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Concurrences Revue des droits de la concurrence Colloque l Concurrences N° 2-2011 l www.concurrences.com New Frontiers of Antitrust 2nd Annual international conference 11 February 2011 Assemblée nationale, Paris
@ Colloque NEW FRONTIERS OF ANTITRUST
2nd Annual international Concurrences conference
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende
(art. L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
11 February 2011 08.30 Welcome
Assemblée nationale, Paris
Frédéric Jenny l Judge, French Supreme Court,
President of the International Committee of Concurrences
Professor of economics, Co-Director Centre Européen de
@ The papers of this conference are
published in the electronic supplement Droit et d’Economie, ESSEC, Paris
of this issue, available to subscribers on
www.concurrences.com
08.45 Antitrust enforcement in the EU in 2011
Joaquin Almunia l EU Commissioner responsible for competition policy
09.30 Patent ambush in the US and the EU:
How wide is the gap?
Dennis Carlton l Professor of Economics, University of Chicago
Johannes Luebking l Chief of Unit, DG Competition,
European Commission, Brussels
Jean-Yves Art l Senior Competition Counsel,
Microsoft, Brussels
Jacques-Philippe Gunther l Partner, Willkie Farr & Gallagher, Paris
11.30 Quantifying damages in civil proceedings:
Can economist and should competition
authorities help?
Frédéric Jenny l Judge, French Cour de Cassation -
Professor of economics, ESSEC, Paris
Raphaël De Coninck l Chief Economist Team, European Commission
Jorge Padilla l Economist, LECG, Madrid/Brussels
Olivier d’Ormesson l Partner, Linklaters, Paris
14.30 Consumers associations in competition
proceedings: Why so little engagement?
Bill Kovacic l Member, Federal Trade Commission, Washington DC
Laurence Idot l Professor, University Panthéon-Assas, Paris - President of the
Scientific Committee of Concurrences Review
Phil Evans l Member, UK Competition Commission - FIPRA, London
David Ortega l Member, OCU-BEUC, Madrid
16.45 Procedural fairness: How much remains
to be done?
Nils Wahl l Judge, General Court of the European Union,
Luxembourg
Bruno Lasserre l President, Autorité de la concurrence, Paris
Wouter Wils l Hearing Officer, European Commission, Brussels -
Visiting Professor, King’s College, London
Jean-Paul Tran Thiet l Partner, White & Case, Paris
Concurrences N° 2-2011 I Colloque I NEW FRONTIERS OF ANTITRUST 2nd Annual international Concurrences conference 11 February 2011
1New Frontiers of Antitrust
@ Colloque Conference 11 February 2011
Joaquín ALMUNIA
Antitrust enforcement in
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende
(art. L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
joaquim.almunia@ec.europa.eu
Vice President of the European Commission,
Responsible for Competition Policy the EU in 2011
Abstract 1. Ladies and Gentlemen, it has been a year, this week, since the Barroso II
Commission took office and it is also a year since I addressed this conference’s
first edition.
I n this article Joaquim Almunia, Vice President of the
European Commission responsible for Competition Policy,
gives us a bird’s eye view of his first year as Commissioner
2. The speech of 15th of February 2010 was my first as Commissioner for
for Competition and gives his point of view about the Competition. I thank very much the organisers to allow me again to address such a
objectives to hold for 2011. For him, we need more distinguished audience. This is the perfect opportunity to look back at what I have
competition to get out of the crisis. Competition policy has
the potential to become a driver of growth; to train European
done over the last twelve months and to trace the way forward.
companies to become world champions and, at the same
time, to bring us closer to a genuine internal market.
I. Looking back
Dans cet article, Joaquim Almunia, vice-président de la 3. Last year, I shared with you my vision of competition as a vital policy area to help
Commission européenne et responsable de la politique de Europe overcome the crisis and – farther ahead in time – to boost its competitiveness,
concurrence, fait un bilan de sa première année en tant que promote growth and create jobs.
commissaire de la concurrence et donne son point de vue
sur les objectifs à tenir en 2011. Pour lui, il faut plus de
concurrence pour sortir de la crise. La politique de concurrence 4. One year later, I fully confirm that vision.
peut à ce titre, être un moteur de croissance permettant aux
entreprises européennes de devenir des “champions mondiaux”
5. I have seen first-hand that the fair and robust enforcement of EU competition
tout en nous rapprochant d’un marché intérieur idéal.
law helps business and consumers make the most of the internal market, which is a
key asset for Europe.
6. The importance of enforcement is clearest in our fight against cartels, which I
regard as the most serious offence in competition law.
7. Take the decision we adopted last November, for instance, when 11 airlines were
fined for imposing significant surcharges worldwide to transport cargo.
8. On this occasion, some public voices expressed their astonishment at the size of
the fine – although it was a reflection of the value of the sales that were cartelised.
9. By the way, the fines imposed in the US were roughly the same for, in effect, a
narrower infringement.
10. What I find astonishing is that the voices of their customers did not receive the
same coverage in the media. Customers who were outraged by the fact that these
cargo operators had fixed the price for transporting the goods of Europe’s exporters
for as long as six years.
