27 September 2002

Stéphane Lemarchand

Decision of the European Commission dated 3 July 2001

Order rendered by the presiding judge of the Tribunal de Première Instance dated 10 August 2001

Order rendered by the presiding judge of the Tribunal de Première Instance dated 26 October 2001

What is more natural for the creator of a work than to prohibit any third party from reproducing his work? What is more essential for this creator than to claim his monopoly when the unauthorised reproduction is the result of a direct competitor? This is what the company, IMS Health (hereafter "IMS"), must have been thinking when one of its competitors, NDC Health Corp. (hereafter "NDC"), demanded to reuse the database structure developed by IMS on the German market to commercialise its pharmaceutical information services. However, the European Commission does not share IMS’ opinion. In a decision rendered 3 July 2001, the Commission actually ordered IMS to grant to all third parties who so requested, the right to use its database structure, in consideration for payment to be agreed upon, on the grounds that the refusal to grant the license constituted an abuse of a dominant position, sanctioned by article 82 of the EC Treaty. Admittedly, the presiding judge of the Court of the First Instance, in a subsequent order dated 26 October 2001, suspended the effects of this decision and elaborated on the Commission's reasoning. The decision commented on herein is thus not definitive, and a lively debate on this subject is expected to take place in the next few months. Nevertheless, with respect to E.U. case law in matters of intellectual property, the legal issues raised in this case call for a commentary at this time.

The facts in this particular case are complex. IMS is the world-wide leader of information providers for companies in the pharmaceutical industry. These companies seat their commercial development on a given territory using regional sales reports of medicine, marketed by companies such as IMS and NDC. These reports are established using medicine purchase statements from wholesalers providing to a given territory, by the pharmacies in this region. The information providers such as IMS collect this information (from wholesalers) and organise it in such a manner, on one hand, that it allows the person accessing it to geographically assess its relevance and to draw commercial and strategic conclusions, and on the other hand, that it remains sufficiently "anonymous" to not violate the legislation relating to personal data, according to which personal data directly or indirectly related to health is sensitive personal information. This results in the geographical division of a territory into a multitude of small segments of the medicine market.

The division conceived by IMS in Germany over the years is known as the "1860 brick structure" (hereafter the "Structure").

Due to IMS' dominant position on the market concerned, the structure has in fact been adopted by pharmaceutical companies as a referential of geographical division of their own sales force. Indeed, to fully use the resources of regional sales reports and to be in a position to take into account the information contained therein, pharmaceutical companies in Germany have divided up their commercial teams according to the same division under the Structure. Consequently, it has become impossible, if one can believe the terms of the decision commented on, in practice for competitors of IMS to convince a pharmaceutical company to obtain pharmaceutical data organised under a different structure.

In this context, an intellectual property litigation has arisen between NDC and IMS, the latter accusing NDC of having reproduced, without its consent, the Structure to provide its own pharmaceutical information services. At this stage of the proceedings, the German courts in this case have all acknowledged the violation by NDC of the intellectual property rights of IMS on the Structure, characterised as a database.

NDC then turned to the European court, after having officially requested from IMS to grant it a license to use the Structure, and after such request was rejected by IMS.

NDC asked the Commission, on one hand, to institute proceedings aimed at demonstrating the existence of an abuse of a dominant position, and on the other hand, to grant provisional measures for its benefit. Considering that the conditions were satisfied for such measures to be ordered, the Commission, according to the terms of the decision referred to herein, ordered IMS to grant licences of the Structure to any third party requesting it.

In short, the Commission's position is the following: IMS is abusing its dominant position by putting forth its IP rights on the "1860 brick Structure" as a pretext to refuse to grant its competitors the right to use such Structure, thus preventing them from competing with it on its own market, hence this Structure constitutes an essential means for operating the business in question.

Although not exhaustive, there are several issues that arise from the Commission's decision: Can the abuse of a dominant position be used against a party that is simply carrying out the essential aim of its intellectual property right? Is it necessary to limit the IP rights once the aim of this right has become an inevitable means of exercising a competing activity? Is it necessary to deduce that IP rights no longer apply once the common interest is called into question?

