Jnac 027

Journal of Antitrust Enforcement, 2023, 11, i37–i56
https://doi.org/10.1093/jaenfo/jnac027
Advance access publication 24 September 2022
Article
Intellectual property rights, enforcement
Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

costs and EU competition law
Vladimir Bastidas Venegas1,*
1
Researcher, Department of Law, Uppsala University, Sweden
*Corresponding author: Email: vladimir.bastidas@jur.uu.se.
ABSTRACT
Cases in the intellectual property rights (IPR)–Competition Law intersection have raised the issue
of costs of enforcement of IPRs when dealing with the assessment of whether competition law has
been breached. Importantly, a systematic underestimation of enforcement costs may be problematic
for the protection of underlying investments behind intellectual property as well as obstruct the co-
operation between an IPR holder and its licensees, in particular as regards patent rights. Cases on re-
verse payments indicate that payments by a patent holder to a generic manufacturer under a settle-
ment agreement may well be legitimate in order avoid enforcement costs while not restricting
competition. The hard stance on no-challenge clauses and termination clauses under the technology
transfer block exemption regulation (TTBER) can destabilize the relation between two parties that
would beneﬁt from increased certainty when cooperating to commercialize new technology. In cases
regarding the failure of parties to agree on fair and reasonable and non-discriminatory-licensing of
standard essential patents, a correct approach has probably been taken in Huawei. However, it is
doubtful to what extent the judgment is based upon a balancing exercise that explicitly factors in
enforcements cost. Accordingly, it is argued that the current framework of analysis of cases in the in-
tersection is inadequate to proper assess enforcement costs of IPRs.
K E Y W O R D S : Competition law, Intellectual property rights, Article 101 TFEU, Article 102
TFEU, Refusal to supply, Reverse payment agreements, FRAND terms
J E L C L A S S I F I C A T I O N S : K21, L41, O3
I. INTRODUCTION
A number of cases in the intellectual property rights (IPR)–Competition Law intersection
(the intersection) have raised the issue of costs of enforcement of IPRs when dealing with
the assessment of whether competition law has been breached. Usually, it has been the al-
leged infringers that have raised the issue of enforcement costs in these cases. So far, they
have not been successful. None the less, it is interesting to explore whether there may be a
risk that the assessments under competition law may underestimate the costs of enforcement
C The Author(s) 2022. Published by Oxford University Press.

V
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (https://
creativecommons.org/licenses/by/4.0/), which permits unrestricted reuse, distribution, and reproduction in any medium, provided
the original work is properly cited.
i38 • Journal of Antitrust Enforcement, 2023, Vol. 11, No. 4
of IPRs. As enforcement costs may have a negative impact on the benefits of IPRs for society
and the individual IPR holders, a systematic underestimation of enforcement costs may be
problematic for the underlying investments behind intellectual property.
Accordingly, this article addresses the treatment of enforcement costs under EU
Competition Law. Section II describes in general the costs of enforcement and the impact
on the incentives to innovation. Section III describes generally the IPR-Competition Law in-

tersection. Section IV deals with the analysis under EU Competition Law of enforcement
costs related to IPRs. In Section V some conclusions are made.
II. INTELLECTUAL PROPERTY RIGHTS AND THE COSTS OF

ENFORCEMENT
It is a well-known fact that the costs of enforcement of IPRs are high. In fact, the costs of en-
forcement are a burden on both the right-holder as well as on society. Costs of enforcement
includes the costs for the identification of infringers and litigation costs (including costs for
negotiation and settlements) for enforcement, but also defending IPRs. To the extent that
infringers are many, such costs can make it harder to supervise markets. Naturally, successful
litigation in key jurisdictions may resolve such issues by providing incentives for infringers to
approach the right holder to ask for licenses. In addition, a right holder may through contract
impose licensees an obligation to participate in the supervision of local markets. As regards
litigation costs, infringements of IPRs may concern several different jurisdictions which
increases the costs. In addition, different jurisdictions, outside and within the EU, may pro-
vide different rules on the allocation of litigation costs once the case has been resolved which
may add more complexity. Furthermore, even when the right holder is successful, differences
as regards the possibility to get compensation in different jurisdictions may also negatively
impact the gains of litigation. Naturally, enforcement costs may vary depending on the type
of intellectual property right that is involved. Most costly, and also most relevant for this arti-
cle, are costs of enforcement of patent rights.
Naturally, a way to decrease the costs of enforcement is to avoid breaches of IPRs to begin
with. Different licensing schemes may facilitate for users to get access to relevant IPRs (by
diminishing their costs of identifying right holders) through, eg patent pools. In addition,
IPR holders may also diminish the possibilities of users to contests the validity of the right
holder’s IPRs, which diminishes the costs of such litigation and may increase the long-term
stability of contracts and cooperation that results in innovation. Moreover, costs of enforce-
ment may be shared by cooperating with others in the supervision and the litigation protect-
ing IPRs, like collective societies regarding copyrights and related rights and patent pools.
Naturally, the arrangement just described requires that such licensing arrangements and co-
operation are permitted by other rules than IPR laws, such as competition law.
III. THE INTELLECTUAL PROPERTY RIGHTS–COMPETITION LAW

INTERSECTION
Normally, the issues discussed in the literature on the IPR-Competition Law intersection
have concerned the material assessment of whether competition is restricted or not in the ex-
ercise of IPRs or the licensing of such rights. Enforcement costs are normally not the focus
of this literature, even though some aspects may come into play in this assessment, as illus-
trated by the discussions on the controversial no-challenge clauses in patent licensing agree-
ments. In order to understand the context of enforcement, the first subsection below quickly
IPR, enforcement costs and EU competition law • i39
summarizes the basic elements in the intersection between IPR and competition law, as
enforcements costs will impact the balancing made in the intersection when applying the
competition rules. The second and the third subsections address the issues in the intersection
more specifically related to Articles 102 and 101 TFEU.
The general problem in the intersection