11. Cartels are bad for everybody, except for those who participate in them! They
increase the price for companies, often SME’s, as they often concern intermediate
products, and directly or indirectly hurt Europe’s consumers.
12. Today I want to repeat that during my tenure I will not weaken the fight against
cartels. This should be clear.
13. Please, don’t look at that as a prejudice of the Commissioner. The reason why
I always will be tough on cartels is very simple, and has to do with the priorities of
the Commission policies.
14. Our priority number one is to help increase our competiveness in the world,
our growth potential and the ability of our economies to create jobs – all urgently
needed in view of the lasting damages created by the economic and financial crisis.
Concurrences 2-2011 I Colloque I J. ALMUNIA: New Frontiers of Antitrust Conference
215. Competition policy will make a substantial contribution 28. The digital economy poses fresh challenges to antitrust
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende
(art. L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
to this, by encouraging companies to compete on the merits enforcement, with its rapidly evolving markets, innovative
and innovate, which they are more likely to do if they operate products, and new business models. What is required of us in
in a sound and undistorted environment. each case is careful analysis of the facts and of the underlying
economic implications.
16. Some argue that we should take into account the difficult
economic times and be more lenient. I cannot agree with this. 29. It is in this spirit that we have launched an investigation
in the Google case. Careful analysis will allow us to make
17. These are difficult times for everyone; why should we a thorough assessment of the allegations made against the
allow cartels or State subsidies that would make life easier company.
for few and more difficult for everyone else?
30. Regarding the assessment of mergers and acquisitions,
18. Of course, when deciding on cartels and calculating the we have cleared the vast majority of cases in 2010. It is our
fines we look carefully into any inability to pay claims. My policy to accept remedies or block mergers only when we
purpose is not to put companies out of business. If the claim conclude that they would seriously impair competition and
is valid, we reduce the fine to a level the company can pay. In harm European customers.
total, ten companies had their fine reduced last year.
31. But above all, over the past year I have seen that our
19. I hasten to add that inability to pay is not an open door merger-control system is objective, fast, and proportionate.
for cartelists to escape or evade fines through corporate It prefers prevention to the cure, as shown in the recent case
sleight of hand. Let me be clear: if you want to avoid our involving Intel and McAfee.
fines, respecting the law remains the safest strategy.
32. Just over two weeks ago, I authorised the proposed
20. In 2010 – and for the first time – we have also taken two acquisition of McAfee by Intel accepting Intel’s commitment
settlement decisions in the DRAMs and Animal Feed cases, that its hardware will remain open to the security solutions
saving a great deal of time and money. We are discussing McAfee’s competitors will find in the future.
settlements in a number of other cases, which shows that the
new tool works well and is becoming a practical option to 33. This decision shows our ability to intervene before
handle cartel cases. problems actually occur. Complex antitrust investigations
and Court proceedings take time and can come too late to
21. Apart from cartels, we have also worked hard to restore competition.
protect the single market from the harm done by restrictive
agreements and abuse of dominant positions. 34. It also shows our ability to close even complex cases
within the tight Phase I deadline, thanks to the cooperation
22. In some instances, our analysis has led to positive of the parties.
decisions, such as in the Oneworld case. Last July, we
approved a joint venture between British Airways, American 35. Finally, it shows our good relations with sister agencies
Airlines and Iberia on transatlantic flights on condition that outside the EU. In this case, cooperation with the US Federal
the airlines gave access to their airport slots. Trade Commission has been excellent and has led to a swift
clearance in both jurisdictions.
23. The commitments have already produced results; thanks
to the slots received from these airlines, in March Delta will 36. But although we rarely do it, we must block mergers
launch new flights from London to Boston and Miami. when necessary; as occurred on the same day of the Intel/
McAfee clearance.
24. We also looked carefully at the proposed joint venture
between BHP Billiton and Rio Tinto, as these two players 37. I am referring to the proposed merger between Aegean
would have controlled almost half the global iron-ore Airlines and Olympic Air – the two leading airlines in Greece
market, a strategic raw material for our economy. – which would have created a quasi-monopoly for domestic
air transport in this country.
25. As to abuses, the four decisions adopted in the energy
sector since I took office speak for themselves. 38. The details of the case are well known; what is perhaps
less known is that the decision was well received in Greece, a
26. In the most recent of these decisions – taken last country in which additional price increases to citizens would
September – ENI took the commitment to open up the not have been acceptable.
Italian gas market. As a result, its competitors will now
have access to the transport capacity they need to enter the 39. Last but not least, I want to mention the huge work we
market. have done to oversee the subsidies that governments have
given to Europe’s banks to cope with the financial crisis.
27. Finally, let me turn to the digital world. Competition Since the crisis erupted at the end of 2008, we have reacted
policy has a strong role to play in the digital economy, which swiftly setting up an extraordinary State aid regime, which
is one of the most promising industries for Europe’s growth. was due to expire at the end of last year.
Concurrences 2-2011 I Colloque I J. ALMUNIA: New Frontiers of Antitrust Conference
340. Our action made sure that Member States coordinated champions and, at the same time, to bring us closer to a
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende
(art. L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
their measures; as a result, a level playing field for financial genuine internal market.
markets was preserved even in these difficult circumstances.