Our opinion is that this decision, from a theoretical point of view, places a limit, until now never reached, on the exercise of intellectual property rights (1). But as with the famous Magill decision[1], concluding general rules from it might perhaps be risky (2).

1. IMS is not a Magill 2, it's worse!

This decision, if it was confirmed by the Court of First Instance and the Court of Justice, would be remarkable in two ways. On one hand, it goes beyond what the Magill decision had placed as a limit to the copyright (A). On the other hand, it applies, to the intangible world, arguments of market regulation that intellectual property was not aware of until now (B).

(A) The congruent portion of the monopoly on use

The evolution of case law of the Court of Justice in this matter demonstrates that the principles of free competition and circulation prevail on IP rights granted by national legislators, when it is the exercise that is called into question and not their essential aim[2]. However, in accordance with this founding distinction, the Magill decision, which has been the subject of a number of critical commentaries[3], surprised some with its grounds, in particular, when it was stated that in principle the exercise of a right could "…in certain exceptional circumstances, give rise to an abusive behaviour". Thus, for pure considerations of fact and opportunity left to the assessment of courts, it was admitted that the exercise of the right could, as Professor Lucas pointed out, "as such, take on an abusive nature"[4].

The Court of Justice had considered in this case that in refusing to grants rights to program schedules, the BBC sought to reserve access to the market of television guides, a market which is considered distinct and derived from its own market of radio-broadcasting of programs, and that such exceptional circumstances constituted abuse.

Although the details concerning the scope of this decision were revised by its authors, who rightly stated that the gross information under question referred to creations not likely to be appropriated[5], the reasoning of the courts was however justified.

Indeed, the rights granted to the creator have the essential aim of prohibiting reproduction that is identical to the protected work, thus creating a sphere which excludes any competition. When these rights are exercised to prevent free competition outside of this sphere, it is not surprising that sanctions are imposed. In the Magill case, the Court, in this regard, took the time to point out that the refusal to grant a licence prevented the product from circulating, whereas consumers' demand existed, and that it therefore hindered the normal operation of competition on a market that was distinct from that on which the rights holder was operating its business.

This position was also far from being new. Indeed, in matters of computer software, the exception of decompilation mentioned in article L.122-6-1-4 of the Intellectual Property Code is only the result, of E.U. origins, of a search for a balance between copyright and competition law. Thus, by offering the rightful user of the software the right to access the information necessary for interoperability, contained within the very work protected, the legislator admitted that exercising the monopoly of use should not have the effect of preventing the appearance of other software designed to interact with this software. That being so, if the creator of a software can oppose the reproduction of its programs and thus hinder the entrance of a competing third party on its market, it cannot, in theory, reserve for itself, by exercising these same rights, access to new markets, derived therefrom or accessory, arising from its own creation[6].

But the terms of the IMS decision, commented on herein, leads us to foresee an entirely different consequence.

In this particular case, the question is not whether IMS' refusal to grant a licence of the Structure to NDC prevents the latter from creating a new product, but rather whether NDC is authorised to reproduce the creation purely and simply to provide a service directly competing with that of IMS. It is not a question of knowing whether IMS is reserving for itself access to a derived market, but whether NDC can directly compete with it on its market by reproducing IMS’ Structure.

In other words, by placing IMS under the obligation to authorise NDC to reproduce the Structure in order to offer pharmaceutical laboratories on the German market a competing service, the Commission is limiting the scope of the monopoly on use in a significant manner. In practice, IMS has also been obliged to facilitate access to its market by any third party competitor.

One can see that we are far from the effects of the Magill decision and from the idea that competition law usually has its effects outside of the perimeter of the essential aim of the copyright.

The solution offered by the Commission in the IMS case therefore does not have a logical conclusion or application of the Magill case precedent. The Commission claims however an affiliation with this decision, citing it on numerous occasions, and methodologically researching whether, as the Magill sets forth, "exceptional circumstances" were in this case, of a nature to establish the existence of an abuse of a dominant position.

A study of the exceptional circumstances is therefore necessary.