The conflict, collision, or friction in the intersection between intellectual property rights and
competition law has been described many times.1 Intellectual property rights constitute an
exclusive right to its holder, which may or may not result in a position of market power. As
competition law, on the other hand, may be applied to practices by undertakings that have
market power or that result in some market power, its application may limit the ways a
holder of an intellectual property right exercises its right. Such limitations may influence the
methods of exploitations of IPRs, which in turn may diminish the returns for the right’s
holder. Accordingly, the diminished returns result in that the value of the IPR to its holder
may diverge from the social value of the protected subject matter, which will decrease incen-
tives for the right holder to make the initial investments into the creation or maintenance of
the protected subject matter. As investments into the protected subject-matter of IPRs are
usually viewed as a method of competition by innovation,2 competition law may potentially
negatively affect the incentives for this particular method of competition by limiting the IPR
holder’s use of the exclusive right.
The relation between IPRs and Competition Law has been described in different ways,
partly depending on the stance in the competition law assessment on IPRs at that particular
point in time. While in the beginning IPRs were seen as being directly at odds with competi-
tion law, the view has softened and currently the general view is that Intellectual Property
Law and Competition Law are to a large extent complementary, but that there may be partic-
ular points of contact where the two bodies of rules collide.3 Also, time has shown that
Competition Law may be applied to all exercises of IPRs, meaning that there is no core of
rights that are absolute immune against the application of Competition Law. With other
words, an assessment is no longer based on formalism. Instead, a balancing needs to be
made between the interest of protecting competition in markets with the purpose of safe-
guarding allocative efficiency and consumer welfare in the short term and the interest of pro-
tecting the incentives for innovation promoted by IPRs.
As the author of this article has already discussed at length the relevant elements that have
to be considered when making a balancing exercise between the interests protected by IPRs
and Competition Law, respectively, the discussion here is limited to highlighting the most
important factors in that discussion.4 Most discussions on the balancing exercise carried out
under the competition rules rely on an assumption, namely that IPRs create an incentive effect,
which is perceived as the main benefit of IPRs.5 However, as discussed in great length in
1
See eg M Maggiolino, ‘The Economics of Antitrust and Intellectual Property Rights’, in SD Anderman and A Ezrachi,
Intellectual Property Rights and Competition Law—New Frontiers (OUP 2011); S Maurer and S Scotchmer, ‘Profit Neutrality in
Licensing: The Boundary between Antitrust Law and Patent Law’ (2007) 8 American Law and Economics Review 476; MA
Lemley, ‘A New Balance between IP and Antitrust’ (2007) 13 Southwestern Journal of Law & Trade in the Americas 237; MA
Carrier, ‘Unraveling the Patent-Antitrust Paradox’ (2002) 150 University of Pennsylvania Law Review 761; L Kaplow, ‘The
Patent-Antitrust Intersection: A Reappraisal’ (1984) 97 Harvard Law Review 1813; WS Bowman, Patent and Antitrust Law; A
Legal and Economic Appraisal (The University of Chicago Press 1973); WF Baxter, ‘Legal Restrictions on Exploitation of the
Patent Monopoly: An Economic Analysis’ (1966) 76 The Yale Law Journal 267.
2
See eg Communication from the Commission—Guidelines on the application of art 101 of the Treaty on the
Functioning of the European Union to technology transfer agreements, OJ [2014] C 89/3 (TT Guidelines), para 7.
3
See eg TT Guidelines, para 7.
4
V Bastidas Venegas, Promoting Innovation, doctoral thesis (Stockholm University 2011), 110–14.
5
See eg SD Anderman and J Kallaugher, Technology Transfer and the New EU Competition Rules—Intellectual Property
Licensing after Modernisation (OUP 2006), 7; M Maggiolino, ‘The Economics of Antitrust and Intellectual Property Rights’, in
both legal and economic literature, that incentive effect has been questioned depending on
the industry sector, the presence of alternative ways to protect creative efforts or other IPR-
related investments, and the breadth of the IPR. Too broad IPRs may, eg create a disincen-
tive for follow-on innovation, in particular broad patents.6 It appears as the balancing
between IPRs and competition nevertheless relies on the assumption that there is an incen-
tive effect. Accordingly, any limitation on IPR holders may thus decrease the incentive for