54. It goes without saying that respecting competition rules
41. But a lot of work remains to be done, so the temporary is not enough to improve the competitiveness of Europe’s
regime will stay with us until the end of the year to prepare economy. But if the rules are relaxed, our internal market
for a gradual return to normal market functioning. Market will come undone and we will never be competitive on a
conditions permitting, the new deadline is January 1st, 2012. global scale.
42. Enforcement was not the only area of operation that 55. Promoting a healthy competition environment in Europe
kept us busy in 2010. Over the last year we have also updated is good for consumers, who will benefit from lower prices and
our rules to provide better guidance and legal certainty. Let wider choice, and it’s good for business too.
me mention briefly our main decisions in this domain.
56. An open and fair business environment equips our
43. In April we adopted new rules for the assessment of companies to gain market shares both in Europe and around
supply and distribution agreements. Our policy was revised the world, especially in the emerging markets.
in line with market developments, in particular as regards
on-line sales – which I present to you as yet another step to 57. In my opinion, spreading the notion that European
promote a digital internal market. business should be shielded from competitive pressure is a big
mistake and a serious threat for the future of our economy.
44. Towards the end of the year, we also updated our rules A robust competition regime helps companies adapt to a fast
on the so-called horizontal agreements between companies changing reality, innovate, and grow.
to facilitate pro-competitive agreements, notably in the field
of research and development, and standards. 58. As you can see, my views against protectionism apply
both to European and world markets. I believe that engaging
45. Thanks to our updated rules, it will be easier for market our world partners in dialogue and towards a growing
operators – and I am referring especially to SMEs – to adapt convergence of our competition policies and enforcement is
their behaviour in a pro-competitive way. the way forward.
46. Before I turn to the future, let me say one word on our 59. This – together with a sensible trade policy – is the best
work in cooperation and advocacy. means to prevent a protectionist tit-for-tat, which would be
damaging for everyone.
47. In 2010, we have continued our dialogue with competition
agencies in the EU and across the world with excellent results. 60. But we Europeans need to do the right thing at home as
well. In this light, I can see three main areas of development
48. As to advocacy, I will have to use myself as an indicator: for competition policy.
after our first meeting last year, I’ve had more than 50 public
events with audiences of all kinds across our Union. 61. First, as I said before, I intend to bring my full
contribution to extend and deepen the internal market. We
49. It’s been an important and instructive part of my job, will follow the conclusions of the latest European Council
especially because it confirmed the relevance of competition on energy and innovation and redouble our efforts in the
policy for many EU initiatives: from the Single Market Act network industries.
to the projects included in the EU 2020 strategy.
62. Also, if we are to ensure that our internal market is truly
open to European companies, we need to step up our control
II. Looking forward of entrenched incumbents and other dominant companies,
including in the new Member States.
50. So far, I have given you a bird’s eye view of my first year
as Commissioner for Competition; but what will the future 63. Finally, I intend to increase the protection of consumers
hold for us? and SMEs, which are often the first victims of the restrictions
and the higher prices brought about by anticompetitive
51. My many trips across the Union and my conversations practices, such as cartels.
with fellow policy makers, stakeholders, and ordinary
people have confirmed that, in the present economic 64. SMEs deserve special attention, because of their
climate, competition policy is an extremely valuable policy importance for regional development and their role in the
instrument. social fabric of many parts of Europe.
52. We need more competition, not less, to get out of the crisis. 65. As to State Aid, we are in the process of updating our
rescue and restructuring guidelines. In this important process
53. Competition policy has the potential to become a driver we are identifying the lessons learned in our effort to support
of growth; to train European companies to become world the financial and non-financial sectors during the crisis.
Concurrences 2-2011 I Colloque I J. ALMUNIA: New Frontiers of Antitrust Conference
466. Thinking that we can turn back the hands of the clock 78. Private enforcement is another area of development.
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende
(art. L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
to before the collapse of Lehman Brothers is folly. Our new A public consultation on collective redress has just been
guidelines are being designed with this principle in mind; launched as part of a process started last year by the
they will have to match the new market environment that Commission.
is gradually emerging as we leave the worst of the crisis
behind us. 79. Collective redress is an issue that goes beyond the
Competition portfolio; it involves environment, product
67. We will also need to review our approach towards public liability, consumer protection, and perhaps other policy
services. areas too.
68. The crisis has had two effects in this area: 80. Once the College will establish a horizontal position on
this issue, I will put forward proposals for private enforcement
– on the one hand, it has made many people more dependent through collective actions.
on public services of good quality for their everyday needs;
81. Private enforcement does not substitute but complements
– on the other, it has depleted public coffers; many European the public enforcement of EU competition law; which will
governments are strapped for cash and are planning deep remain the bulk of our everyday work.
cuts to their budgets.
82. At the same time, we need to make sure – as requested by
69. As a result, governments need to make a more efficient the European Parliament – that SMEs and citizens get fair
use of their resources focussing on the services that bring compensation when harmed.
more direct benefits to their citizens, such as transport, postal
services, and energy. 83. Competition is an instrument, not an end in itself. But it
is indeed a vital instrument in very many respects.