(B) "Exceptional circumstances" to "essential facilities"

According to the Commission, "exceptional circumstances", as defined in European case law are defined as follows[7]:

  • The refusal of access to a creation that is the subject of a right that is likely to eliminate any competition on the relevant market,
  • This refusal cannot be objectively justified, and
  • The creation is itself essential to the operation of the activity in question, in there exists no means of substitution, not even potentially, for the creation.

Yet, this definition does not result from the Magill decision, but from a combined reading by the Commission of this decision with other subsequent decisions rendered in the Bronner[8] and Tiercé Ladbroke cases[9]. Thus, while the Magill decision raised the existence of exceptional circumstances if the refusal to grant a license had the effect of preventing the appearance of a new product on a derived market, the Bronner and Ladbroke decisions acknowledged, without declaring, that an abuse of a dominant position, could be constituted if the refusal to grant a license involved a subject of rights that are "essential for the operation of the activity in question, within this meaning there exists no real or potential substitution"[10].

In this particular case, the Commission thus decided to establish the "inevitable" nature of the Structure on the market of pharmaceutical data services in Germany. To do so, the Commission questioned the laboratories and other clients of IMS and declared:

  • That the Structure now constituted a kind of "common language" within the industry concerned[11],
  • That the players in the industry organised themselves, commercially and within their information computer systems, according to this Structure, thus making it impossible to use another structure without overhauling the organisation of the businesses,
  • That the legal (respect of privacy) and technical (administrative organisation of the Germany territory) constraints render the creation of alternative structures impossible.

In other words, the Commission declares, on one hand, the essential nature of this "installation or facility" and on the other hand, the absence of any real or potential substitute[12].

Clearly, the Commission applies to intellectual creations in the IMS case what the Magill decision does not directly apply, but what was suggested in the Ladbroke decision, the theory of regulation called "essential facilities". According to this theory, abuse of a dominant position can be constituted when a business refuses access to an "installation" that cannot be recreated under reasonable conditions, thereby preventing its competitors from carrying out their activity on its own market.

In what way is the Structure an essential installation, and why can't it be recreated lawfully by competitors of IMS? That is the question that the Commission had to answer to justify its position.

Yet, it seems that the response constitutes more of an establishment of a situation than an actual demonstration.

Concerning the essential installation condition, the Commission states that the German pharmaceutical laboratories have on one hand, adopted by a majority (not to say referendum) IMS' Structure, (which, in itself, cannot be blamed on IMS), on the other hand, that they made this Structure key in their internal organisations by copying their commercial forces throughout this geographical division, and by making their information systems compatible with this Structure. The Commission states, lastly, that, given the choices (and the related investments) that the laboratories have made, they do not envisage any recourse to any alternative structure.

Concerning the impossibility to recreate this Structure under reasonable conditions, the decision shows that the Commission justifies this impossibility by establishing the existence of technical and commercial obstacles that represent the development of an alternative structure on the market, for those that wish to compete lawfully with IMS. Hence, the Commission puts forward, on one hand, the administrative organisation of the German territory, which would only leave a few alternative options to the Structure, on the other hand, the legal scheme applicable to personal data, or even the risk of an infringement suit from IMS. This position seems insufficient to us. These are not, in our opinion, such administrative or legal constraints, or even fears of litigation led by the historical operator of a market, which must lead the new operator to definitively waive its right to create an alternative structure. Admittedly, the realisation of a substitute Structure does not appear to be an easy task, but who ever said it was easy or not costly to enter a market on which a player already has, and for a long time, a dominant position? On the contrary, in the Bronner case cited above, the Court of Justice had pointed out that it was not sufficient to acknowledge that the potential alternative "…is not economically profitable" to declare the existence of abuse[13]. It would have been preferable, at the very least, for the Commission to explain more precisely the absence of objectively reasonable conditions allowing NDC to create an economically viable alternative structure.

To order IMS under penalty to grant licences for its Structure in this context is not admissible, and one can only be satisfied with the summary order of 26 October 2001, suspending the effects of the decision, which would have been particularly damaging as they were seemingly definitive.

