required to afford access to third parties as a result of a ‘duty to serve’ arising ‘from the acceptance of the franchise of a public service corporation’ (see, in this sense, CARDOZO in Tismer v. New York Edison Co, 1920; and even before that, the pilot case of United States v. Terminal Railroad decided by the US Supreme Court in 1912). Although the doctrine was gradually extended even to ‘intangibles’ (for a complete overview, see A. B. LIPSKY Jr and J. G. SIDAK, Essential Facilities, Stanford L. Rev., 1999, 1187; and more recently H. HOVENKAMP, M. JANIS and M. LEMLEY, Unilateral Refusals to License in the U.S., Stanford Law and Economics Working Paper No. 303, 2005, at http://ssrn.com/abstract= 703161), this did not substantially occur with regard to IPRs: as pointed out by M. LEMLEY, Antitrust and the Internet Standardization Problem, Conn. L. Rev., 1041, the Antitrust Guidelines for the Licensing of Intellectual Property issued by the Department of Justice and the FTC in 1995, underline that ‘possession of market power does not impose an antitrust obligation to license

150

Intellectual property and competition law

intellectual property’: op. cit., page 1070, note 110. (This position has been recently reinforced by US Supreme Court in Trinko (2004: see Chapter 5), although the decision did not concern, properly, IPRs.) On this issue see also T. F. COTTER, Intellectual Property and the Essential Facilities Doctrine, The Antitrust Bulletin, 1999, 211; C. FAZIO and E. STERN, Innovation Incentives Compatibility, and Expropriation as an Antitrust Remedy: The Legacy of the Borland/Ashton-Tate Consent Decree, Antitrust L.J., 2000, 45; A. CREUSS and A. AGOSTINOY, The Operative System as an Essential Facility: An Open Door to Windows?, World Competition, 2000, 57; J. FARRELL, Standardization and Intellectual Property, Jurimetrics J., 1989, 35; D. MCGOWAN, Regulating Competition in the Information Age: Computer Software as an Essential Facility Under the Sherman Act, Hastings Comm. & Ent. L. J., 771. ID., Innovation, Uncertainty and Stability in Antitrust Law, Berkeley Technology L. J., 2001, 729. For a different opinion on the matter see R. PITOFSKY, Challenges of the New Economy: Issues at the Intersection of Antitrust and Intellectual Property, Antitrust L. J., 2001, 913; R. PITOFSKY, D. PATTERSON and J. HOOKS, Essential Facility Doctrine in US Antitrust Law, Antitrust L. J., 2002, 44. However, with the IMS case, but already before with the American Microsoft saga, the interplay between IPRs and antitrust policy became somewhat more complex thanks to the addition of further ingredients such as socalled network effect, lock-ins and switching costs. Hence, when intellectual excluding faculties are strategically coupled with such economic phenomena they are likely to raise strong barriers to entry that unduly strengthen the advantaged (not per se dominant) position of IPR holders. With regard to such peculiar economic effects see: C. SHAPIRO and H. VARIAN, Information Rules: A Strategic Guide to the Network Economy, Boston, 1999; J. FARRELL and M. F. KATZ, The Effects of Antitrust and Intellectual Property Law on Compatibility and Innovation, Antitrust. Bull., 1998, 609; J. FARRELL and M. F. KATZ, The Effects of Antitrust and Intellectual Property Law on Compatibility and Innovation, Antitrust. Bull., 1998, 609; R. PITOFSKY, Antitrust and Intellectual Property: Unresolved Issues at the Heart of the New Economy, Berkeley Tech. L.J., 2001, 535; D. BALTO, Networks and Exclusivity. Antitrust Analysis to Promote Network Competition, George Mason L. Rev., 1999, 523; S. J. LIEBOWITZ and S. E. MARGOLIS, Network Externality, An Uncommon Tragedy, J. Econ. Persp., 1994, 133; M. A. LEMLEY and D. MCGOWAN, Legal Implications of Network Economic Effects, Cal. L. Rev., 1998, 479; C. SHAPIRO, Exclusivity in Network Industries, J. Econ. Persp., 1994, 673; M. L. KATZ and C. SHAPIRO, Network Externalities, Competition, and Compatibility, Am. Econ. Rev., 1985, 424; J. FARRELL and G. SALONER, Standardization, Compatibility, and Innovation, Rand J. of Econ., 1985, 70; O. SHY, The Economics of Network Industries, Cambridge, 2001; J. FARRELL and