70. This is why I will launch a debate with the stakeholders,
the Member States, and the other institutions of the EU to 84. Without fair, robust, and effective competition policy
review our State aid rules on the financing of the Services of and enforcement, I don’t see how we Europeans can
General Economic Interest. overcome the crisis rapidly and shape up to compete with
the other, dynamic players that are increasingly present on
71. One of the principles I have in mind for the reform is the world scene.
making the degree of State aid scrutiny dependent on the
nature of the services provided – which means simplifying 85. Of course, Competition is not the only tool we should use
the rules for certain social and local services. to pursue this goal. But we need a vibrant and competitive
environment in the single market if we are serious about
72. It also means that we take better account of efficiency leading in the information age.
and competition issues for large-scale commercial services
with a European dimension. 86. We need competition to be equal partners with the
US, China, and the other leading global players; we need
73. Besides SGEI’s, what I have in mind is an update of our competition to grow; we need competition to preserve our
State Aid rules that can promote the contribution of public social model for the benefit of our citizens and of the future
authorities to the recovery and to the objectives of our generations.
Europe 2020 strategy.
87. Considering our demographic trends and the imperative
74. These considerations look to the medium and long task of building sustainable and green economic and social
term. As to the more pressing needs, I believe that my main models, Europe needs all its resources and resourcefulness.
challenge as Commissioner for Competition is dealing with
the huge amount of taxpayers’ money that went to rescue the 88. The EU competition system is one of the best, if not
financial system. the best in the world. My commitment is to use it to the full
extent of the law, because I am convinced that this is what I
75. My goal is to make sure that our fellow Europeans must do within my area of responsibility to contribute to a
pay the smallest possible price for the rescue and that the better future for Europe. ■
sacrifices we have all done to save our banks produce the
expected results as fast as possible.
76. Before I close, I would like to quickly review two areas
where we will see fresh developments in the next few months.
77. First, I will be ready to review and improve our procedures
where necessary. We have listened to our stakeholders’
suggestions and have already been testing some of them this
year. In 2011 we will finalise the ongoing work and present a
revised version of our best practices.
Concurrences 2-2011 I Colloque I J. ALMUNIA: New Frontiers of Antitrust Conference
5New Frontiers of Antitrust
@ Colloque Conference 11 February 2011
Johannes LUEBKING*
Patent ambush in the US and
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende
(art. L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
johannes.luebking@ec.europa.eu
Chief of unit, DG Competition, European
Commission, Brussels the EU: How wide is the gap?
Dennis W. CARLTON
dennis.carlton@chicagobooth.edu
Professor of Economics, University of Chicago
THE ECONOMICS OF PATENT AMBUSH
Jean-Yves ART
jeanart@microsoft.com Dennis W. CARLTON**
Associate General Counsel, Microsoft, Brussels Professor of Economics, University of Chicago
Jacques-Philippe GUNTHER
jgunther@willkie.com
Partner, Willkie Farr & Gallagher, Paris
I. Introduction
1. The patent system in the United States and elsewhere has come under criticism
Abstract for not performing well. There are many discussions about how patents are impeding
rather than fostering technological change. Worse yet, the patent system has become
This first roundtable of the conference “New frontiers of entangled with competition law in several dimensions, exacerbating any problems
Antitrust”, Paris, 11 February 2011, is dedicated to the
patent ambush. After discussing some of the flaws in the that might already exist with the patent system. I will first describe briefly some
patent system, Dennis Carlton, Professor of Economics at of the salient characteristics of the U.S. patent system, some of which have led to
the University of Chicago, focuses on the interaction between
the patent laws and competition policy. This interaction can criticism. Then, I will turn to an analysis of the interaction of the patent system with
sometimes exacerbate the flaws in the patent system. The competition policy. I will discuss three problems that have arisen with patents in
author discusses three types of “patent ambush”: fraudulent competition policy. The problems I discuss can all be considered a form of “ambush”
inducement such as occurs in standard setting contexts,
creation of large patent pools, and reverse settlements. For in which the patent owner misuses the patent system in some way to acquire
Jean-Yves Art, Associate General Counsel by Microsoft, additional market power, thereby enabling the patent owner to harm consumers by
all the pros and cons of the solutions which are proposed to charging elevated royalty rates.
address to the “patent ambush” need to be carefully assessed,
as these solutions may impede the standard-setting process
and ultimately lessen innovation to the detriment of the vast 2. There are three forms of ambush that I discuss. First, I consider an ambush in
majority of stakeholders, including notably consumers. Finally
which the patent holder takes advantage of a potential user by misleadingly inducing
Me Gunther, partner at Willkie Farr & Gallagher proposes a
comparative scrutiny of how US and EU competition agencies the potential user to make irreversible investments that lock the user into using the
and courts deal with this type of anticompetitive behavior patented technology. One example of this would be a firm that is designing a new
that shows, once again, that not all legal grounds and types of
relief are well suited to tackle this uncommon abuse.