But above all, the Commission's position admits that an IP right can be hit hard in its existence even by the market practice, which seems to correspond to a breakthrough in European law until now unprecedented. Indeed, to admit that the monopoly of use granted to the creator by national legislation must be erased when the very aim of the intellectual property rights has become (due indeed to the competitive advantage that the monopoly offers) a "required passage" for the provision of a service or product, is to admit that this monopoly is offered to the creator for a variable length of time, during which the latter succeeds more or less in drawing the commercial advantages from the legal protection.

Attention creators: take care not to be too clever in the use of your creations, you may lose your rights before long!!!

We have already heard jurists lamenting the end of the exclusive right, and they may not necessarily be wrong, if they were to give this decision a general application.

However, the application of this decision needs to be seriously fine-tuned, for two main reasons.

2. An application that must be seriously fine-tuned

As Professor Vivant pointed out concerning the Magill decision[14], it is, despite everything, hard to believe that this decision brings the end of the copyright, since the monopoly on use, limited in its scope by the Court of Justice, applied in actuality to creations that cannot be protected. In the decision commented on herein, the Commission seems to have the same reserves regarding the database structure, which may explain its extreme position (A). We shall see however that the Commission's conduct remains, according to us, to be criticised, even in the presence of a creation that cannot be protected (B).

(A) It is the protection of the investment which is under question

The Commission emphasises, several times in its decision, the constraints that prevent third party competitors from recreating, in a distinct manner, the Structure, thus demonstrating the impossible existence of a substitute structure (cf. Supra I. (B)). Nevertheless, this research leads one also to question the protectable nature of the Structure with regard to the principles of copyrights. Where can originality (even limited to the intellectual contribution) of such a Structure exist if, technically and regulatorally, the constraints imposed on the creator are such that, in reality, there is no place for "fantasy"?

In truth, and as with the Magill decision, the purely "informational" nature of the creation in question invites a stronger admission of competition in the boundaries of the monopoly. In this particular case, concerning databases, the protection of the investment is in question, and we cannot be surprised to find that the "sui generis" protection schemes lend themselves more easily to a more severe control of their operation.

To take the measure, undoubtedly relevant, of the scope of this decision with regard to intellectual property right, we can also establish that the creation to which the required licence applies, is not the actual object of the competing activity (as were the program schedules, for example, in the Magill decision), but is only a means thereof.

Thus, in this case it is not a question of facilitating the "commercialisation" of the Structure, as the Magill decision facilitated that of the TV programs, but of facilitating access to a means (the Structure) to enable the commercialisation of a service (pharmaceutical data).

The question of whether or not the Structure can be protected by copyright does not completely justify however the Commission's position. Indeed, it seems that the Commission sought, in reality, in the name of the principle of free circulation of information, to favour the circulation of a "language" by assimilating, in our opinion wrongly so, the Structure to the gross data that it is supposed to provide.

We actually find that, when competition law legally or judicially brings harm to the monopoly on use on the grounds of the existence of an abuse of a dominant position, the works concerned (software, program schedules, databases[15]) have a specific effect of preventing, because of their very existence, access to free information that they contain, and for which free circulation should be favoured.

Thus, for software, the interoperability information, in itself seemingly not protectable, but necessary to the creation of compatible software, may not be accessible to third parties without the legal exception provided in article 122-6-4-1 f the Intellectual Property Code. Similarly, access to the non-protectable information contained in the program schedules, could not be accessible without the required licence organised judicially in the Magill decision.

Yet, in the present case, such an approach does not seem adaptable.

(B) An unadapted approach

By exercising its IP right, IMS does not prevent access to the information contained in its Structure. This information is public, and directly accessible by any third party via wholesalers. There is thus no need, either for a legal exception to the patrimonial rights or for a judicial constraint for the abuse of a dominant position for IMS' competitors to collect and use this prescription data useful to their activity.

Thus, if the intellectual property right concerned does not prevent access to the information, in what way does the exercise of the right constitute abuse?

After having reviewed the terms of the decision, we believe that we may be able to outline a first response.

In Point 71, concerning the possibility for a third party to provide services competing with IMS by using a different structure, the Commission specifies: "Clearly, the response to this question is based on whether or not there exists a real possibility for the clients to purchase formatted data in another structure" (underlined by us).