Bibliographical notes

151

P. KLEMPERER, Coordination and Lock-in: Competition with Switching Costs and Network Effects, in M. ARMSTRONG and R. PORTER (eds.), Handbook of Industrial Organization, Vol. 3, Amsterdam, 2004; G. J. WERDEN, Network Effects and Conditions of Entry: Lessons from the Microsoft Case, Antitrust L. J., 2001, 97; R. PARDOLESI and A. RENDA, How Safe is The King’s Throne? Network Externalities On Trial, in Post-Chicago Developments in Antitrust Law, A. CUCINOTTA, R. PARDOLESI and R. VAN DEN BERGH (eds.), Cheltenham, 2002, 213; N. ECONOMIDES and A. SKRZYPACZ, Standard Coalitions Formations and Market Structure in Network Industries, 2003, at http://www.stern.nyu.edu/networks/site.html; J. FARREL and C. SHAPIRO, Intellectual Property, Competition and Information Technology, 2004, Working Paper, at http://ssrn.com/abstract=527782 (for a specific analysis of such an economic phenomenon with regard to the US antitrust case against Microsoft see S. C. SALOP and R. ROMAINE, Preserving Monopoly: Economic Analysis, Legal Standards, and Microsoft, page 617); W. J. KOLASKY, Network Effects: A Contrarian View, ivi, 577; R. J. GILBERT and M. L. KATZ, An Economist’s Guide to US v. Microsoft, Journal of Economic Perspectives, 2001, 25; D. V. EVANS, A. L. NICHOLS and R. SCHMALENSEE, An Analysis of the Government’s Economic Case in U.S. v. Microsoft, Antitrust Bulletin, 2001, 163; N. ECONOMIDES, The Microsoft Antitrust Case, Journal of Industries, Competition and Trade, 2001, 7; F. M. FISHER, Innovative Industries and Antitrust: Comments on the Microsoft Antitrust Case, Journal of Industries, Competition and Trade, 2001; F. M. FISHER and D. L. RUBINFELD, U.S. v. Microsoft – An Economic Analysis, Antitrust Bulletin, 2001, 69; H. HOVENKAMP, IP Ties and Microsoft Rule of Reason, Antitrust Bulletin, 2002, 369. Specifically, but not only, with regard to the above economic factors, many European scholars have skilfully pointed out the inaptness of the so-called Magill test to take into account factors and specific market scenarios such as the tendency towards de facto standardization (F. FINE, NDC/IMS: A Logical Application of Essential Facilities Doctrine, Europ. Comp. L. Rev., 2002, 464; F. FINE, NDC/IMS: In response to Professor Korah, Antitrust Law Journal, 2002, Vol. 70, 256; G. GHIDINI and V. FALCE, Intellectual Property on Communication Standards: Balancing Innovation and Competition through the Essential Facility Doctrine, Dir. Aut., 2001, 315): consequently, they have stressed the need for a more incisive and economic-founded antitrust intervention (particularly on this point see the thorough comments made by J. DREXL, IMS Health and Trinko – Antitrust Placebo for Consumers Instead of Sound Economics in Refusal to Deal Cases, IIC, 2004, 788; F. DENOZZA, Consumers Transaction Costs at the Intersection of Antitrust and Intellectual Property, Italian Intellectual Property, No. 1, 2003; also, I suggest reading the extremely enlightening contribution by H. ULLRICH, Expansionist Intellectual

152

Intellectual property and competition law

Property Protection and Reductionist Competition Rules: A TRIPs perspective, Journ. Int. Ec. L., 2004, 401), strongly advocated by the largely shared belief that the emergence of a de facto standard does not always mirror efficiency. At this proposal, indeed, as Prof Arthur has brilliantly pointed out (W. B. ARTHUR, Increasing Returns and Path Dependence in the Economy, Michigan, 1994) the affirmation of a standard can well be the result of a fortunate series of casual events (like a successful advertising campaign or a winning marketing operation) which coupled with network effects and lock-in is able to turn the exclusive right into a long-term monopoly (R. PERITZ, Dynamic Efficiency and US Antitrust Policy, in Post-Chicago Developments in Antitrust Law, A. CUCINOTTA, R. PARDOLESI and R. VAN DEN BERGH (eds.), Cheltenham, 2002). Furthermore, this approach seems to have been recently endorsed by the European Commission that in the European Microsoft case (currently pending before the European Court of Justice) fined the Redmont company and also imposed the mandatory disclosure of information regarding interfaces specification of the Windows operating system. See M. DOLMANS and T. GRAF, Analysis of Tying under Article 82 EC: The European Commission’s Microsoft Decision in Perspective, World Competition, 2004, 225; D. S. EVANS and A. J. PADILLA, Tying under Article 82 EC: And the Microsoft Decision: A Comment on Dolmans and Graf, ivi, 2004, 503; R. PARDOLESI and A. RENDA, The European Commission’s Decision against Microsoft: Kill Bill?, ivi, 2004, 513; F. LEVEQUE, Innovation, Leveraging and Essential Facilities: Interoperability Licensing in the EU Microsoft Case, ivi, 2005, 71. From another perspective, with regard to horizontal market dynamics, the European Commission has adopted a new Technology Transfer Block Exemption Regulation No. (772/2004), regulating the licensing of technologies protected by IPRs and trade secret, favouring a renewed tendency towards a rule of reason approach and towards the so-called ‘group innovation’ trend. The regulation has already attracted a lot of attention, for example see V. KORAH and A. FATUR, Annotated Version of the Technology Transfer Block Exemption Regulation, EIPR, 2004, 421; M. HANSEN and O. SHAH, The New EU Technology Transfer Regime, ECLR, 2004, 465; S. D. SCHRIJVER and M. MARQUIS, Technology Licensing in the EU after the Big Bang: The New Technology Transfer Block Exemption Regulation and Guidelines, Business L. Rev., 2004, 61; E. VOLLEBREGT, The Changes in the New Technology Transfer Block Exemption Compared to the Draft, ECLR, 2004, 660; F. CARLIN and S. STEPHANIE, The Last of its Kind: The Review of the Technology Transfer Block Exemption Regulation, Northwestern J. of International Law and Business, 2004, 601 and M. DOLMANS and A. PIILOLA, The New Technology Transfer Block Exemption: A Welcome Reform, After All, World Competition – Law and Economics Rev., 2004, 351; M. FEIL, The New Block Exemption Regulation on