product and wishes to choose the most cost- efficient technology for producing the
product. Since the different possible technologies might require different irreversible
investments and trigger different patents with correspondingly different royalties,
the firm would like to know the future royalties that each choice of technology
La première table-ronde de la conférence New Frontiers of might trigger. Only then can the firm figure out what the best investments and
Antitrust du 11 février 2011 à Paris est dédiée au «Patent
ambush». Après avoir discuté des lacunes inhérentes au corresponding technology to adopt. Another example would be a group of firms
système des brevets, M. Carlton, Professeur d’économie collectively setting standards and wanting to know what each possible choice of
à l’université de Chicago et auteur de la première
standards might trigger in terms of royalties. In either example, if the patent holder
contribution, s’intéresse à l’interaction entre le droit des
brevets et la politique de concurrence et démontre que cette can mislead as to what his future royalties will be, then the patent holder can wait
interaction peut parfois exacerber les failles du système to make his royalty demands until after the firms have made irreversible investments
des brevets. L’auteur analyse ensuite trois types de «patent
ambush ». Jean-Yves Art, Associate General Counsel
that lock the firms into the particular technology. By waiting to set his royalty rates,
chez Microsoft et auteur de la deuxième contribution, the patent holder can then attain market power ex post even though ex ante (before
rappelle que la standardisation aspire à améliorer la the irreversible investments are made) he had none.
qualité des produits, à générer des gains d’efficacité et,
in fine, à accroître le bien-être du consommateur. A cette
occasion, un opérateur pourra tromper ses homologues en 3. A second case of ambush can arise when one firm amasses a large portfolio of
omettant sciemment de déclarer qu’il possède des droits de substitutable and complementary patents, some of questionable quality. Aside from
propriété intellectuelle sur le standard en cours d’adoption.
L’auteur propose ensuite une analyse comparée du the creation of horizontal power, the large portfolio is threatening in the sense that
traitement américain et communautaire de cette pratique even portfolios with very many weak patents have a high probability of having at
anticoncurrentielle. Enfin, pour Me Gunther, avocat associé least one patent deemed valid and that threat can be enough to induce the firm being
au cabinet Willkie Farr & Gallaghere, tous les avantages
et les inconvénients des solutions avancées pour prévenir sued for infringement to settle. Finally, the third case of ambush involves “reverse
des duperies fondées sur le droit des brevets doivent être settlements”. In this case, one firm has a weak patent and then is challenged by a
soigneusement examinés parce que ces solutions peuvent rival whom the first firm sues. The first firm settles by paying the second firm to stay
nuire au bon déroulement du processus de standardisation
et limiter l’innovation au détriment de la très grande out of its market. Such reverse patent settlements, when used as a means to deter
majorité des intéressés, en particulier les consommateurs. entry, harm (ambush) consumers by depriving them of the benefits of competition.
* I thank Richard Gilbert, Ken Heyer, Gregory Pelnar, and Allan Shampine for helpful comments. This paper
is based on my presentation at the Second Annual International Concurrences Conference, “New Frontiers
*
This contribution has not been published. of Antitrust”, Paris, Feb. 11, 2011.
Concurrences N° 2-2011 I Colloque I New Frontiers of Antitrust Conference 11 February 2011
6patent but makes it so hard to discover that patent that firms
II. The U.S. patent system
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(art. L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
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typically ignore filed patents and figure it out for themselves.
and its flaws If a firm or several firms do this, then those firms will be
subject to a patent suit. But the real point is that lots of
4. There is a large and detailed literature on the U.S. patent firms that did not willfully infringe wind up getting sued
system and its flaws. Here, I give a brief overview to provide for patent infringement. One obvious question: If all these
background for understanding the competition policy issues.1 firms can figure it out for themselves, why should the idea
even be patented? It must be obvious if so many firms have
5. Patents are a form of property in that they allow the independently discovered it and hence it should not have
patent holder to exclude others from its use and thereby been granted a patent in the first place.
enable the patent holder to avoid competition from someone
else using the patent should the patent holder either use the 8. The U.S. patent system has been criticized on both scores,
patent himself or license it to others. Patents are intended to the granting of obvious patents and the inability of firms to
create a financial incentive for an inventor to invent without know what is patented. The E.U. has not been criticized as
having to worry that someone will use his idea for free. In much as far as I know. In the U.S., two seemingly innocuous
return for the ability to exclude others, the patent holder changes appear to have had an enormous unexpected effect.