the method of competition that IPRs are supposed to promote. This negative effect of the
application of competition law is referred to as the discouragement effect in the following.
However, if the incentive effect is not taken for granted, the balancing exercise becomes
more complex as a competition law assessment would need to either establish the presence
of an incentive effect in the given case, by either specific examination of the IPR(s) or the
role of IPRs in the specific sector. An examination of the specific IPR involved in a case by a
competition authority seems to be a difficult and risky exercise for a competition authority to
make. It would require the examination whether the pro-competitive efforts (promoted by
the IPR in question) and investments would have been carried out in the absence of the IPR
protection or whether the IPR actually promotes investments and efforts that are generally
perceived as a form of competition. While this may seem to be an odd suggestion to make, it
is arguably this exercise that in practice has been carried out, at least implicitly, by competi-
tion authorities and courts in some cases. For instance, it is doubtful whether the IPR in
Magill, the copyright protection of lists of the daily programs running on TV, promoted pro-
competitive investments and efforts.7 At least the General Court (then Court of First
Instance) seems to have taken this factor into account when finding the refusal to license the
copyright such lists could constitute an abuse.8 As regards any consideration of the role of
IPRs in specific sector, it has been suggested by, eg Carrier, that such an examination could
be used to determine whether antitrust intervention may be justified in a given case.9 If IPRs
are important for initial investments and creative efforts in the particular sector, this could
limit antitrust intervention if a right holder is simply reaping the benefits by limiting competi-
tion by merely exercising the IPR. At the same time, if a sector is characterized by multiple
patent rights that result in the hold-up problem, antitrust intervention may actually be justi-
fied in the individual case.
There is however an alternative and arguably more nuanced view to that of relying on the
incentive effect as the main benefit of IPRs. It has been argued that the essential benefit of
an IPR system, taken as a whole, is the fact that innovation efforts are decentralized by allo-
cating the initiative for such efforts, costs and rewards to the market mechanism.10 This is re-
ferred to as the decentralization argument in the following. The main benefit of
decentralization is that market actors are in the best place to make decisions on when and
SD Anderman and A Ezrachi, Intellectual Property Rights and Competition Law—New Frontiers (OUP 2011) 80; MA Lemley, ‘A
New Balance between IP and Antitrust’ (2007) 13 Southwestern Journal of Law & Trade in the Americas 237, 241.
6
See eg E Mansfield et al Technology Transfer, Productivity and Economic Policy (Norton & Company 1982); RC Levin et
al, ‘Appropriating the Returns from Industrial Research and Development’ (1987) Brooking Papers on Economic Activity, issue
no 3, 783; SJH Graham et al, ‘High Technology Entrepreneurs and the Patent System: Results of the 2008 Berkeley Patent
Survey’ (2009) 24 Berkeley Technology Law Journal 1255.
7
Joined cases C-241/91 P and C-242/91 P Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP)
v Commission of the European Communities (EU:C:1995:98) (Magill).
8
Case T-69/89 Radio Telefis Eireann v Commission of the European Communities (EU : T : 1991:39) (RTE), paras 73–74;
Case T-76/89 Independent Television Publications Ltd v Commission of the European Communities (EU:T:1991:41) (ITP), paras
58–59.
9
Michael Carrier, ‘Resolving the Patent-Antitrust Paradox through Tripartite Innovation’ (2003) 56 Vanderbilt Law
Review 1047 (Carrier 2003), 1072.
10
N Gallini and S Scothmer, ‘Intellectual Property: When is it the Best Incentive System?’ (2002) 2 Innovation Policy
and the Economy 51 (, 54; The benefits of decentralization (as a part of an incentive mechanism) has also been emphasized,
see eg WF Baxter, ‘Legal Restrictions on Exploitation of the Patent Monopoly: An Economic Analysis’ (1966) 76 The Yale
Law Journal 267, 273–74.
how to invest into innovation. The alternative, to have some form of a more general and cen-
tralized system choosing innovation projects, setting up a system for finance, determining
the amounts of investments and rate of innovation, choosing the undertaking that will per-
form the research task, etc is simply inefficient and completely unfeasible.11 Naturally, this
does not mean that there is no intervention from the state as regards innovation activities.
Obviously, part of research is carried by state institutions, such as universities, or done with

state financing, such as state aid. However, the IPR system is the main and general system to
promote innovation and creative efforts across all sectors, but which is also complemented by
some state intervention. This does not mean that the IPR system is perfect, or should be as-
sumed to be perfect, but only that it is the least imperfect system of available alternatives, such
as granting prizes or subsidies for innovative activities.12
As regards the mechanism imposed through an IPR system, the exclusive right affords
some protection to its holder which permits the organization of innovation, either by the
right holder on its own or through transactions with other parties. Importantly, the decentral-
ization argument does not take an incentive effect for granted, meaning that just because the
application of competition law in an individual case, like Magill, results in the limitation of
the exclusive right granted under IPR Law, it cannot be assumed that incentives for innova-
tion or creative efforts are automatically going to be diminished or destroyed. While the ex-
ample shows that the decentralization argument could be used for propagating more
antitrust intervention, the argument can also be used for arguing less antitrust intervention. If
the exercise of eg a patent through a licensing agreement may impose more restrictions than
follows from a patent right, it may be justified by the necessity of the restrictions in order to
carry out a transaction that organizes innovation between two or several parties in an effi-
cient manner. Importantly, the decentralization argument not only considers the initial
investments into the creative effort and other pro-competitive investments, which is the focus
of the incentive effect, but also the use of the IPR in the broader context of organizing inno-
vation in the period after the IPR has been granted. This does not mean that the incentive ef-
fect becomes irrelevant in the balancing exercise under competition law. The incentive effect,
although important, is only one of many factors that have to be considered when making a
balancing exercise. Follow-up innovation is another relevant factor. The decentralization ar-
gument means that it may be justified under competition law to find, for instance, that the
fragmentation of IPRs in a given market may result in obstacles to innovation or follow-up
innovation, without drawing automatically the conclusion that such findings will kill-off
incentives to innovation simply because the initial incentives to the creative efforts protected
under the specific IPR in the case have been negatively affected. In addition, and importantly
for the purpose of this article, factors such as the enforcement costs for IPRs or agreements
concluded in the organization of innovation with the use of IPRs are also relevant which
need to be taken into account when making the balancing exercise under Competition Law.
It should be emphasized that the decentralization argument is not claimed to be some-
thing new or bring to the table an original argument that will resolve all possible issues in the
competition law intersection. Rather, the added value of the argument is the perspective,
which arguably reflects reality in a much more accurate way, but also how the Commission
and the Union Courts have approached cases in the intersection. Both the Commission and
the Union Courts have since long abandoned methods of resolving cases in the intersection
with methods connected to patent scope, such as the subject-matter of the IPR or the essen-
tial function, even though that language still appears in cases without necessarily being
11
Gallini and Scothmer, ibid.
12
ibid.
determinative for the case outcome. Likewise, in the regulation of technology transfer agree-
ments, concerning certain patent and know-how agreements, the block exemption obviously
promotes certain restrictions that do not fall within the scope of the patent, such as the
restriction of using competing technology and engaging in R&D with third parties when
free-riding is a risk, but which are deemed as necessary to promote licensing that organize in-
novation in an efficient manner.13 The block exemption also captures restrictions that may

fall within the scope of the patent, such as certain restraints on prices, output and sales in
particular territories, but which are deemed as unjustifiable restrictions of competition (see
below, section ‘Article 101 TFEU and the Intersection’).14 While the current state of the law
encompasses an outright balancing between the interest of protecting IPRs and promoting
competition which is in line with the decentralization argument, such a balancing exercise
does not explicitly reflect the full implications of the decentralization argument. Arguably,
there are still factors which are not fully taken into account or analysed, such as enforcements
costs of IPRs and licensing agreements, which influence the possibilities to organize innova-
tion in an efficient manner. Instead, the incentive effect is still used as key factor which either
is viewed as being influenced or not by factors such as enforcement costs. The problem with
such a perspective is that it still relies on the assumption of the incentive effect and the re-
lated discouragement effect, even though those effects are not directly relevant to the costs
discussed in a given case. This distorts the discourse.
Article 102 TFEU and the intersection