Bibliographical notes

153

Technology Transfer Agreements in the Light of the U.S. Antitrust Regime on Licensing of Intellectual Property, IIC, 36, 31. Intellectual Property and Unfair Competition Differently from IPRs paradigms and other legislation, the set of rules regarding unfair competition has resisted any attempt at international harmonization beyond the minimal provision set forth by art. 10 bis, Paris Convention for the Protection of Industrial Property. In particular, despite the many proposals that arose pointing to such harmonization (see X. Y. CHEN, A Proposal for the International Convention for Protection Against Unfair Competition, EIPR, 1996, 450; F. HENNING-BODEWIG and G. SCHRICKER, New Initiatives for the Harmonisation of Unfair Competition Law in Europe, EIPR, 2002, 271–276), WIPO’s efforts to codify a set of specific unfair competition violations expressly meant to cover illicit exploitation of third parties’ commercial activities, not envisioned by the above provision (art. 10 bis), has not so far produced any concrete results (see WIPO, Protection Against Unfair Competition, Geneva, 1994, WIPO Publication No. 725 (E)). For a broad comparative overview of unfair competition rules, I suggest reading: A. KAMPERMAN SANDERS, Unfair Competition Law: The Protection of Intellectual and Industrial Creativity, Oxford, 1997 and the recent, though more subject-specific, text by C. WADLOW, The Law of Passing Off: Unfair Competition by Misrepresentation, London, 2003. As to the interrelation between unfair competition rules and intellectual property rights, see: F. K. BEIER, The Law of Unfair Competition in the European Community – Its Development and Present Status, IIC, 1985, 139–164; EIPR, 1985, 284–291; C. REED, Controlling World Wide Web Links: Property Rights, Access Rights and Unfair Competition, 6 Ind. J. Global Legal Stud., 1998, 167; P. J. WIED, Patently Unfair: State Unfair Competition Laws and Patent Enforcement, Harv. J. L. & Tech., 1999, 469; R. S. NELSON, Unraveling the Trademark Rope: Tarnishment and Its Proper Place in the Laws of Unfair Competition, IDEA, 2002, 133; A. KAMPERMAN SANDERS, quoted above, p. 113. It is worth recalling that the pro-competitive approach emerging in Europe (in Italy, from the late 1990s: see the Italian Supreme Court judgment No. 11859/97, Smithkline Beecham Corporation v. A.C.S. Dobfar Spa and Francia Farmaceutici Srl Industria Farmaco Biologica, Judge G. M. Berruti) was vigorously anticipated by a US Supreme Court jurisprudence of decades ago, which affirmed, e.g., that ‘if the design is not entitled to a design patent or other federal statutory protection then it can be copied at will’ (Compco v. Day-Brite, 376 U.S. 234, 1964).

References ANDERMAN, STEVE (2000), EC Competition Law and Intellectual Property Rights, Oxford. AREEDA, P. (1990), ‘Essential Facilities: An Epithet in Need of Limiting Principles’, Antitrust Law Journal, Vol. 58, No. 3, 841. ARTHUR, WILLIAM B. (1994), Increasing Returns and Path Dependence in the Economy, Michigan. AUTERI, P. (1981), ‘Industrial Design’, in Diz. Dir. Priv. Dir. Comm. e Ind., Carnevali (ed.), Milan, 585. AUTERI, P. (1989), ‘Lo sfruttamento del valore suggestivo dei marchi d’impresa mediante merchandising’, Contratto e Impresa, 519. CAVANI, G. (1995), ‘Commento generale alla riforma’, in La riforma della legge marchi, G. GHIDINI (ed.), Padua. CAVANI, G. (2000), ‘L’innovazione tecnologica nello spazio tra protezione degli investimenti e tutela della concorrenza’, Working Paper of Osservatorio Proprietà Intellettuale Concorrenza e Telecomunicazioni – LUISS University, 1. CHAMBERLIN, EDWARD H. (1937), The Theory of Monopolistic Competition, London. COOPER DREYFUSS, R. and R. ROSENTHAL KWALL (1996), Intellectual Property – Trademark, Copyright and Patent Law, Westbury, NY, 437. CORNISH, W. (2003), Intellectual Property – Patents, Copyright, Trademarks and Allied Rights, London. DASGUPTA, P. and P. A. DAVID (1987), ‘Information Disclosure and the Economics of Science and Technology’, in Arrow and the Ascent of Modern Economic Theory, G. FEIWEL (ed.), New York, 519. DENOZZA, F. (2003), ‘Consumers Transaction Costs at the Intersection of Antitrust and Intellectual Property’, Italian Intellectual Property, 3. EISENBERG, R. (1989), ‘Patents and the Progress of Science: Exclusive Rights and Experimental Uses’, Univ. Chicago L. Rev., 56. FALCE, V. (2004), ‘Sulle fondazioni filosofiche nelle moderne dottrine economiche dell’innovazione’, Riv. Dir. Ind., 125. F OX , E. (1987), ‘Chairman Miller, the Federal Trade Commission, Economics, and Rashomon’, Law and Contemporary Problems, 50(4), 33. 154

