The ECJ clarified the criteria to assess whether a company is abusing its dominant position, when refusing to license its marketing database to a smaller competitor. Accordingly, the issue was whether there is a requirement for companies holding a dominant position to license their IP right in databases to competitors.
IMS Health, market leader in pharmaceutical data collection, provides studies on regional sales of pharmaceutical and healthcare products to pharmaceutical laboratories for the purposes of market research. IMS developed the 1860 Block System for reporting German pharmaceutical data with the participation of its clients, which are undertakings in the pharmaceutical industry. The structure dividing the country in 1860 geographical regions became the recognised standard in the area.
Pharma Intranet Information (PII), subsequently acquired by NDC Health, tried to enter the same market by using another system. However, as the pharmaceutical companies had their internal data structures in line with the 1860 Block System, the data processed by PII using its new system could not be effectively marketed and it started to use an 1860 brick structure, very similar to the one used by IMS.
Proceedings were then started before the German Court who considered that IMS could not refuse a licence if that refusal constituted an abuse of dominant position within the meaning of Article 82 of the EC Treaty. The German Court therefore referred questions to the ECJ (Court of Justice of the European Communities) on the circumstances under which such conduct should be considered abusive.
In addition, following IMS’ refusal, the European Commission ordered IMS to license out the system. Subsequently the Court of First Instance suspended this decision until the issue of the ruling of the ECJ.
The issue at stake is thus whether NDC Health is entitled to demand a licence to the marketing database of its larger competitor.
The ECJ Judgment
In the response to the queries of the German Court, the ECJ referred to the settled case-law in this field, notably to Volvo and Magill, where the Court had considered that the proprietorship of an IPR does not necessarily create a dominant position in every case. Nonetheless, it is also clear from that case-law that the exercise of an exclusive right may amount to an abuse within the meaning of Article 82 EC, provided certain “exceptional circumstances” are satisfied.
The Court also referred to its ruling Bronner, where the Magill test had been interpreted to mean that all the exceptional circumstances must be present in order to find an abuse under Article 82 EC.
As a result, in line with the previous case law, the ECJ held that the exercise of an exclusive right may give rise to an abuse within the meaning of Article 82 EC where the denial of licensing a certain product or service which is absolutely necessary to run a business satisfies the following conditions:
- “the undertaking which requested the licence intends to offer, on the market for the supply of the data in question, new products or services not offered by the copyright owner and for which there is a potential consumer demand;
- the refusal is not justified by objective considerations;
- the refusal is such as to reserve to the copyright owner the market for the supply of data on sales of pharmaceutical products in the Member State concerned by eliminating all competition on that market.”
Accordingly, the refusal of a licence is considered to be abusive only when preventing the emergence of a new product for which there is a potential consumer demand, without objective justification and thereby excluding any competition on a secondary market.
The question whether this test is satisfied in the present case was left for the national court to assess.
Finally, the ECJ further held that the German Court should take into account the degree of participation of the users in the development of the so-called 1860 brick structure. The German court should also consider the costs for users resulting from the purchase of alternative studies not making use of that structure when assessing the absolute necessity of such structure in order to enter the market.
As the ECJ ruled that the refusal of a licence does not constitute an abuse in itself, this case could have implications on the competition dispute between the Commission and Microsoft which was recently fined for abuse of its dominant position. Nonetheless, the Commission is of the opinion that the ruling does not contradict its approach to the Microsoft case since the aforementioned exceptional conditions established by the ECJ are believed to be satisfied.
The ruling confirms the application of the “essential facilities doctrine” according to which when the access to a certain facility is essential to operate in a certain market, the owner of such facility may, in certain circumstances, be compelled to grant access to a competitor.
Nonetheless, this judgement appears to reflect the cautious approach of the ECJ towards IPRs and its relation with competition law rules. Is the access to the database really essential? In fact, would IMS have taken all the trouble of developing such a system if it would have known it would be later compelled to license it, thereby not being able to use it exclusively? In addition, how would the appropriate compensation for the licence be calculated?
In short, provided the appropriate test is satisfied, the proprietor of an IPR may be forced to license potential competitors and should ensure that the potential demand of consumers is actually met. However, this situation should arise only in limited circumstances.
Balance must definitely be achieved between the interest of the consumers (and not necessarily of the competitors willing to enter a certain market) and IPRs. An excessive application of the essential facilities doctrine may indeed damage incentives to innovate and invest, and ultimately burden the competition authorities with the task of having to regulate the terms and conditions of access.