Comp Council Paris Decision

12 May 2004

Stéphane Lemarchand

Court of Appeals of Paris, 1st Chamber, 12 February 2004, NMPP/MLP


Dismissal of Appeals

While we were calmly preparing our Christmas Eve, the Competition Council, while always working, rendered a decision on 22 December 2003, which is of important interest for the future of intellectual property law as applied to software.

In effect, for the first time to our knowledge, software, covered by intellectual property rights, was qualified as an “essential facility” under competition law. Although it is not a decision based on merits (since the Competition Council ruled in the context of a procedure made available by Article 464-1 of the Commercial Code which permits it to adjudicate protective measures related to a case on merits), this decision was confirmed by the Court of Appeal of Paris on 12 February 2004 which rejected the appeal against the decision of the Competition Council.

In particular, after having noted that the Competition Council had correctly held that the software concerned qualified as essential infrastructures, the Court ruled that: “…the complaint formulated by the appealing party of an unfair prejudice with respect to property rights…cannot be sustained insofar as the holder of an essential facility is required to offer to its competitors access to infrastructures that it owns or controls at fair and in non-discriminatory conditions….”

This being said, the Court of Appeal imposed a limit on software copyright under the aegis of competition law.

The facts of the case are as follows. The software concerned is called Presse 2000. Central depositaries use it for press distribution, with the distributors or retailers of newspapers and with the Nouvelles Messageries de Presse Parisienne (NMPP) (Note: The NMPP delivers and distributes press in France). This software was developed by NMPP which granted a licence to the depositories to permit them in their relationships with the distributors of newspaper titles to prepare the distribution and manage unsold copies, the retailers and the distributors’ claim. This software also permits the depositories to create accounting documents linked to their operations. For these “depositary/distributor” functions, the depositary uses only Presse 2000, regardless of the origin of the titles and whether or not NMPP or its principle competitor, the Messageries Lyonnaise de Presse (MLP), distributes them.

On the other hand, in their relation with the NMPP or with the MLP, the depositaries use, in connection with the NMPP, other functions of Presse 2000, and with respect to MLP, the TID software that was developed by MLP.

The competition law dispute between MLP and NMPP is broad and covers several aspects. This article is limited to the complaint of MLP concerning access to the Presse 2000 software to the extent that the request consisted of obstructing the rights of NMPP in respect of its own software. The complaint of MLP is as follows: the information that it transmits to its depositaries by way of its TID software must be manually replicated by the depositaries in Presse 2000 so that they can manage their relationship with the distributors. This technical constraint is, in fact, imposed by NMPP which refuses to have a computer link or “indirect access” between Presse 2000 and TID to permit a single reading and processing in Presse 2000 of the data coming from TID. The MLP considered that such a refusal would cause serious prejudice to their position in the market if asserted. On the one hand the press publishers would use this as an element in their decision to give their titles to NMPP because the management is facilitated for the depositaries by virtue of the integrated nature of Presse 2000, and on the other hand, that the NMPP would use this technical advantage in their commercial advertising with respect to the press publishers. The MLP added that in any event the depositaries refused the idea of having to use two systems to communicate with the distributors.

It is in this context that the Competition Council ordered NMPP “to grant to MLP within a period of four months, and on fair conditions, direct access to the common line of the Presse 2000 software, by putting into place – for each warehouse which requested it and in accordance with terms and conditions which should be the subject of a common agreement between the parties concerned – an automatic transfer of files between the computer systems of MLP, TID or an equivalent, and Presse 2000”.

The reasoning of the Competition Council is quite simple (subject to the decision on the merits):

- the NMPP are in a dominant position in their market;

- nothing prevents the qualification of software as an essential facility, to the extent that the defining criteria are fulfilled; and

- by refusing direct access to this facility, the NMPP abuse their dominant position in the market.