References

155

GERBER, DAVID J. (1998), Law and Competition in Twentieth Century Europe, Oxford. GHIDINI, G. (1973), ‘Il regime comunitario delle esclusive di vendita: anti-trust per oligopolisti?’, Riv. Dir. Comm., 1. GHIDINI, G. (2002), ‘ “Equitable sharing” of Benefits of Biodiversity-based Innovation: Some Reflections Under the Shadow of a Neem-Tree’, Italian Intellectual Property, 39. GHIDINI, G. (2005), ‘Developing Countries’ Access to Patented Essential Drugs. Are Compulsory Licenses the Optimal Means?’, in Grupo Espagnol de la AIPPI (eds.), Estudios Sobre Propiedad Industrial e Intellectual Y Derecho de la Competecia, Collecion de Trabajos en Homenaje a A. Bercovitz, 234. GHIDINI, G., E. AREZZO, C. DE RASIS and P. ERRICO (2005), ‘La tutela del software tra brevetto e diritto d’autore’, Riv. Dir. Ind., 46. HUET, J. and J. C. GINSBURG (1992), ‘Computer Programs in Europe: A Comparative Analysis of the 1991 EC Software Directive’, Columbia J. of Transnat. L., 327. JEHORAM, H. C. (1999), ‘Prohibition of Parallel Imports Through Intellectual Property Rights’, IIC, 495. KINGSTON, W. (1994), ‘Compulsory Licencing with Capital Payments as an Alternative to Monopoly Grants for Intellectual Property’, Research Policy, 23, 1275. LADDIE, H. (1996), Copyright: Over-strength, Over-regulated, Over-rated?, EIPR, 253. LANDES, W. and R. A. POSNER (1987), ‘Trademark Law: An Economic Perspective’, J. of Law and Economics, 265 et seq. LESSIG, L. (1999), Code and Other Laws of Cyberspace, New York. MACHLUP, F. (1958), An Economic Review of the Patent System. Study of the Subcommittee on Patents, Trademarks, and Copyrights of the Committee on the Judiciary, US Senate, Washington, DC, Study No. 15. MCMANIS, C. R. (1999), ‘The Privatization (or “shrink-wrapping”) of American Copyright Law’, California L. Rev., 87, 173. MERGES, R. P. (1998), ‘Intellectual Property and Digital Content: Notes on a Scorecard’, Riv. Dir. Ind., 261. PITOFSKY, R. ( 2001), ‘Antitrust and Intellectual Property: Unresolved Issues at the Heart of the New Economy’, Berkeley Tech. L. J., 535. PITOFSKY, R. (2001), ‘Challenges of the New Economy: Issues at the Intersection of Antitrust and Intellectual Property’, Antitrust L. J., 913. POSNER, R. (1998), Law and Literature, Cambridge and London. REICHMAN, J. H. (1993), ‘Beyond the Historical Lines of Demarcation: Competition Law, Intellectual Property Right and International Trade after Gatt’s Uruguay Round’, Brooklyn J. of Intern. L., 75.

156

Intellectual property and competition law

REICHMAN, J. H. (1994), ‘Legal Hybrids Between the Patent and Copyright Paradigms’, Columbia L. Rev., 2432. REICHMAN, J. H. (1995), ‘Charting the Collapse of the Patent–Copyright Dichotomy: Premises for a Restructured International Intellectual Property System’, Cardozo Arts & Entertainment L. J., 475. RYAN, M. P. (1998), Knowledge Diplomacy: Global Competition and the Politics of Intellectual Property, Washington, DC. SALOP, S. C. and R. C. ROMAINE (1999), ‘Preserving Monopoly: Economic Analysis, Legal Standards, and Microsoft’, Geo. Mason L. Rev., 7, 617. SARTI, D. (1996), Diritti esclusivi e circolazione dei beni, Milan, 424. SAY, J. B. (1803), A Treatise on Political Economy: Or the Production, Distribution and Consumption of Wealth, Book I, Chapter XVII. SCHERER, FREDERIC M. (1984), Innovation and Growth: Schumpeterian Perspectives, Cambridge, MA. SCHUMPETER, J. (1934), Theory of Economic Development, Cambridge, MA. SCOTCHMER, S. (1991), ‘Standing on the Shoulders of Giants: Cumulative Research and the Patent Law’, J. Econ Persp., 29. SHAPIRO C. and M. L. KATZ (1999), ‘Antitrust in Software Markets’, in Competition, Innovation and the Microsoft Monopoly: Antitrust in the Digital Market Place, Eisenach & Lenard (eds.), Boston, MA, 30. TEMPLE LANG, J. (1994), ‘Defining Legitimate Competition: Companies’ Duties to Supply Competitors and Access to Essential Facilities’, Fordham International Law Journal, Vol. 18, 437. TOBIN, J. (1970), ‘On Limiting the Domain of Inequality’, Journal of Law and Economics, 13, 263. ULLRICH, H. (2004), ‘Expansionist Intellectual Property Protection and Reductionist Competition Rules: A TRIPs Perspective’, Journ. Int. Ec. L., 401. VANZETTI, A. (1998), ‘La funzione del marchio in un regime di libera cessione’, Riv. Dir. Ind., 71 et seq.