reveals in a public filing the information about his innovation. In 1982, a special appeals court for patents replaced the
Presumably, this revelation of information is meant to assist usual appellate system and in the early 1990s the Patent
other inventors about how the world works. Since patents and Trademark Office (PTO) got the ability to finance
involve information, there is no marginal cost to its use in itself through fees levied on users of the Patent Office. The
the sense that the cost to using information is unchanged by new patent court has been more lenient in granting validity
whether one or two people use the knowledge. (Information is and has expanded the domain over which patents can be
a “non-rivalrous” good.) This means that from an economic issued, such as to business methods. The number of patent
point of view there is a well known tradeoff between creating applications since 1982 has grown rapidly. Between 1972
financial incentives to invent and creating financial incentives and 1982, patent applications rose by 12% from 105,300 to
for efficient use of the information. We will come back to this 117,987, while from 1982 to 1992 it rose by 58% to 186,507,
point later when we talk about blanket licenses. then by 91% from 1992 to 356,493 in 2002. (The growth
has leveled off a bit since then – in the next seven years the
6. For a patent system to work efficiently, it must be true growth was 35% to 482,871.) Granted applications also grew
that only useful, novel, and non-obvious ideas are patented. since 1982. After falling a bit (by 19%) in the prior 10 years,
Otherwise, if every trivial idea could be patented, transaction granted applications grew by 70% from 1982 to 1992, and by
costs would overwhelm every firm. For example, suppose that 72% from 1992 to 2002. (Granted applications leveled off and
I receive a patent for the use of addition. I am willing to license grew by only 4% from 2002 to 2009.)2 The inference that some
the use of the idea for, say, one cent per use. Even though that draw from these numbers is that there has been a flood of
may be small, having to pay anything for the use of addition patent applications, stretching the resources of the PTO and
will lead to fewer people doing arithmetic operations, and that as a consequence many of the patents that are granted
inefficiency results. Moreover, the mechanism to collect fees are likely invalid.
could be unwieldy and costly. Although in a world of zero
transaction costs, my concerns may be mitigated (in such a 9. It is wrong to think that patents are required in all industries
world, the patent holder and firm would agree to a lump sum to promote innovative activity. Some have argued that patents
fee for the use of the patent), that is not the world we live may provide an impediment to innovation in many industries.3
in. If one requires a firm to pay a royalty for every trifling Others have questioned the historical significance of patents
thing it does, then the firm will be deterred from entering in promoting overall innovative activity. For example, Moser
those industries where such negotiations are needed. There shows that in the mid-1850s roughly 85 to 89 percent of
has been quite widespread criticism that the U.S. patent important U.S. and U.K. innovations were not patented.4 In
system has been granting far too many obvious patents, fact, the use of patents is heavily skewed by industry. We know
creating the environment that I just described in which a that in many industries, firms prefer to use trade secrets to
firm wanting to innovate must negotiate with lots of firms protect their information. In only some industries are patents
with patents on obvious ideas. Such a situation obviously heavily used. For example, in the pharmaceutical industry,
deters, not encourages, innovation. Many have claimed that patents are heavily relied upon to provide a return to cover the
numerous U.S. patents are either likely invalid (“weak”) or of substantial development costs of inventors. The development
questionable value. of patent protection in pharmaceuticals (chemicals) is an
interesting story. Patents were not used until discoveries in
7. In addition to granting patents to non-obvious novel the 1800s made it easy to reverse engineer compounds.5 Once
ideas, an efficient patent system has to have some way of that occurred, the chemical industry started to rely heavily
letting infringing inventors know that they are infringing. It
is counterproductive to have a patent system that awards a
2 Source: U.S. Patent and Trademark Office at http://www.uspto.gov/web/offices/ac/ido/
oeip/taf/us_stat.pdf.
1 There is a vast literature on the topic. See e.g., James Bessen and Michael Meurer, Patent 3 See, e.g., Bessen and Meurer, supra note 1, p. 144.
Failure, Princeton University Press, 2008, and Adam Jaffe and Josh Lerner, Innovation 4 Petra Moser, “Innovation Without Patents – Evidence from World Fairs”, unpublished
and Its Discontents, Princeton University Press, 2004, both of which I draw on for some paper (July 16, 2010). Available at SSRN: http://ssrn.com/abstract=930241.
of the claims in this section. For a shorter discussion, see Dennis W. Carlton and Jeffrey
M. Perloff, Modern Industrial Organization, Addison Wesley, 4th edition, 2005, Ch. 16. 5 Id.
Concurrences N° 2-2011 I Colloque I New Frontiers of Antitrust Conference 11 February 2011
7on patents rather than trade secrets. Another industry where and the firm has no choice but to pay. The patent holder
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(art. L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
patents are frequently used is in high tech – e.g., computers has created more ex post market power than existed ex ante
and telecommunications. My general impression is that in (before the irreversible investment was made). The simplest
pharmaceuticals, in contrast to high tech industries, a new way to handle this case is as a breach of contract.7 Whether
product typically does not trigger hundreds of patents. This it should also be treated as an antitrust violation depends on
divergence has created different interest groups for the type of what turns on bringing the case as one or the other.
recommended patent reform that the U.S. should adopt, with
pharmaceuticals generally favoring strong patent protection 12. Typically, the main difference is that in a breach of
while high tech industries want patent protection but with contract case, the damaged firm can sue for single damages
some additional limits on reasonable royalties achievable in while in an antitrust case, the firm can sue for treble damages.