This reasoning is not a surprise if one looks at the evolution of EU community case law and domestic case law on competition in the area of “utilitarian creations” protected by property law. This reasoning does, however, constitute a new step in expressly recognising that a creation, the protection of which is not disputed, can constitute an essential infrastructure. Such reasoning seems to highlight other consequences for the computer market. One can, on the other hand, in this case ask oneself why the legal exceptions to the law protecting the software creator, instituted precisely to guarantee competition.

1. Software: Creative Work “and” essential Infrastructure?

When one looks at EU and national case law over several decades, which is limited to the intellectual property rights in the name of an alleged superior principle of free competition, it is not inexact to note that copyright finally remains preserved. Thus, until recently, when a limit was fixed by a judge on the exercise of a right of requiring free competition and thus in the general interest, either, the right concerned related to a peripheral right of copyright (for example neighbouring rights which had to co-exist, to its detriment, with the notion of exhaustion of rights), or, it is the manner of managing the right which was targeted and not the right itself (this is the case in collective rights societies), or, finally, the right related to objects whose ability to be protected by copyright was doubtful or non-existent (information, program schedules[1], directories[2], basic structure of data[3]).

However, in spite of this reassuring vision, most of the authors/creators continue to exclaim loudly that their copyrights are in danger, or that they are subject to the tyranny of competition law, as soon as a new decision appears and that it sanctions the owner of the rights who invokes his ownership right to refuse access to his creation.

In truth, the intervention of competition law is, in fact, felt strongly today since copyright includes the protection of creations deemed “useful”, and in doing so has lost some of its purpose. In making the choice of useful as opposed to beautiful, copyright has included a protection of the investment[4]. It is this situation that some can qualify as departing from the essential and can explain the presence of the intervention of competition law.

In expressing an opinion in respect of the software sector, and not making much of a case with respect to ownership rights and related rights, the Competition Council reached another stage. This is because, for the first time, a creation protected without any possible ambiguity by literary and artistic proprietary law, is qualified by an essential element and the author of such work, in a dominant position in its relevant market, is ordered to provide the work to a third party. However, this is not very surprising as the software raises evidence about the category of useful works.

2. A new stage but not a surprise

The retained solution was, in reality, already formed pursuant to an opinion given by the Competition Council on 22 May 2002[5], notably and justly supporting the computer system which tracks the distribution of press by the depositaries.

This opinion shows a particularly strong motivation in respect of the notion of an essential facility, that software can be perfectly restored from this category as soon as the conditions fixed by law are fulfilled, i.e.:

- the infrastructure is owned by a company in a dominant position;

- access to the infrastructure is strictly necessary in order to exercise an activity which is firstly competitive in the market, and secondly, or in addition to that which the owner of the infrastructure has a monopoly; and

- the infrastructure cannot be reproduced in reasonable economic conditions by competitors of the company who is managing it.

More precisely, the Competition Council expressly indicates in this opinion that, on the one hand, an intellectual property right can be perfectly raised from this definition (also by reference to the Magill decision, which is disputable because we know that in this case the information concerned did not seem to raise any intellectual property rights), and on the other hand, that software can constitute an essential facility in the context of any given economic activity “…if it is established that the use of such program is strictly necessary for undertaking such economic activity and that a competitor of the company which developed the software cannot develop software which competes with the former software company”.

In the case in point, after having revealed that the depositaries did not agree to use two different pieces of software in order to exchange information with the distributor, the Competition Council presumed that the MLP did not have any other choices with respect to exercising their messaging activity than to communicate their TID software with Presse 2000. We can consider that this consists of a matter of a slightly extensive interpretation of the criteria according to which the infrastructure “…cannot be reproduced in reasonable economic conditions…” because in truth in this case, nothing can prevent the MLP from developing functions which are comparable to those which have been implemented by Presse 2000 for the messaging/depositaries relationship. The Competition Council draws out the “non reproducible” nature of the software, from the analysis of the conduct of the depositaries which, by refusing the implementation of additional software to manage their relationship with MLP, have weakened the position of the NMPP. From a theoretical point of view, the solution is open to criticism because it changes the sense of the criteria construed by the case law. In requiring that the technical feasibility and economical elaboration of a substitution “facility” be examined, the competition law searches for the application of objective conditions in order to determine the cases in which a challenge to the proprietary law would be acceptable or not. It seems to us that in reasoning this way, the Competition Council in the case in point and through a purely subjective appreciation, leaves it to the “goodwill” of the depositaries[6].

