The Italian competition authority (ICA) announced in a recent bulletin that it has fined Roxtec €15.1 million for abusing its dominant position by using EU trademark filing, litigation and disparagement tactics to foreclose its closest rival in the market for modular cable and pipe sealing systems. The case serves as an important reminder that companies with market power should carefully consider whether their IP and communications strategies are compliant with the abuse of dominance rules.

The ICA’s investigation

Headquarted in Sweden, Roxtec is a leading manufacturer of modular cable and pipe sealing systems. Used to protect cabling from environmental exposure, such systems are used in various sectors, including shipbuilding, telecommunications, energy and construction. Roxtec previously held a patent protecting the technology in its modular sealing system, but that patent expired in 2010. The ICA opened an investigation following a complaint made by WallMax in 2018. WallMax was Roxtec’s closest competitor; indeed, evidence gathered by the ICA showed that Roxtec considered WallMax to be an “aggressive competitor” who was capable of gaining market share by significantly undercutting Roxtec’s prices.

The abusive conduct

Following a two-year investigation, the ICA concluded that Roxtec had implemented a “complex exclusionary strategy” aimed at maintaining the dominant position it had acquired during the period when its product was patent-protected.  Roxtec’s foreclosure strategy was found to consist of three main elements:

1. Specious trademark applications. After the expiry of its patent, Roxtec filed multiple trademark applications with the European Union Intellectual Property Office, all concerning the same image of the product but with different colours. A number of the applications were subsequently annulled by the EUIPO Board of Appeal and declared illegitimate by the Court of Justice.
2. Sham litigation against WallMax. In the period 2015-2017 Roxtec initiated legal proceedings against WallMax in several countries, including India (where WallMax carried out its manufacturing), Italy, Germany, the Netherlands and the US. Centred on claims of trademark infringement and unfair competition, a number of the actions were ultimately dismissed by the courts. The ICA relied on documentary evidence that Roxtec started the litigation in the knowledge that it had a weak patent portfolio and therefore needed to “rely on alternative legal concepts such as unfair competition to go against copycats”.
3. Denigration campaign. Roxtec also took action aimed at discrediting Wallmax vis-à-vis customers, by giving such customers a partial and sometimes misleading impression of the potential effects of the pending lawsuits. The ICA noted that Roxtec went as far as to prepare a ‘WallMax communication package’ which sought to ensure that information about the litigation was not sent to customers in writing. According to the ICA, “the very choice of communicating only orally to customers, without leaving any documentation […], attests to Roxtec’s awareness of the unlawfulness of its actions”. The ICA also relied on the fact that Roxtec executives, having become aware of changes to WallMax’s product composition, organised a meeting to discuss the possibility of persuading certification companies to withdraw WallMax’s approvals, working “behind the scenes” and in collaboration with Roxtec’s General Counsel to reduce the risk of Roxtec’s actions being regarded as anti-competitive.

Anti-competitive intent and bad faith

Citing documentary evidence that one of Roxtec’s “main goals for the next fiscal year” was to “continue fighting WallMax [and] reducing their activities to a minimum”,^[1] the ICA concluded that Roxtec’s multifaceted strategy had a “clear exclusionary intent”. Using this rationale, it sidestepped Roxtec’s attempts to argue that the threshold for vexatious litigation set out in the ITT Promedia case law of the CJEU had not been met. According to the ICA, Roxtec’s legal actions were not concerned with protecting the company’s legitimate interests, and nor were they filed in good faith.

There are striking parallels between this aspect of the ICA’s decision and the October 2022 decision of the Spanish competition authority (SCA) to fine Merck Sharp and Dohme (MSD) just under €39 million for abusing its dominant position in the Spanish market for contraceptive rings. In the latter case, MSD owned patents protecting its Nuvaring product and sought an ex parte interim injunction from the Spanish courts to prevent the manufacture and sale of a competing contraceptive ring developed by Insud Pharma. The SCA concluded that “the purpose of MSD’s legal actions was not to enforce its patent rights”, but rather “to suppress competition from the new market entrant for as long as possible”. The SCA also found that in applying for the interim injunction, MSD had “deployed a strategy of deception by withholding relevant factual and technical information from the court”, and that this lack of transparency was a “determining factor” in obtaining the injunction.

What next?

Following the ICA’s 2012 decision to fine Pfizer €10.6 million for implementing a “complex strategy” to “artificially” extend its patent rights (a decision that was ultimately upheld by the Italian Supreme Administrative Court), the Roxtec case is another example of the ICA adopting an expansive interpretation of the abuse of dominance rules in an IP context. Roxtec’s announcement that it intends to appeal the ICA’s decision to the Regional Administrative Court of Lazio is therefore perhaps unsurprising. Like the pending European Commission investigation into Teva concerning alleged misuse of divisional patents, the outcome of any appeal by Roxtec has the potential to shed further light on the dividing line between legitimate and illegitimate use of IP rights under the abuse of dominance rules.

[1] Another internal Roxtec document noted that the company’s actions were “slowing down [Wallmax’s] activity” and producing “tangible results”.