damage litigation. Litigation and damage awards in all but If one believes that the purpose of damage awards is to obtain
chemicals and pharmaceuticals have skyrocketed in the last the correct level of deterrence to induce efficient behavior,
25 years relative to the benefits that the innovation brings to then the “right” multiple for damages depends not just on the
the inventors.6 harm caused to the firm but also on the likelihood of detecting
and successfully prosecuting the harm. If, for example, few
such cases ever result in a favorable verdict for the harmed
firm then a multiple of damages would be appropriate. (Of
III. Competition policy and patents course, it might be easier to have the multiple depend on the
detection probability rather than whether the case is put in
10. Many of the problems of patent ambush interact with the category “breach” versus “antitrust”.)
competition policy because the problems with the patent
system just described can be exploited to create or increase 13. One circumstance in which this type of patent ambush can
ex post market power (often after irreversible investments are arise is in the setting of standards. A group of firms wishes to
made) when none or little existed beforehand. The best way agree upon a standard that might trigger several patents. The
to solve many of these problems is to fix the patent system, firms wish to know before setting the standard what patents will
but for purposes of this paper, I will take the patent system get triggered and what might be the associated royalties. The
as given and ask what should the role of competition policy firms could agree amongst themselves to reveal if any of them
be to address some of the types of patent ambush that can hold patents that might bear on the contemplated standard. The
occur. Before I begin that discussion, I note that there is no firms might even go further and ask what the royalty rate will be.
necessary tension between the patent laws and the antitrust In this last situation, the possibility arises that some of the firms
laws, at least in the United States. Under U.S. law, a firm that could be acting collectively to lower the royalty rate of a patent
achieves market power by innovating (e.g., developing a new holder. For example, suppose that no matter which standard is
popular brand) gets to enjoy the financial rewards flowing adopted, the firms will all have to use the patent of Firm A. Firm
from that market power. This creates an incentive for firms A will charge a royalty of say 5%. However, the firms collectively
to innovate and compete for customers. Similarly, the patent tell Firm A that they will pay only 3%. If that threat is credible
system provides financial rewards for someone who has (it is a separate issue why that threat should be believed), then
invented something new so that the firm can reap the benefit the concerted action of the firms affected the royalty rate and
of its invention. A patent ambush occurs when the market that could trigger by itself an antitrust violation. The best way
power that a patent holder exploits is created in whole or in to handle this situation, one consistent with the reasoning
part either by misleading others, for example, by fraud, or by expressed by the U.S. antitrust agencies, is that such agreements
merger or other agreement. Let me now discuss three types will be judged under a rule of reason. If the agreement to jointly
of patent ambush. negotiate a royalty has efficiency aspects because it avoids lots
of individual negotiations and if all parties agree to the scheme
beforehand, it likely should be allowed to go forward. It would
1. Patent ambush of firms by be more complicated if the patent holder was not part of the
group of firms setting the standards. Then the issue would be
misleading behavior of the patent whether a joint venture of firms can negotiate jointly with input
holder suppliers.8 This raises similar rule of reason issues.
11. Suppose that a firm is considering the design of a
new product. The firm has many equally good alternative
technologies that he can employ. Even though some of the
technologies are patented, the royalties that any patent owner
7 A variant of this case involves what are called “submarine” patents. It used to be the case
can ask for are constrained by the ability of the firm to use in the United States that a patent could be applied for, not made public, and then be
other technologies. In the simplest case, the firm chooses a “continued” for untold number of years as the inventor added new applications to the
technology after negotiating a royalty rate with the relevant original patent, all unbeknownst to the public. Then, perhaps after many years, firms
who had no idea that their technologies implicated any patents could be surprised by a
patent holder. Relying on that rate, the firm makes irreversible patent holder who informed them that they are infringing his patent from 30 years ago
investments that lock the firm into the patented technology, that was recently published. Such “submarine”patents often created havoc in an industry.
The U.S. patent laws were modified in 1999 to mitigate the ability to engage in submarine
making it very expensive for the firm to switch technologies. patents. Many cases involving the controversial figure, Jerome Lemelson, are referred to as
The patent holder then reneges on his promised royalty involving submarine patents. I worked adverse to Lemelson in some litigation.
8 Some of these issues are discussed in Dennis W. Carlton and Steven C. Salop, “You Keep
on Knocking but You Can’t Come in: Evaluating Restrictions on Access to Input Joint
6 Bessen and Meurer, supra note 1, p. 144. Ventures,”9 Harvard Journal of Law and Technology 319 (Summer 1996).
Concurrences N° 2-2011 I Colloque I New Frontiers of Antitrust Conference 11 February 2011
814. Such logic suggests that the problems that arose in the tech industries can trigger many possible patent infringement
Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende
(art. L. 335-2 CPI). L’utilisation personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures techniques de protection pouvant accompagner ce document. This document is protected by copyright laws and international copyright treaties. Non-authorised use of this document
constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment and up to a € 300 000 fine (Art. L. 335-2 Code de la Propriété Intellectuelle). Personal use of this document is authorised within the limits of Art. L 122-5 Code de la Propriété Intellectuelle and DRM protection.