Index advertising 2, 9, 112 see also trademarks antitrust law and IPL 5–7, 13, 39, 99, 100–102, 107–11 rent-seekers 6, 8, 9, 24, 69, 81, 93 trademark exploitation 88, 94, 103 Treaty of Rome see Treaty of Rome see also competition; monopolies applied art (industrial design) 2, 67–70, 113 Bayer Co. v. United Drug Co. 88 Berne Convention applied art copyright 67, 68, 69 article 2(7) 67, 68 article 5(2) 55 article 7(4), (6) and (7) 67, 69 article 14-bis 3 economic benefits from employees’ inventions 3 and independent creation 55 biochemistry 19, 23, 33 biodiversity, privatization of 10 biotechnology 2, 9, 30 DNA techniques 30, 63 European Parliament Directive 19, 30 research and application, distinction between 19–20, 22, 43 broadcasting 57, 58 Centrafarm 40 chemical research 39 Supplementary Protection Certificate 46 cinematographic works 3, 59 competition antibodies 8, 10, 14, 99 balances, distortion of 101 comparative advertising 112 competitive advantage 9, 27, 81, 88, 92, 93

and consumer preference 104–5 and copyright 61–2, 64, 65–7 EC Treaty see EC Treaty and exclusive rights see exclusive rights free market access 5, 6, 7, 11, 26, 38, 40–41, 80, 99, 100, 106 freedom principle 28, 113 and goodwill 5, 112 Hodgkinson and Corby and Roho v. Ward 113 identical goods 4, 31 IMS 106 and intellectual creation 38, 40–41, 80, 99, 100 law, and IP intersection 99–118 Magill 106 and market dominance 101, 110 Microsoft 107 misappropriation concept 112, 114 network effects 104–6, 107, 108–9 Paris Convention see Paris Convention patent law in 6, 13–14, 25 protection of interests 2–3, 27, 79–80, 113 and R&D see R&D and standardization 104, 105–6 and third party subsequent innovation 6, 9, 24, 26, 27, 29–31, 35–8 unfair 2–5, 8, 27–8, 39, 99, 103, 111–14, 115 see also antitrust law computer programs copyright protection 2, 55, 57, 63 patentability of 43, 46, 111 software see software consumer choice 79, 80, 86, 88, 91 protection 11, 24, 40, 66, 71, 83, 101, 103, 113 157

158

Intellectual property and competition law

copyright anti-competitive effects 55, 60 attribution to specific person 53–4 author’s interest, protecting 56–7, 72, 73 Berne Convention see Berne Convention and competition 61–2, 64, 65–7 cumulation protection 68–9, 70 duplication of goods 106–7 duration 56, 73 economic threshold 61–2, 64 essential facility doctrine 108, 109, 110 exclusive rights 52–4, 56–61, 63, 66, 70–72 expansion of 52–77 exploitation of work 58, 60 fortuitous encounter 54, 55 freedom of speech 52 IMS 106 independent creation 54–5 industrial design 67–70 information technologies 2, 55, 57, 63, 72 intellectual creation 3, 10, 17, 53, 55–62 law 2, 3, 14, 72 licensing 55, 56–7, 59, 60, 66–7, 72, 106 Magill 106 mass-produced goods 59 moral rights 53–4, 60, 66 neighbouring rights 58–9, 60, 63, 71 originality 54, 55 parallel application 70 patent, versus 10, 52–62, 63, 64–7, 68–9 pay-per-use principle 72, 73 pirating 73 plagiarism, accidental 54 production and diffusion of works 58–9, 61, 71, 73–4 protected works 55, 61, 64, 71, 74 rental or lending to third parties 57 technical results of creative works 2, 55, 57 third party creation 54, 55, 60, 66 trespass, risks of 62–7, 71 TRIPS Agreement 53

unpublished work 55 counterfeit goods 81 databases 2, 63–4 developing countries 10, 44 Digital Rights Management (DRM) 58, 72, 73 Doha Declaration 44 domain names 82 Dreyfuss, Henry 70 DRM (Digital Rights Management) 58, 72, 73 e-commerce 39, 73 EC Treaty articles 28 and 29 7 article 30 (36) 7 article 8128, 106 article 86 7 export and import restrictions 7 and free riding 7 Intellectual Property and Standardisation 106 monopolies for public interest services 7 technology transfer agreements 28 telecommunications liberalising 106 Economist, The 72, 73 education tools 71 encryption 58 energy efficiency 29 entertainment industry 71–4 see also intellectual creation environment protection 29, 44 EPC see European Patent Convention essential facility doctrine (EF) 108, 109, 110 ETAN Report 45 EU copyright duration 56 import rights 40–41 ‘indispensable restrictions’ policy 24 industrial policy 8, 100–101, 106, 115 Information Society Directive 58, 71 Merck policy 41 EU Directive 89/104EEC 82, 83–4, 85, 90 article 17 69, 70 article 81.3 115

