This blog on the competition law/IP Interface has had an interest in how competition interventions may impact on innovation for some time now. 2014 saw a number of posts on topics such as whether competition law is able to take sufficient account of long-term effects on innovation (here), the impact of new competition rules on innovation (e.g. in relation to the revised TTBER and the new state aid rules on R&D), the perspective of US commentators on these issues (here and here), and on the concept of ‘predatory innovation’ (e.g. here and here). Bloggers were also heavily involved in a few events last year which focused on the interaction between competition law and innovation (reported on here and here). (Fortunately, these were not combined with our cycling commitments!)
We now see that our friends over at the IPKat blog are taking a fresh look at innovation in the EU in 2015. We also notice that their post seeks suggestions for what Europe’s innovation resolutions should be for the year to come. How could we resist taking up such an invitation…?
For anyone who has read our past offerings, it won’t come as a surprise that our recommendation for an innovation-focussed New Year’s resolution relates to the treatment of intellectual property rights by the competition authorities. 2013 and 2014 saw an unprecedented number of Commission decisions with a direct impact on agreements/conduct concerning patents (notably Lundbeck and Servier in the pharma sector, and Motorola and Samsung in the TMT sector). Whatever one’s views about the merits of these decisions (a moan about the continuing lack of a public version of the 2013 Lundbeck decision in particular is deferred… for now), it can be agreed that those decisions and related initiatives, such as patent settlement monitoring (our post on the latest report is here), will have a real-world effect of some kind. The Big Question, for us at least, is whether that effect will involve any adverse impact on companies’ willingness to innovate.
If there were such an impact, it is more than arguable that this would undermine the effectiveness of the EU’s competition regime. The importance of innovation is built into EU competition law: “technical and economic progress” forms part of the part of exemption criteria for Article 101(3), and innovation is repeatedly cited as a positive attribute of competition in the Commission’s Article 102 Enforcement Priorities paper. At a broader EU policy level, the Lisbon Agenda has been described as: “an industrial policy that puts innovation at the centre in a European Union with a high quality of life and a strong, sustainable industrial base” (Commission Staff Working Document, “Towards enhanced patent valorisation for growth and jobs”, 2012). The Technology Transfer Guidelines note that “Innovation constitutes an essential and dynamic component of an open and competitive market economy. Intellectual property rights promote dynamic competition by encouraging undertakings to invest in developing new or improved products and processes” (para 7).
Of late, there has certainly been a perceptible shift in competition authority pronouncements/thinking towards favouring upstart innovation over that of incumbents (e.g. in the amended approach to grant-backs and non-challenge provisions – see here), but the general policy guidance does not suggest any preference one way or the other. And more importantly, no one seems to be looking at what actually happens when competition law is applied in a way which may have some impact on innovation, positive or negative. (The position in the merger context is somewhat different, with attention routinely given to potential outcomes for innovation.) In fact, we are hardly alone in bemoaning the lack of empirical evidence on the impact of competition interventions.
Our proposed New Year’s resolution is therefore this: that individuals within competition authorities around the EU who are involved in assessing potential competition infringements (re-)focus on the important role played by innovation. As a concrete commitment to this aim, they should – in particular in cases which raise novel issues, whether to do with IP or with innovation more broadly, perhaps in the form of novel business methods – give consideration to developing methods of measuring the impact of decisions on longer-term incentives to innovate (on both sides of the incumbent/upstart fence), perhaps also commissioning some empirical work on the impact of relevant recent decisions. This is something that the CMA has done in the past (in its former guise as the OFT, for example here). While there is a risk that such studies are overly focused on price outcomes, and may very well be self-serving, they are perhaps a step in the right direction.
And to conclude: we couldn’t defer moaning about the (snail-like) speed of publication of important Commission decisions for very long. We are in good company – late last year Judge Peter Smith noted the “grindingly slow process” of agreeing a redacted decision (Emerald Supplies Ltd v. BA & others). If there is a risk that certain decisions could give rise to adverse effects on innovation, the risk of such chilling effects is surely all the greater where companies and their advisors remain in the dark as to the true parameters of how competition law is applied to particular business practices. Time for another resolution…?