Rambus type cases could have been avoided if the terms of claims. Let p be the probability that a patent will be judged
participation were made clear beforehand.9 In particular, if valid at trial. Suppose that Portfolio Firm has n such patents
firms have a contractual requirement to reveal information that it claims get triggered by some new product. Suppose all
and they fail to, then that breach should be actionable. of the patents are “weak” in the sense that p is low.11 Then
Matters become much more difficult when the issue is either the probability that Portfolio Firm will have at least one of its
whether there is a contractual requirement or whether the patents judged valid is 1-(1-p)n. If n is 20 and p is .1, then that
requirement is to charge RAND (reasonable and non- probability is about 90%! In other words, putting together
discriminatory royalties). Such ambiguity can and has led a portfolio of lots of weak patents gives Portfolio Firm a
to litigation as to whether such obligations existed and if powerful club with which to threaten another firm that it
so whether the royalties charged subsequently could be claims infringes. If we assume that Porfolio Firm can achieve
considered to be consistent with RAND obligations. scale economies in litigation, then it might be profitable for
it to bring suit when it would not have been for 20 separate
15. One might wonder why firms might ever put themselves patent holders. In such settings, it can easily make sense for a
in the position of not knowing what royalties they will have firm that is sued to settle rather than risk litigation and being
to pay. One clear answer is that there may be so many patents hit with an injunction for a patent that is essential in the sense
that get triggered by a standard that the businessmen have that the cost to move to alternative technologies is very high.
neither the time nor the knowledge to negotiate each one. Notice that the formation of Portfolio Firm is a symptom of
Indeed, there is the frightening thought that his firm may not the problem of weak patents (combined with scale economies
even know or be easily able to figure out which of its own in litigation). (Notice too that if the alternative to one suit by
patents bear on the product in question. Just as I said in the Portfolio Firm is 20 separate lawsuits, then there could well
previous section, when such knowledge is unavailable to firms be an advantage to having the one suit.)
or to potential infringers, there is a real issue as to what the
purpose of patents is. Indeed, if firms invent themselves and 18. In many infringement cases, the parties settle by cross
then ex post find out what random patents will be asserted licensing each other. That means that one party basically
against them, then it is clear that the patent system is an utter threatens to countersue using its own patents which also
failure because the incentive to invent is not leading to an may be weak to counter a lawsuit against itself. It is initially
increase in knowledge since the knowledge would be created puzzling that this is the way in which suits are resolved rather
independent of the patent. In such a case the patent system than with a more explicit payment of royalties. Indeed, some
acts like a random tax on inventors. Some inventors collect firms may acquire weak patents just to build up a defensive
the tax while others pay it. It is not an efficient mechanism to war chest of its own patents to ward off and settle frivolous
induce innovation. patent suits against themselves. This mechanism of defending
oneself is not available when a firm is sued by Portfolio Firm
since that firm has patents as its only assets so cannot be
countersued for infringement. This makes a suit by Portfolio
2. Patent ambush of users by creation Firm even more potent than a suit by one’s rival.
of patent portfolios
19. To the extent that Portfolio Firm is exploiting a flaw (of
16. Suppose that a firm that does not manufacture anything too many weak patents) in the patent system, one should
decides to construct a portfolio of patents. Let us call this recognize that the more easily it is for financial resources to
firm Portfolio Firm. Such activity has drawn the attention be poured into such activities, the worse will be the resulting
of many commentators. What should be the attitude of inefficiencies. To illustrate, suppose that the patent system
competition authorities toward such activities? As with most is performing poorly and does allow frivolous lawsuits to
antitrust questions, the answer depends. Such a portfolio succeed too often. If there are not too many such lawsuits,
could be harmful under some circumstances and desirable then the resulting inefficiency is not too high. However, if
under others.10 capital markets can marshal together resources that allow
this flaw to be more fully exploited, Portfolio Firm will
17. What are the antitrust concerns? The most obvious benefit, but to the detriment of the rest of us. The more
would be if the portfolio involved the joint ownership of financial markets make it easy to raise money to support
what otherwise would be competing patents. That is, as in frivolous lawsuits that unfortunately pay off, the worse off
any traditional merger analysis, one understands that the we all are. One reasonable response is to correct the patent
elimination of competition among substitutes could harm system and to penalize such lawsuits (e.g., instituting a loser
competition. That is pretty standard. A second concern arises pay system for litigation).
from exploiting some of the flaws in the U.S. patent system. I
described in Section I that critics have complained that there 20. Although there can be disadvantages to Portfolio Firm’s
are many patents of likely limited value and validity that are lawsuits, there can also be several possible advantages. First,
being issued. I also described how many new products in high when property rights are ambiguous because no one quite
knows which patents cover what, then being able to deal with
9 I appeared as an expert opposed to Rambus in some litigation. one entity to take care of a whole slew of possible patents
10 For a discussion of patent pools, see Richard Gilbert, “Antitrust for Patent Pools: A
Century of Policy Evolution,” Stanford Technology Law Review (2004), and Richard
Gilbert, “Ties That Bind: Policies To Promote (Good) Patent Pools”, 77 Antitrust Law 11 See Joseph Farrell and Carl Shapiro, “How Strong Are Weak Patents?” 98 American
Journal 1 (2010). Economic Review 1347 (September 2008).
Concurrences N° 2-2011 I Colloque I New Frontiers of Antitrust Conference 11 February 2011
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