The most extreme example in the intersection is the case of refusal to license under Article
102 TFEU. The right to prevent others from using an IPR belongs to the core right of its
holder. The very essence of an IPR is to be able to oppose unauthorized users of the subject-
matter covered by the IPR. The finding under competition law that an IPR holder abuses its
dominant position when refusing to license a potential user means that the IPR holder is re-
quired to supply a compulsory license. Naturally, a requirement to license under competition
law should not be compared to expropriation as the IPR holder still keeps ownership of the
IPR and is still entitled to a royalty for the use of the protected subject-matter. Depending
on who decides the level of royalty payments, there may be a risk with under-compensation,
which is the usual critique against compulsory licensing systems.
Importantly, and as discussed above, the intersection is normally framed in terms of a con-
flict of interests. On one hand, there is IPR holder’s interest of initial incentives to invest in
the creation or investments into the protected subject-matter or what has been denominated
above as the incentive effect. On the other hand, there is the interest of protecting competi-
tion in the affected markets by the IPR, which may include follow-up innovation.
It follows from the case law on refusal to license that there are four requirements that
need to be met before an IPR holder may be forced to license under Article 102 TFEU.
First, the license must be indispensable to compete on a downstream market. This require-
ment follows from the case law on refusal to supply where the Court established indispens-
ability in Bronner,15 although such an element had been present in previous cases such a
Commercial Solvents16 and Magill.17 Indispensability means in this context that it would not
13
TTBER, arts 4(1)(d) and 5(2) on non-competition clauses.
14
TTBER art 4(1) and (2).
15
Case C-7/97 Oscar Bronner GmbH & Co KG v Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co KG, Mediaprint
Zeitungsvertriebsgesellschaft mbH & Co KG and Mediaprint Anzeigengesellschaft mbH & Co KG, (EU:C:1998:569) (Bronner).
16
Joined cases 6 and 7/73 Istituto Chemioterapico Italiano SpA and Commercial Solvents Corporation v Commission of the
European Communities (EU:C:1974:18) (Commercial Solvents).
17
Joined cases C-241/91 P and C-242/91 P Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP)
v Commission of the European Communities (EU:C:1995:98) (Magill).
be possible for the potential customer of the dominant undertaking to turn to another sup-
plier and that it would not have the possibility to itself start producing or creating the input
product. In the latter test, it is not the individual undertaking’s actual possibilities that are
measured but a hypothetical undertaking with the same turnover as the dominant undertak-
ing itself. In Bronner, this element was important as the complainant undertaking did not
have a sufficient turnover on the downstream market to under economically viable terms to

establish a distribution network for newspapers. However, the Court required that a compari-
son should be made with an undertaking or a group of undertakings comparable to the dom-
inant undertaking in terms of turnover.18 In the IPR context, it would be required that the
potential user does not have the capability of using other technologies, even if these would
be disadvantageous, as well as that there is no possibility to create a substitute to the pro-
tected subject-matter. Importantly, the Court has recently rationalized its requirement for in-
dispensability as that the remedy in refusal to supply case would constitute such a degree of
interference in property rights and the freedom to contract, that it is required to set a high
threshold for intervention.19
Secondly, the refusal to license must prevent the appearance of a new product. In Magill
the refusal hindered the sales of weekly magazine consisting of copyright protected TV-list-
ings.20 Thus, the case actually concern product that had not existed before. A customer
would have had to put together the different TV-listing on its own to get a substitute
product. However, in IMS it was debatable how new the product was.21 The case concerned
a so-called brick structure used for the distribution for certain regional sales data to drug
companies. The company requesting the license was basically reproducing the brick structure
when offering regional sales data. Importantly, the Court seems to have sought to clarify the
new product requirement in Magill. The Court stated that the condition of new product
would not be met if the products sold would merely duplicate the goods and services offered
by the dominant undertaking.22 While the statement constituted a confirmation of the find-
ings in Magill, it could be discussed whether the language of “duplicating” actually reinforced
the requirement of a new product. The formulation could also be interpreted as confining
what falls outside a new product to the situation that was at hand in IMS, namely that prod-
ucts more or less identical to the products offered by the dominant undertaking would not
meet the requirement, which could be interpreted as being narrower than a requirement of a
new product. If the requesting company would make a variant of the products or services of-
fered by the dominant undertaking with some added functionality, it could be discussed
whether such a product would merely duplicate what is already present in the market. By
contrast, in Magill, it could be debated whether the existing products, the TV-listings offered
by the TV-channels would actually provide a substitute for the weekly TV-magazine that
Magill wanted to offer. In addition, it could be argued that there is a fundamental problem
with the new product requirement that follows from Magill irrespectively of which interpreta-
tion that is made of IMS. For certain IPRs, in particular patent rights, the protected object
may often be used to offer a “new product” that has not be offered by the dominant under-
taking, in particular in areas or field-of-uses of the technology that have not yet been
exploited by the company. It may be problematic from an innovation perspective if the pat-
ent right holder could not control the exploitation of such a field of use and if potential users
could free-ride on the patent holders efforts.
18
Magill paras 44–45.
19
Case C-165/19 P Slovak Telekom, as v European Commission (EU:C:2021:239), paras 46–49.
20
Magill para 54.
21
Estelle Derclaye, ‘Abuses of Dominant Position and Intellectual Property Rights: A Suggestion to Reconcile the
Community Courts Case Law’ (2003) 26 World Competition 685, 696.
22
Case C-418/01 IMS Health GmbH & Co OHG v NDC Health GmbH & Co KG (EU:C:2004:257), para 49.
Moreover, in Microsoft, the refusal to license hindered the sales of products that were be-
ing sold before the dominant company had adopted a more restrictive policy in providing
companies in the downstream market with the necessary interoperability information.
Accordingly, this case concerned hardly ‘new products’, even though they clearly could be
differentiated from the products offered by the dominant undertaking on the downstream
market. Furthermore, the General Court also found that there was no need to necessarily to