However, this solution, if it can be confirmed, announces new consequences for the technology sector. In particular, for example, in the software maintenance market. If there are no more legal hurdles for a piece of software to become the object of a legal license through the intervention of the competition law, what would prevent a computer service company from claiming source codes from an editor in a dominant position in the market in order to compete in the maintenance market for example? In effect, the current situation is such that all software package editors preserve their position in the maintenance market by very legitimately highlighting that all maintenance (which supposes an intervention on the sources of the software package) realised by a third party constitutes a challenge to their intellectual property rights. Provided that the maintenance market can be distinguished from the supply of software packages, and if we consider that the editor is by definition in a dominant position in the maintenance market relevant to its software package, it would not be impossible, by applying the theory of the essential facilities from then on applicable to the software world, to require the communication of the source codes.

This problem may arise one day, together with all the financial consequences attached to the obligations of complying with the essential facilities. In particular, as soon as an order is made permitting access to essential infrastructures, the financial regime that applies, would be that of the tariffs adjusted towards the costs. It is a matter of prohibiting the acting holder of the facility to apply a tariff for access to a superior facility with costs strictly linked to this infrastructure.

3. What about the decompilation exception?

In the form of a conclusion we can ask about the opportunity to have had, in the case in point, recourse to the Competition Council even when the regime relating to software protection offers an adapted exception at its core.

We understand that the objective of the MLP was not to use Presse 2000, nor to market it, but simply to implement a technical communication between its TID software and Presse 2000 so that the depositaries do not have to recover possession of the information in Presse 2000 because only this software is used in the depositary/distributor relationship.

Yet, should we be reminded that such an objective is the sought after effect of the exception in article L. 122-6-1-IV of the Intellectual Property Code, i.e. the decompilation exception? Therefore, in relation to this article, a software creator cannot prevent the reproduction and decompilation of its work as soon as such act has the object of permitting the interoperability of the software thus reproduced and decompiled, together with other software created independently. Construed on the foundation of competitionlaw, this exception therefore prevents a software creator, through exercising its intellectual property rights, from preventing access to a rising market it has created.

Is this not exactly the case in relation to the NMPP/MLP proceedings?

[1] CJCE, 6 April 1995, Radio Telefis Eirann and others c/ Commission and Magill TV Guide, Rec CJCE, p.I-737, concl. Gulmann

[2] Cass. Com.(Commercial Branch of the Supreme Court), 4 December 2001, France Telecom c/Lecitiel and Groupadress, according to which “the list of subscribers to the expurgated telephones of the subscribers to the orange list constituted an essential resource for the operators to intervene in the market of prospective mailing lists”., Intellectual Property, April 2002, No. 3, p.62, obs. A. Lucas; also see S. Leriche and H. de Boisse, the sui generis rule on data protection frustrated by the law on essential resources: Expertises 2002, No.259, p.216

[3] Commission, 3 July 2001, President of TPICE, summary proceedings order, 26 October 2001, NDC Health c/ IMS Health: Intellectual Property, April 2002, No.3, p.117, obs. V-L Bénabou; Expertises 2002, No.258, p.139, obs. S. Lemarchand

[4] O. Frégét, S. Lemarchand and F. Sardain, Informational Goods: Between intellectual rights and competition rights, Intellectual Property, [ref.]

[5] Opinion No. 02-A-08 of 22 May 2002 with respect to the submission to the court of a case in relation to the promotion of the distribution of the press

[6] In this sense, the solution retained here resembles that which was retained in the IMS matter which drew on the non reproducible nature of the data structure by the refusal of the “users” concerned to see a new structure emerging from that developed by IMS.