European Union: IMS Health: ECJ Rules on Compulsory Licensing

On 29 April 2004, the European Court of Justice ("ECJ") ruled that the refusal by an undertaking in a dominant position to grant a licence for copyright will only constitute an abuse of a dominant position if it prevents the emergence of a new product or service for which there is a potential demand, is without objective justification and is capable of eliminating all competition on the relevant market.

The ruling clarifies the "exceptional circumstances" which justify compulsory licensing of intellectual property rights under EC competition law.

IMS Health is the world's largest supplier of information on sales and the prescription of pharmaceutical products and had developed a successful system, the "1860 brick structure", for compiling this information which was protected by copyright.

NDC and AzyX tried to market a similar system but this failed as the brick structure devised by IMS had become the industry standard for those carrying out analysis of the German pharmaceutical markets. NDC asked IMS for a licence to use the 1860 brick structure which was refused.

IMS brought an action before the local courts in Germany alleging that NDC's data collection system had infringed IMS's copyright. The German court decided in favour of IMS, ruling that its 1860 brick structure system for data collection was protected by copyright. However, the national court considered that IMS could not refuse to grant a licence to NDC if that refusal constituted an abuse of a dominant position under EC law.

The German court referred a number of questions to the ECJ on the circumstances under which such behaviour constitutes an abuse of a dominant position¹.

The proceedings before the German court and the reference to the ECJ have run in parallel with action taken by the European Commission. NDC complained to the Commission alleging that the refusal was an abuse of a dominant position in breach of Article 82 EC and in July 2001 the Commission ordered IMS to grant a licence for the copyrighted brick structure. IMS appealed to the Court of First Instance (CFI) and the order was suspended in October 2001². The ECJ confirmed the CFI's suspension order³. In July 2003, the Commission announced that it was withdrawing its interim measures decision on the basis that there was no longer any urgency⁴.

Article 82 EC prohibits any abuse by one or more undertakings of a dominant position within the common market, or a substantial part of it, insofar as it may affect trade between Member States.

Article 82 does not, as a rule, oblige a dominant company to license its IPRs, and the refusal to license is not in itself an abuse. However, the exercise of an exclusive right may in exceptional circumstances amount to an abuse of a dominant position. As set out in Oscar Bronner, clarifying the Magill⁵ position:

"Refusal by the owner of an intellectual property right to grant a licence, even if it is the act of an undertaking holding a dominant position, cannot in itself constitute abuse of a dominant position, but… the exercise of an exclusive right by the proprietor may, in exceptional circumstances, involve an abuse"⁶ .

Magill concerned the copyright of three television broadcasters in their programme listings. Each published a weekly magazine listing its own programmes and Magill sought to amalgamate the information and publish a single listings guide. The broadcasters sought to exercise their copyright to prevent this activity.

The ECJ found that the refusal in question concerned a product, the supply of which was indispensable for carrying on the business in question and that refusal prevented the emergence of a new product for which there was potential consumer demand; the refusal was not justified by objective considerations and was likely to exclude all competition in the secondary market of weekly television guides.

The exclusive right to reproduction forms part of the copyright-holder's rights, so that a refusal of a licence cannot, in itself, constitute an abuse of a dominant position. Nevertheless, the exercise of an exclusive right may, in exceptional circumstances, give rise to abusive conduct⁷. The ECJ ruled that where a copyright holder refuses to give access to a product or service indispensable to carrying on business this will only be considered an abuse where:

• The undertaking which requested the licence intends to offer new products or services not offered by the owner of the copyright and for which there is a potential consumer demand.

• The refusal cannot be justified by objective considerations.

• The refusal is such as to reserve to the undertaking which owns the copyright the relevant market by eliminating all competition in that market.

The Court drew a distinction between an intention to duplicate the goods or services already offered by the owner of the copyright (which would not justify a compulsory licence) and an intention to offer new goods or services, not offered by the owner of the copyright, for which there is potential consumer demand (which could justify a compulsory licence).

The Court did not specify what a new product would be, which creates some ambiguity. In particular, it is unclear whether new products would include alternatives of the products offered by the dominant firm.

The Court did not discuss this condition but that it is for the national court to examine, if appropriate in light of the facts before it.

In order to assess whether the refusal to grant access to a product or service, indispensable for carrying on a particular business activity, was an abuse, it is relevant to distinguish an upstream market, (the 1860 brick structure), and a secondary downstream market, on which the product or service in question is used for the production of another product or the supply of another services, (in the IMS case this would be the supply of German regional sales data for pharmaceutical products).

The ECJ said that it is for the national court to establish whether this is in fact the position and if so to examine whether the refusal by IMS to grant a licence to use the brick structure is capable of excluding all competition in the market for the supply of German regional sales data for pharmaceutical products.

The ECJ has restated the existing law that only in "exceptional circumstances" will an intellectual property right owner in a dominant position be required to grant a licence of that property. The conditions to be fulfilled for an abuse to be found remain strict, offering some comfort to copyright owners. It is now for the German court to decide these difficult factual questions.

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