prove the new product requirement in every refusal to license case.23 Since refusal to license
cases fall under Article 102(b) TFEU which concern the limitation of output and technologi-
cal development to the prejudice of consumers, a limitation of technological development
would suffice.24 Considering that the old products offered by the competitors of the domi-
nant undertaking in the downstream market could be further developed (with the added
functionalities offered by the dominants undertakings new operating system), the refusal to
license could be viewed as hindering “follow-up” innovation through the technical develop-
ment of the rival products. Arguably, this finding could support the interpretation made
above of IMS, namely that offering certain differing functionalities would be sufficient to
meet the requirement of a new product. All in all, it follows that it is doubtful how high of a
threshold the new product requirement actually is and how strong protection it offers initial
investments into IPR protected technology.
The third requirement is that the refusal must risk eliminating effective competition on
the downstream market. Cases such as Commercial Solvents, IMS and Magill concerned situa-
tions where all competition would be eliminated as it would be impossible to compete on
the downstream market without a license. The situation was more complicated in Microsoft
as competitors already had presence in the downstream market before the dominant under-
taking had stopped to supply interoperability information. In a complex assessment, that is
too lengthy to describe here, the Commission demonstrated that with time without interop-
erability information customers would migrate to the dominant undertaking’s product and
that competitors would not be able to exert sufficient competitive pressure.25 The General
Court also established that merely a risk of eliminating competition would suffice.26
The final and fourth criterion is that the dominant undertaking fails to present an objec-
tive justification for the refusal. Importantly, both Magill and Microsoft, the courts seemed to
have found that there was no harm on the initial investments in creative efforts and the inno-
vation. Particularly in Microsoft, the Court found that there was no risk that the interoperabil-
ity information would permit the competitors to duplicate the dominant undertakings
operating system.27 Accordingly, there was no need to make an explicit balancing with the
effects on follow-up innovation by technological development of competing products under
the objective justification test.
What follows from the most extreme case in the intersection between IPRs and Article
102 TFEU is that there is a somewhat high threshold for finding the refusal to license as an
abuse with particular the requirement of indispensability and the new product requirement.
Nonetheless, it could be argued that even these requirements do not afford sufficient protec-
tion for cases where the object protected by an IPR is truly an output of investments, innova-
tion and creative efforts. On paper, there is a possibility to force an IPR holder to license
even in such situations. At the same time, there has not been a hard case where the balancing
between interests of protecting innovation incentives and competition have been put to a
23
Case T-201/04 Microsoft Corp v Commission of the European Communities (EU:T:2007:289) (Microsoft), para 647.
24
Microsoft paras 643–65.
25
ibid paras 565–620.
26
ibid paras 560–564.
27
ibid para 710.
real test. This conclusion is very problematic if one relies on the incentive effect as discussed
above. However, if one instead relies on the decentralization argument as discussed above
(section ‘The general problem in the intersection’), the effects of the finding of abuse would
not be determined by the negative impact on the incentive effect. Instead, the decentraliza-
tion argument permits the consideration of a wider number of factors as the focus lies on the
promotion of innovative activity. In cases where the IPR’s in a given case would not actually

protect or promote investments into innovation or creative efforts, there is no problem with
forcing an obligation to license. In cases where follow-on innovation is at stake, it could like-
wise be justified to find an abuse. At the same time, the decentralization argument would re-
quire a more careful application of Article 102 TFEU to cases when innovation incentives
are truly at stake, and the benefits of competition would be small or less important than the
initial investments behind the IPR-protected object. In cases where the costs of enforcement
of IPRs would be detrimental to either the IPR holder with the aim of organizing innovation
or for users or competition, the decentralization argument provides a framework for consid-
ering such factors, without having to link such costs to the incentive effect.
Article 101 TFEU and the intersection

The application of Article 101 TFEU to situations falling in the intersection concerns in par-
ticular licensing agreements. While most of the case law is scarce and old, the main instru-
ment of interest have been the block exemption(s) on technology transfer.28 While licensing
agreements may also include vertical agreements on distribution and research and develop-
ment (R&D) agreements, it is in the area of technology transfer where the exploitation con-
cerns directly the object protected through a patent right. It is also these agreements that
have usually triggered a discussion on the intersection. This section will therefore focus on
technology transfer.
The discussion on the assessment made of licensing agreements have largely been col-
oured by the general view on patent rights from a competition law perspective (see above,
section ‘The general problem in the intersection’). In the past, when patents were seen as
monopolies being in direct contradiction to competition as protected under competition law,
one way of dealing with the issue was to define a sphere of immunity from competition law.
Certain exercises that fell within the scope of patent were thus legitimate and could not be in
breach of competition law. A method of doing this analysis was to determine whether a
clause in the licensing agreement would result in merely a contractual breach or a patent in-
fringement when comparing with the hypothetical case that the licensee would breach its li-
cense. Those clauses in the licensing agreement that would result in patent infringement
when breached would thus fall inside the scope of the patent (the inherency or limited li-
cense doctrine).29 Another method of defining scope was to determine what the patent mo-
nopoly could render in terms of value. If a licensing agreement would result in profits that
would not go beyond what the patent would be valued in the market, the practice would fall
within the scope of the patent (referred to as the profit-neutrality principle by some).30
The problem with using patent scope as method of assessment in the intersection is that
it constitutes a formalistic method. It focuses solely on the ‘reward’ granted by a patent, or
with other words the mechanism that supposedly results in the incentive effect discussed
28
Commission Regulation (EU) No 316/2014 of 21 March 2014 on the application of art 101(3) of the Treaty on the
Functioning of the European Union to categories of technology transfer agreements, OJ [2014] L 93/17 (TTBER).
29
See eg Motion Picture Patents Company v Universal Film Manufacturing Company et al, 243 US 502 (1917) and the dis-
cussion in WF Baxter, ‘Legal Restrictions on Exploitation of the Patent Monopoly: An Economic Analysis’ (1966) 76 The Yale
Law Journal 267, 275–79.
30
United States v General Electric Co, 272 US 476, (1926); S Maurer and S Scotchmer, ‘Profit Neutrality in Licensing: The
Boundary between Antitrust Law and Patent Law’ (2007) 8 American Law and Economics Review 476.
above. There are two serious problems with such a way of reasoning. Firstly, the use of li-
censing agreements by the patent holder to engage in vertical price fixing would require the
sharing of monopoly profits (in cases where the patented protected technology would have
no substitutes) with the licensees which would decrease the patent reward and the incentive
effect even though such agreements would be consistent with the profit-neutrality principle
and patents scope.31 This was also the reason why competition authorities (once upon a

