Licensing programme terms attract Commission scrutiny

02.09.2019

Press reports last week (e.g. here) show that the European Commission has been active in the sphere of technology licences, securing changes to Dolby’s licensing programme.

It appears that the Commission was prompted to carry out an initial investigation into Dolby’s licensing policy after an allegation was made by Xperi, a rival audio technology company, stating that Dolby’s licensing contracts were anti-competitive. Dolby’s licensing contracts contained terms that prevented manufacturers of hardware such as soundbars, TVs and recorders from using rival processing technologies on audio decoded from Dolby media formats.

Dolby responded to the Commission’s investigation by removing these restrictions from its licensing contracts with immediate effect. It will also be publishing guidelines for the use of first-party and third-party audio post-processing on Dolby codecs. According to reports, the Commission has stated that following reassurances from Dolby that it has changed its licensing policy, it will not pursue its investigation, but that it will continue to monitor the market.

This situation is reminiscent of cases such as Microsoft[1], and demonstrates that competition authority intervention remains on the agenda for dominant companies which employ licensing terms that could restrict interoperability. In Microsoft, the General Court discussed the risks posed by restricting the licensing of IP rights, including a possible reduction in innovation and its resulting negative effect on consumers. In its complaint to the Commission, Xperi also highlighted the potential impact of restrictive licensing practices on innovation, stating that that Dolby’s policy had implications for the future of product development in the home entertainment market.

It is interesting to note that in this instance, Dolby has elected to resolve matters informally – and apparently without any formal case being opened by the Commission. The decision not to open a case may be due to limited evidence of any slowing of third party innovation, but perhaps also signals some of the challenges for a regulator in bringing cases based on the slowing of rival innovation. In this kind of case, such challenges would include establishing to the requisite standard that the terms in question are sufficiently likely to have effects on competition in the market as defined, something which is likely to be particularly challenging if the dominance of the licensor is at a lower level than observed in cases like Microsoft. Nevertheless, this intervention is a reminder of the importance of ensuring that rivals are free to innovate, a theme which has run through a number of recent cases under both Articles 101 and 102 TFEU.

[1] Case T-201/04 – Microsoft Corp. v Commission (2007)

Sophie Lawrance

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Helena Connors

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