Index article 82(a) 103 design protection 68, 69, 70 Protection of Inventions by Utility Models 34–5 trademark legislation 82, 83–4, 85, 90, 102–3 and unfair competition 115 European Commission Directorate General XII, ETAN Report 45 European Community Centrafarm 40 market partitioning, early 100–101 plant variety rights 44–5 Regulation (EC) No. 40/94 82, 83–4, 85, 90 Regulation (EC) No. 772/2004 28 Regulation (EC) No. 873/2004 44 Regulation (EC) No. 2100/94, article 29 44 Regulation (EC) No. 2659/2000 7 technology transfer agreements 28, 101 Technology Transfer Block Exemption Regulation (TTBER) No. 772 101 European council computer program protection 111 Directive 89/104/EEC 80, 84 Directive 91/250/EEC 111 Regulation (EC) No. 40/94 80 trademark legislation 80, 84 European Court of Justice competition restrictions 106–7 Microsoft 107 trademarks rights exhaustion 80 European Economic Area, exhaustion principle 40–41 European Parliament Biotechnology Directive 19, 30 Communications Review 106 Directive 98/44/EC 19 European Patent Convention article 27 3 article 52, c 63 article 52.2 3, 10, 15, 16, 20, 43, 46 article 54 27 article 54.5 29 article 55 27 article 56 31, 32 article 57 3, 16, 20

159

disclosure, unauthorised 27 industrial solution indicated 9 innovation originality 32 innovations, substitutive 31 intellectual ideas, theoretical 15 ‘new use’ substances 31 non-patentability of inventions 3, 10, 15–16, 20, 43, 63 patentability criteria 32, 46 reproduction, unauthorized for nonindustrial uses 3 software patentability 46 exclusive rights and competitive dynamics of innovation 23–41, 103–4 copyright 52, 53, 54, 56, 57 exhaustion of 6, 39–41, 56, 57, 59, 100 and infringement rules 9, 21–2, 23, 27, 29, 31, 33, 36, 45, 102 intangibles 15, 17 for scientific discoveries 17–19, 20 Supplementary Protection Certificate 46–7 time limits 6, 56 exhaustion principle 24, 39–40, 81 expansionist trend 65 Feist case 64 film production 3, 59 firms compensation for investment 4, 7, 18 and competition see competition dominant 35, 65, 66, 100, 108 exclusion of minor 35 International Accounting Standards 86 patents, exploitation of 18, 28, 36 protection of interests 2, 35 and R&D see R&D France confusion risk 8 trademark assignment 83 unfair competition 112 free market access 5–7, 11, 26, 38, 40–41, 80–81, 99, 100, 106 free-riding 7, 8, 17, 40, 41, 42 protection against 24, 99, 100, 101, 109

160

Intellectual property and competition law

genetics 2, 9, 19, 63 Germany ArBEG 3 confusion risk 8 economic benefits from employees’ inventions 3 unfair competition 112 globalization 9, 81 Gottschalk v. Benson 46 health protection 44, 47 Henkel v. Loctite 7 Hodgkinson and Corby and Roho v. Ward 113 IMS 106 indigenous knowledge, privatization of 10 industrial design (applied art) 2, 67–70, 113 industrial espionage 2, 27, 63 industry standards 39, 44, 106 information technologies copyright 2, 55, 57, 63, 72 domain names 82 e-commerce 39, 73 and entertainment industry 71–4 IMS 106 Information Society Directive 58, 71 innovation in 23, 39 Internet 71, 72, 104 interoperability 39, 46, 104, 105, 107, 111 investment in 65 joint purchases 104–5, 107 Magill 106 Microsoft 107 network effects 104, 105, 106, 109, 111 satellite communications 106 value increase of intangible goods 15 see also computer programs; technology innovation 2, 3, 6, 9, 16, 36–7, 45, 65–6 and antitrust law see antitrust law application conversion by person skilled in the art 21–2, 23 derivatives of 21, 22, 24, 26–7, 29–31, 33, 36–8, 45, 108–9, 111