time) could justify the intervention against such agreements. Secondly, when entering a li-
censing agreement both parties may expose themselves to free-riding and other opportunistic
behaviour which would require protection through licensing restrictions that would not easily
fit into the scope of the patent or protect the full incentive effect of the patent holder. For in-
stance, the use of grant-back clauses may induce the licensor’s licensing of patent rights and
transfer of know-how, which would otherwise not take place. If the licensor fears that the li-
censee could use the licensed technology to develop superior technology, which is at least
partly derived from the licensor’s investments into the licensed technology, the fear of misap-
propriation may deter licensing in the first place. Such an outcome could be an impediment
to the commercialization of technology. Obviously, the licensor’s claim to the licensee’s
improvements through a grant-back clause goes beyond patent scope, but may still be neces-
sary to the organization and commercialization of innovation. Moreover, a licensee may need
protection from other licensees e.g. through territorial protection, which on paper may look
like a licensee cartel agreement. As stated above, such an agreement may fall within patent
scope but could be objected to because it results the sharing of monopoly profits between
the licensor and licensees, which decreases the patent reward and the incentive effect for the
patent holder. With other words, it is problematic to focus solely on the incentive effect of
the patent holder when a collaboration also concerns the licensee’s willingness to be part of
the innovation efforts and its role in the organization of innovation. If the parties would be
prevented to afford each other sufficient protection, agreements that would promote innova-
tion (and thus this particular form of competition) could be disincentivized by the applica-
tion of competition law. Patent scope, as a method for resolving cases in the intersection,
does not per se instruct when the protection of the licensees’ incentives to invest in tooling
up is legitimate.
Under EU Competition Law, the idea of immunity of patent rights or the protection of
patent scope never really took hold as the territorial limitations, which could be constructed
as being within the scope of the patent, would impair the establishment of the common/in-
ternal market. There are traces of patent scope theory, eg in Commission’s Christmas
Message and the Court’s ruling in Windsurfing.32 However, in cases both prior and after
Windsurfing the Court and the Commission have not made such an analysis. The Court did
eg recognize that licensees to a certain extent would need protection for the risks involved in
tooling up when accepting a license.33 Accordingly, it could be said that the Court and the
Commission early on recognized that restrictions should be assessed in the light of other
concerns than patent scope and the incentive effect. In its block exemptions, the
Commission has also taken a permissive stance to the protection of the licensors’ interests
going beyond patent scope and the protection of licensees’ interests that may conflict with
the incentive effect.34
31
See eg the discussion in; Kaplow ‘(n 1) 1858–60.
32
Commission’s Notice on patent Licensing (Christmas Message), JO 2921/62; Case 193/83 Windsurfing International
Inc. v Commission of the European Communities (EU:C:1986:75) (Windsurfing), paras 44–45.
33
Case 258/78 LC Nungesser KG and Kurt Eisele v Commission of the European Communities (EU:C: 1982:211)
(Nungesser).
34
See eg TTBER, arts 4(2)(b) and 5(1)(a); Commission Regulation (EC) No 772/2004 of 27 April 2004 on the applica-
tion of art 81(3) of the Treaty to categories of technology transfer agreements, OJ [2004] L 123/11, arts 4(2)(b) and 5(1)(a);
Arguably, the Commission has made a balancing exercise when regulating clauses and li-
censing agreements in the block exemptions on patent and technology transfer. The possibil-
ity of the licensor to exploit its technology to recoup its investments into the R&D of the
licensing technology and the incentives for the licensee to accept and invest in licensing ar-
rangement has been balanced against competition, both intra- and inter-technology competi-
tion, as well as market integration. With time, it appears as the Commission has become

more tolerant to license restrictions that protect the licensing relation. Simultaneously, the
competition analysis has shifted from an approach of protecting the freedom of action of the
licensing parties to the prevention of negative effects on price, output and innovation.35 Also
as regards the protection of market integration, the Commission has become more tolerant
towards territorial protection in order to promote more licensing and thus the dissemination
of technology.
IV. THE ASSESSMENT OF ENFORCEMENT COSTS UNDER EU