What is important therefore is the availability to any market player of a data format, so that these data are collected, arranged, processed and distributed.

Herein lies, in our opinion, the real debate.

With this perspective, the Commission's decision therefore seems particularly unadapted.

First, we can see that the Commission creates an obligatory licence on the Structure and not on the data format that it causes. Yet, at the same time, it does not demonstrate that such a required licence is the only means for a third party competitor of IMS to provide services in an identical data format. It indeed does not demonstrate in what way the Structure constitutes the "essential installation" rather than the data format.

The decision's silence on this point is particularly bothersome. It would be useful in this respect for the courts called upon to render a decision in this case in the future to specify this question. Since, if it is proved (which still need to be done) to be technically possible to isolate the information related to the data format, the Structure of the IMS databases itself, and which in reality cannot be "recreated under reasonable conditions", i.e., this data format and not the entirety of the Structure, the Commission could significantly restrict the material scope of this required licence.

It could then be envisaged, as with matters involving access to interface information due to the exception of software decompilation, to limit the effects of the required licence to that which is technically essential to the free operation of competition. To be consistent with the scheme of decompilation, it could be envisaged that the licence on the Structure only become obligatory if, and only if, IMS did not permit its competitors to access the information relating to the data formats by any other means.

Secondly, and in the guise of a conclusion, while the Commission establishes a need for normalisation of the data formats on the market concerned, it seems regrettable that it chooses such a strong manner to impose a norm, instead of inciting the market players to define it and agree upon it together. Why didn't the Commission ask the parties to come together and agree, under penalty, if applicable, on a norm for the data format? The authoritarian solution of the Commission is even more shocking in that, in the grounds for the decision, there is no demonstration according to which the required licence is ordered, as the market failed to implement the development means of a norm relating to the formats of data exchanged.

Case to be continued…

[1] CJCE, 6 April 1995, Radio Telefis Eireann and others v. Commission and Magill TV Guide, Rec. CJCE, p.I-737, concl. Gulmann.
[2] Notably :

- CJCE, 8 juin 1971, Deutsche Grammophon,
Rec. p.487, RTDE 71, p.481
- CJCE, 18 mars 1980, Coditel I, Rec. p.881
- CJCE, 17 mai 1988, Warner Brothers, Rec. p.2605, RTDCom. 1989, p 73, obs. Françon.

[3] G. Bonet, RTDE 1995, p.835; A.Françon, RTDCom. 1995, p.606 ; M. Vivant, La propriété intellectuelle entre abus de droit et abus de position dominante : JCP G 1995, I, 3883.
[4] André Lucas, Henri-Jacques Lucas, Traité de Propriété Littéraire et Artistique, 2ème éd., éd. Litec, n°1263 et s.
[5] "In the Magill case, we are not, despite first impressions, in a copyright context. », M. Vivant, La propriété intellectuelle entre abus de droit et abus de position dominante : JCP G 1995, I, 3883.
[6] The logical consequences of this reasoning, in matters of software, would be that their creators be obliged to transmit the information necessary for the performance of corrective maintenance. Indeed, by contractually reserving for itself the correction of software errors, as the law does however permit, the publishers reserve for themselves purely and simply the market of corrective maintenance.
[7] Free translation of Point 69 of the decision
[8] Oscar Bronner v. Mediaprint ; Rec.CJCE 1998 p.I-7791
[9] TPICE, 2ème Ch., 12 juin 1997, Tiercé Ladbroke SA c/ Commission, aff. T-504/93 ; Rec. CJCE p.II-923 ; RTDE 1998, p.609, obs Bonet
[10] Point 131 of the Ladbroke decision
[11] Points 86 to 88
[12] For an application under domestic law of the theory of facilities essential to the information world, see the famous Filetech/France Telecom case, which found its epilogue in a decision of the Cour de Cassation rendered 4 December 2001 (unedited) according to which: "the list of telephone subscribers taken from the subscribers registered on the liste orange constituted an essential resource for operators working on the market of prospective files".
[13] Bronner, Préc., Point 45
[14] M. Vivant, La propriété intellectuelle entre abus de droit et abus de position dominante : JCP G 1995, I, 3883
See also the Groupadresse case.