efficiency in 7, 39 energy-efficient 29 equivalents 23, 25, 31, 32, 35 essential facility doctrine 108, 109, 110 exclusive rights see exclusive rights exhaustion principle 24, 39–40, 81 exploitation of 27, 28, 38 first-to-file principle 36 first-to-invent principle 36 full disclosure and publication of 6, 25, 26, 27, 29, 109 incremental (gradual) 23, 33, 38, 42, 47, 101 investment incentive and protection 21, 22, 24, 25, 40, 42, 80 lead time 36 leapfrogging 38 make-and-share 109 manufacturing 16 and monopolies see monopolies moral rights 52, 54, 60, 66 non-patentability 3, 10, 15, 17 originality of 32, 33, 35, 47 patent protection of 13–51 product and process, relationship between 29, 30, 44 public knowledge of 25 subsequent, by third parties 19, 23, 24, 31–2, 36, 37, 39, 44, 101–3, 113–14 substitutive 24, 25, 29, 31, 33, 35–6, 38, 42, 44, 45, 62 technical advance of economic significance 37, 43, 44 utility models 34–5 see also copyright; patents; R&D intellectual creation 3, 10, 17, 53, 55, 56–9, 60, 61–2 see also entertainment industry ‘Intellectual Property in Transition’ 41–2 International Accounting Standards 86 interpreters 59–60 inventions see innovation IP regulations antibodies, built-in 8, 10, 14, 99 and antitrust law see antitrust law bargaining powers 100 classical model 1–2, 3, 11, 27, 40, 52, 53, 60, 63, 65, 86–7

Index constitutional guidelines 7, 8–12 duality of 1, 2 EC Treaty see EC Treaty economic public order limitations 100 and entry barriers 105, 108 and essential facility (EF) doctrine 108, 109, 110 European Community regulations see European Community exploitation, contractual 99–100 extension of 8, 10 extension/amendment of 8, 10, 29, 30 and market power leverage 102, 103, 104, 105 numerus clausus principle 8 overprotectionism 9, 11, 42, 43 rule of reason 101 TRIPS Agreement see TRIPS Agreement Italy Code of Industrial Property (2005), article 64 3 Code of Industrial Property, article 49 16 Community Patent Convention 27 Competition Authority 7, 79, 93–4 confusion risk 8 consumer protection 79 copyright law 54 design protection 68–9 economic benefits from employees’ inventions 3 Henkel v. Loctite 7 Law 282, article 3(1) (a) 79 non-patentability of inventions 16 Patent Act, article 23 3 secrecy, right to pre-use of 27, 28 trademark legislation 79, 82, 90, 93–4 Trademarks Act, article 15.2 90 unfair competition 112 Japan, antitrust laws 5 Kimberley Clark v. Scott 103 licensing 7, 99, 100 copyright 55, 56–7, 59, 60, 66–7, 72, 106

161 cross-licensing 38, 44, 45, 109 Henkel v. Loctite 7 invention derivatives 21, 26, 29–30, 37, 38 non-voluntary 3, 7, 21, 33, 37–8, 43, 44–5, 46, 55, 67, 103 Open Source 109 and royalties payments 37, 43, 86, 87, 92, 108 ‘shrink-wrapped’ 58 software 44, 46, 66–7 of technologies 101, 102 TRIPS Agreement see TRIPS Agreement

Magill 106 Merck policy 41 Microsoft 107 monopolies 6, 62, 72, 108 and consumer choice 11 EC Treaty see EC Treaty micro 109 in patent law 13–14, 29, 30, 79 for public interest services 7 and scientific research 18–19, 21, 22–3 music 58, 59, 71, 73 network economy 13, 14, 15, 39, 66 network industries see information technologies overprotectionism 9, 11, 42, 43 Paris Convention article 5 3 article 10-bis 2, 27–8, 111 article 10-bis (3)(1) and (2) 4 competition, confusion and discreditation 4 competition, unfair 2, 4, 27–8, 111 patent rights, revocation of 3 passing-off 2, 8, 82, 112, 113, 114 patent 2, 6, 9, 17, 20 antibodies, built-in 8, 10, 14, 99 application potential of invention 21–2, 23 competition in see competition copyright, versus 10, 52–62, 63, 64–7, 68–9

162

Intellectual property and competition law

patent (cont.): cumulation protection 68 efficiency, dynamic 23–41 European Patent Convention see European Patent Convention examination, prior 26, 46 exclusive rights see exclusive rights exploitation by firms 18, 59 extended protection 10, 20–21, 45, 46 and free-riding see free-riding Gottschalk v. Benson 46 historical criterion 47 industrial application 3, 15–16, 19, 20, 23, 29, 52, 53, 61 innovation protection 6, 13–51, 109, 112 joint rights 99 liability rule 43 licensing see licensing litigation costs 33, 35, 37, 45, 111 monopoly 13–14, 29, 79 ‘new use’ substances 29 non-derivative 44 non-patentability of inventions 3, 10, 15, 17, 20, 114 Paris Convention see Paris Convention ‘person skilled in the art’ requirements 25, 32 pooling 99 product lock-in 103, 105, 109 public disclosure, delaying 23, 27, 36 publication date 25, 45, 47 and R&D see R&D restriction of scope of 6, 9, 28–9 secrecy as alternative 18, 27, 55 technology 102 TRIPS Agreement 3, 29, 32, 37, 109 for utility models 34 Pepsico v. Coca Cola 93–4 performers’ rights 58–9 pharmaceutical research 19–20, 39, 42, 43 Supplementary Protection Certificate 46 pirating 73 plant varieties 2, 44–5 Supplementary Protection Certificate 46