COMPETITION LAW
Enforcement costs in reverse payment agreements
The reverse payment cases have concerned the practice by manufacturers of a first patent
protected originator drug to conclude agreements which have resulted in that manufacturers
of generic versions of the drug have been “paid off” to exit or stay outside of the market.36
Under certain conditions, both the Commission and the Union Courts have found these
agreements to constitute a type of horizontal market-sharing agreement, or expressed in a
different way, a form of cartel agreement. Importantly, these agreements have been put into
effect for the period after the original product patents have expired and when the originator
drug manufacturer may only have patents on manufacturing processes that provide weak pro-
tection against manufacturers of generics. In some of these cases, the reverse payment agree-
ments have followed litigation or a dispute over breach of the patent holder’s weaker patents.
Accordingly, the agreements have afforded protection for the patent holder against potential
infringements and/or prolonged a period of exclusivity or near-exclusivity. Once the generic
manufacturers have entered the market, normally the prices have dropped dramatically which
has been good for Member States as their health budgets have decreased as well as for end-
consumers.
The essential issue in all these cases have been how to establish that the agreements have
purported to divide up the market and supra-competitive profits between the parties and do
not constitute agreements which have genuinely aimed at resolving litigation and patent in-
fringement issues. In this context, the parties to the agreement have argued, in particular the
patent holder, that the losses incurred because of entry by generic manufacturers would be
greater than any compensation granted by patent laws in the hypothetical situation that the
patent holder would have won a case of patent infringement regarding the weaker process
patents. For this reason, patent holders have argued that the so-called reverse payments,
namely the payments from the patent holder to the generic manufacturer (the potential in-
fringer) and their, sometimes high level, could be justified by the fact that a patent holder
Commission Regulation (EC) No 240/96 of 31 January 1996 on the application of art 85 (3) of the Treaty to certain catego-
ries of technology transfer agreements, OJ [1996] L 31/2, arts 1(1)(6) and 2(1)(4) ; Commission Regulation (EEC) No
2349/84 of 23 July 1984 on the application of art 85 (3) of the Treaty to certain categories of patent licensing agreements, OJ
[1984] L 219/15, art 1(5).
35
TT Guidelines, para 15.
36
Case C-591/16 PH Lundbeck A/S and Lundbeck Ltd v European Commission (EU:C: 2021:243) (Lundbeck); mål C-307/
18 Generics (UK) Ltd m.fl. mot Competition and Markets Authority (EU:C: 2020:52) (Generics).
has more to lose than the infringer.37 Accordingly, the level of the payments that may be
seen as unjustifiable under competition law and as an indication of market sharing agreement
may in reality simply have reflected the risks of patent infringements and litigation between
the parties. Not surprisingly, the Union Courts have so far been unsympathetic to such
claims.
In Lundbeck, the patent holder complained that the agreement could not be classified as a

restriction by object as the patent settlement agreement delaying the entry by the generic
manufacturer fell inside the scope the process patent. Its holder was thus entitled to conclude
such an agreement as to settle the dispute. The Court confirmed the finding of the General
Court that stated it fell within the subject matter of the patent right to oppose infringements
of patent. However, it did not fall inside the scope of the patent to enter into market sharing
agreements. In particular, the Court found that the applicant’s argument rested on two
assumptions that have not been proven in the case. The first assumption was that the process
patents were valid. The second assumption was that the manufacturers of generics had
breached those process patents.38 In addition, the patent holder argued that the asymmetry
of risks described above, that the patent holder had more to lose than potential infringers,
meant that there was justification for the reverse payments and the level of those payments.
In response, the Court held that it is for public authorities and not private parties to ensure
compliance with statutory requirements.39 Accordingly, it was unacceptable for private par-
ties to mitigate the effects of legal rules that they consider excessively unfavourable by enter-
ing restrictive agreements purporting to offset those disadvantages.40
The reference by the Court to that it is for public authorities to ensure compliance with
statutory obligations is not easily understood. The statement originates from Generics which
concerned the possibility for the generic manufacturer to claim the revocation of the process
patent.41 The alleged market sharing agreement in question in Generics had terminated the
procedure of the revocation of the originator’s process patent.42 The argument made by the
Court, based on the Advocate-General’s opinion, was that the parties could contract away
the assessment of whether the requirements for a valid patent right were met or not.43
Arguably, the analogy to the situation in Lundbeck was that the parties could not by contract
avoid the assessment made by the national courts on the compensation for infringements of
the process patents by reaching a more equitable agreement between the parties.
Accordingly, finding such a purpose behind an agreement could not put to into doubt the
conclusion that the restriction was by object or that there was a restriction of competition.
What follows from Lundbeck and also Generics is that agreements which take into consider-
ation the negative effects from litigation, disputes on patent infringement and patent validity,
cannot justify restrictions of competition and cannot hinder such restrictions from being clas-
sified as restrictions by object. Such a view ignores the costs of enforcement and defense of
patent rights. As discussed in Lundbeck, enforcement costs were found to be outside the
scope of the patent rights, meaning that the application of competition law could not be per-
ceived as resulting in a discouragement effect. Accordingly, the application of competition
law could be viewed as not really interfering with IPRs. Viewing the same situation through
the lens of the decentralization argument, the problem for the organization of the innovation
37
ibid para 104; Case T-691/14 Servier SAS and Others v European Commission (EU:T:2018:922) (Servier), para 400.
38
Lundbeck paras 120–123.
39
ibid para 126.
40
ibidpara 127.
41
Case C-307/18 Generics (UK) Ltd and others v Competition and Markets Authority (EU:C:2020:52) (Generics) para 88.
42
ibid para 13.
43
Opinion of Advocate General Kokott delivered on 22 January 2020, Case C-307/18 Generics (UK) Ltd and others v
Competition and Markets Authority (EU:C:2020:28) (AG Opinion—Generics), para 114.
is that enforcement costs increase the burden on innovative activity. Importantly, there is a
great of uncertainty about the outcome of patent litigation, both regarding patent infringe-
ment and the validity of patents. Finding out the actual status of a patent or a potential in-
fringement comes to a cost. In addition, premature entry by patent infringement may
increase the costs for the patent holder, even if it later turns out that there was an actual
infringement.

