American Law and German Law

Compulsory Licensing under EU Competition Law

By Susanne Wagner-Pham *

First published May 17, 2004

With the objective to prevent a monopoly in violation of EU Competition law, the European Court of First Instance (ECJ) located in Luxembourg, held on April 29, 2004 that copyright owners may be required to license their works to third parties. In its reasoning, however, the court refines the application of compulsory licensing by imposing several conditions.

This holding concludes a case referred to the ECJ by the German District Court of Frankfurt am Main for a preliminary ruling under Article 234 EC on the interpretation of Article 82 EC. The national court had to resolve a lawsuit filed by the market survey company IMS Health GmbH & Co.OHG against NDC Health GmbH & Co.KG. IMS alleged infringement of its copyrights, as follows:

IMS had developed a software program for the assessment and evaluation of data. The program also provides information about regional sales of pharmaceuticals in Germany. Pharmaceutical companies have been using this program since 1970 and, meanwhile, it has become an industry standard.

NDC, run by IMS's former CEO, planned to launch an independent business and developed its own software for data assessment and evaluation. Potential customers, however, rejected its alternative software program and NDC then developed a new software program based on Plaintiff's program.

Based on these facts, IMS alleged the violation of its copyrights and filed for a cease and desist order.

The question for the ECJ to decide was whether IMS's refusal to license its software program to NDC complies with EU law. The court reasoned that, as a general rule, owners of copyrights enjoy an exclusive right of reproduction of their products. Thus, a refusal to grant a license in itself is not abusive and in accordance with EU law, even if the owner holds a dominant position in the market.

Under certain exceptional circumstances, however, exercising this right may constitute an abuse of a dominant position and, therefore, violate EU Competition law. More precisely, an owner of copyrights who prevents access to products or services, which are indispensable for carrying on a particular business activity, acts abusively if it meets three conditions:

The competitor requesting a license intends to offer new products or services, which the copyright owner does not offer and for which there is potential consumer demand on a separate market.
The refusal is not justified by objective considerations.
The refusal is such as to exclude any competition in the relevant market.
The ECJ provided additional instructions to the national court such as to examine if a product or service was indispensable for a company to enter a specific market. Moreover, the court needs to evaluate viable alternatives to the licensed product. In the present scenario, the close involvement of pharmaceutical companies in the development of IMS' program could be considered which created a technical dependency. The pharmaceutical companies, therefore, would have to incur immense technical and economic expenses, were they required to switch to an alternative program and, thus, making it impossible or unreasonably difficult for NDC to enter the market.

Based on this holding, the German national court will now apply the ECJ's rules to render a judgment.

At first sight, this decision seems to narrow considerably the protection of copyrights. A closer look, however, reveals that a competitor will not benefit easily from compulsory licensing. The ECJ imposed several conditions on its application, which -despite some vagueness- the competitor would have to meet cumulatively. Moreover, the decision assures that the owner remains entitled to royalties for licensing his product as reward for its development.

With regard to the international scope of EU Competition Law, we will see in the course of time whether non-European companies actually benefit from this interpretation of compulsory licensing upon entering the European Market and whether conflicts with non-European copyright laws may emerge.

* Susanne Wagner-Pham is admitted to practice law in Germany and New York. She also holds an LL.M. degree in International Commercial Law & Trade from the George Washington University, Washington, DC. Since her internship with the Washington, DC law firm of Berliner, Corcoran & Rowe, LLP in Winter 2000/2001, she writes for the German American Law Journal and presently serves as an Associate Editor. Currently, Ms. Wagner-Pham is looking for an associate position with a Washington, D.C. law firm to contribute to its corporate and transactional practice group.
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