pollution reduction 29, 44 price levels and exclusive right exhaustion 6, 13, 40 price fixing 4, 7, 73–4 and subsequent innovation 32, 36, 38, 43, 62 trademarks and 80, 94 property, Anglo-Saxon idea of 110 R&D 6, 18, 38 applied and basic, distinction between 14, 15–23 costs 9, 16–17, 33, 108 cumulative process 30–31 European Community Regulations see European Community independent 42–3 in intangibles 15 investment in 14, 16, 20, 21, 33, 38 joint ventures 7, 99 path-dependency 38, 42, 43, 108 public sector 15, 18 research and application, distinction between 19–20 scientific research subsidies 9–10, 16 and secrecy 18, 27, 28 see also innovation rent-seeking 6, 8, 9, 81, 93 royalties payments 37, 43, 86, 87, 92, 108 scientific research 19, 20, 56 exclusive rights for discoveries 17–19, 20 non-patentability of 15–19 subsidies for 9–10, 16 Sealink Harbours 108 secrecy 18, 27, 28 software copyright 2, 9, 44, 46, 61, 63, 65, 66 Gottschalk v. Benson 46 joint purchases with hardware 104 licensing 44, 46, 66–7 and networking 66 patentability 46, 106 see also computer programs; information technologies subsidies 4, 9–10

Index technology 9, 37, 108 advance, significant 37, 43, 44 copyright 14, 58, 62–7, 102 digital 58, 59 licensing 101, 102 see also information technology technology transfer agreements 28, 100, 101 telecommunications 14, 106 trade secrets 16 trademarks 3–5 advertising value of 78–98 and antitrust laws 88, 94, 103 association, risk of 85 Bayer Co. v. United Drug Co. 88 business interests, protection of 83–8 classic paradigm 78–83, 84 coexistence agreements 90, 102–3 commercial and financial value 81, 83–7, 88, 103 and competitive advantage 80, 81, 88, 92, 93 confusion, defence against 79, 80, 82, 84, 85, 87, 89, 90, 91, 102 consumer deception, risks of 88–92 and counterfeit goods 81 dilution by blurring 84, 85 distant fields of use 37, 87–8, 91, 92, 93 distinguishing function 78–98 domain names 82 and entry barriers 93–4 European Council legislation see European Council European reform 83–8, 89 exclusive rights 4–5, 80, 84, 85–6, 90, 100 exploitation 87–8, 93 extramural protection 84, 85, 87 and firm, link with 78, 88–92, 91 free assignment of 83, 84, 86, 91 free transfer 89 generic use of 88, 103 infringement proceedings 78–9 Kimberley Clark v. Scott 103 legal protection duration 79 licences 84, 86–7, 90–91, 92, 93, 94, 102, 103 market power of 78, 80–82, 93, 103 merger into single ownership 103

163

misleading use of 78–9, 83 monopolistic aspect of 5, 79, 80, 103 novelty of 82 Pepsico v. Coca Cola 93–4 preferential choices 78 price levels 80, 94 product origination 78, 79, 89 protection of 82, 83, 85, 87–8, 89, 93 quality and characteristic variations of goods 89–90, 91, 92 registering firm, close association with 82–3 renowned 82, 83, 85, 87–8, 89, 91, 92, 93 and reputation 81, 85, 86, 112 revocation of 88, 90–91 rights, exhaustion of 80, 81 and royalties 86, 87, 92 start-up advantage 87–8 store sign 78 territorial limitation 80–81, 84, 86 third party connection 82, 84, 85, 86, 87, 90, 93, 102–3 time limits 85 transfer of 83, 84 TRIPS Agreement see TRIPS Agreement Treaty of Rome antitrust law 5 articles 81–6 5 Merger Regulations 5 Trinko case 107 TRIPS Agreement article 15 3, 20 article 16.3 85 article 27.1 32, 52 article 28.1 29 article 30 3 article 31 3, 21, 37, 44, 109 article 31.1 29, 37, 38, 39, 43, 45, 109, 111, 115 article 39 27–8 article 39.1 111 competition, unfair 27–8, 111, 115 copyright 53 innovation derivatives 111 innovation originality 32, 38, 45, 52 licensing of invention derivative 21, 29, 37, 38, 39, 44 patent law 3, 29, 32, 37, 109

164

Intellectual property and competition law

TRIPS Agreement (cont.): process and product relationship 29 technical advance of economic significance 37, 39, 43, 44 trademarks 3–4, 84, 85 UK economic benefits from employees’ inventions 3 Patents Act, article 39 3 Trade Marks Act 112 US 35 USC Sec. 101 21 antitrust laws 5, 7

Berne Convention see Berne Convention Constitution, Article 1.8.8 42 Copyright Royalty Tribunal 67 Digital Millennium Copyright Act 67 Feist case 64 first-to-invent principle 36 and incremental innovation 101 patent laws 21, 42, 43 Trinko case 107 VHS and Betamax 105 WIPO 45 WTO 44, 81