Two important points should also be emphasized regarding reverse payment cases. First,
it may be that patent holders in these cases are simply trying to prolong the protection of the
products protected under the initial product patents (which have expired) with the enforce-
ment of process patents against generic manufacturers. While patent holders may find such
action justifiable because patent protection for the initial product patents are inadequate, it is
questionable whether a competition law analysis should view such prolonged protection as
legitimate. It should not be the role of competition authorities to tolerate restrictions of com-
petition that are solely meant to extend the period of patent protection under the initial but
expired product patent. In such context, the conclusion of reverse payment agreements could
be seen as being even more problematic under competition law as the process patents does
not actually promote innovation. If, however, the process patent brings added value in terms
of innovation, the problems caused by enforcement costs may have a negative impact on
incentives of patent holders to develop new processes of manufacturing drugs. Secondly, it is
important to acknowledge that generic manufacturers are not involved in the innovation pro-
cess. The situation thus differs from regular cases involving licensees in technology transfer
agreements which often are part of the organization of commercializing innovation, which
may justify their protection under competition law. Generic manufacturers that conclude re-
verse payment agreements and that take a share of profits from patent holders are being part
of cartel agreements when the payments are unrelated to the costs and risks of litigation.
Importantly, the balancing exercise conducted under competition law in the assessment of
the reverse payment agreements concerns solely the incentives of the patent holder to de-
velop new process technology (which are burdened by actual and potential costs of litiga-
tion) and the interest of having quick entry by generic manufacturers once the product
patents for drugs have expired.
It follows that there may be good reasons why the Court and the Commission have taken
a somewhat negative view on arguments based on enforcement costs by patent holders in re-
verse payment cases. However, it should also be acknowledged that enforcements costs may
have a negative effect on the incentive effects on the patent holder. Thus, it may be legitimate
to reach a settlement that may mitigate some of the negative effects, even if the licensee (the
generic manufacturer) is overcompensated. Importantly, such a stance does not provide a
free card to enter cartel agreements, but simply grants the patent holder more room to make
the settlement attractive to the generic manufacturer. Arguably, the fact that a generic manu-
facturer agrees not to enter the market applying the method covered by and during the life
of the process patent, must be seen as acknowledgment of (a high degree of likelihood of)
patent validity and infringement of that patent. The reverse payment must truly reflect an ap-
proximation of avoided litigation costs and the potential share of illegitimate profits an in-
fringer could capture because of the limits on compensation and damages for patent
infringements set by national rules.
It is questionable whether Lundbeck and Generics, at the moment, give room for the parties
to reverse payment agreement to present arguments based on enforcement costs. It could be
argued that such a position has nothing to do with calculations of the welfare effects of con-
tracts, but is rather explained by the Commission’s focus on resolving a problem with the
patent system which is more problematic: the presence of invalid patent rights that may
restrict competition.44 Such a view encompasses a biased view on patent rights which ignores
the more important question of whether a correct balance is made between promoting inno-
vation and the protection of competition.
Moreover, the claim that under competition law parties could not mitigate imperfections
in patent law seems inconsistent with how competition law normally works. It could be ar-
gued that competition law indeed considers imperfections of contract law and enforcement

into account. In a perfect world with a perfect legal system many of the problems with
free-riding and opportunism between contracting parties would not necessarily exist. As an
example, the Commission accepts that parties to a licensing agreement may protect their
technology transfer of know-how by prohibiting the other party from entering into a R&D
agreement with third parties.45 In a world with a perfect legal system and its enforcement,
agreements on confidentiality and secrecy should be sufficient to protect the parties’ trans-
ferred know-how. However, as this is not the case in real life, it appears to be acceptable un-
der competition law, at least to a certain extent, to permit the more far-reaching prohibition
on R&D cooperation with third parties. For this reason, the principled stance that imperfec-
tions in other bodies of rules, such as patent law, may not justify certain licensing restrictions
or certain types of agreements is not very convincing, even if it may be the ‘correct’ assess-
ment in most individual cases.
Finally, it is important to underline that the criticism presented above by this author is not
a criticism against the outcome in the individual reverse payment cases so far handled by the
Commission and the Union Courts. The essential point is that enforcement costs of patent
rights do not seem to be viewed as relevant for the protection of innovation when balancing
innovation vis-a-vis competition. Such a stance seems to be a too far-reaching protection of
competition which may have negative effects on innovation.
No-challenge clauses
An important element of IPRs, as already mentioned above, is that there may be great uncer-
tainty about their validity. The initial assessments made by authorities in the process of ap-
proving a registration are not exhaustive, unless other IPR holders engage in a procedure to
oppose registration. Even when the assessment made by authorities is more deep-going, as is
in the case of patents, it is probably not possible to make an exhaustive assessment of
whether the conditions for patentability are met. Ultimately, the validity of IPR will be de-
cided in court proceedings regarding disputes on infringements and/or validity of the IPR in
question. Naturally, as regards many IPRs, there will be no final assessment, as the IPRs in
question are not important enough and will have no impact on the market or competitors.
However, as regards other IPRs, there may be fierce litigation, eg if a patent effectively hinder
others from entering a market for particular product. In these cases, there may be a public in-
terest that the uncertainty about the validity of the IPR is resolved as an invalid right may ob-
struct competition instead of promoting it. In contrast, there may be little interest for the
IPR holder or the potential infringers to resolve disputes. As there may be great uncertainty
about both validity and infringement, it may be more beneficial for the IPR holder and the
potential infringer to settle a dispute of IPR infringement or validity. Moreover, when an IPR
holder needs to cooperate with other parties, there may be an interest to avoid future litiga-
tion and disputes. In both these situations, a no-challenge clause may be essential for both
type of agreements. To settle a dispute on validity, it is probably necessary to include a no-
challenge clause as the licensee would otherwise have the possibilities to at any time
44
Case 193/83 Windsurfing International Inc v Commission of the European Communities (EU:C:1986:75) (Windsurfing),
para 91; TT Guidelines, para 134; Generics, paras 81–82.
45
art 4(1)(d) TTBER.
re-engage in litigation. As regards a more long-term cooperation between the IPR holder and
the licensee for the commercialization of the protected object, it may be seen as problematic
if the licensee could behave opportunistically by challenging the validity of, for instance, a li-
censed patent right. In both these cases, it could be claimed that a no-challenge clause pur-
ports to promote the aim of the contract by a stability in the contractual relation between
the parties.

Under Article 101 TFEU the Commission and the Courts have dealt with no-challenge
clauses differently depending on the IPR involved in the case. For instance, it seems as no-
challenge clauses regarding trademark rights were generally viewed as unproblematic.46 This
applies probably because trademarks, as such, are seldom problematic from a competition
law perspective. As trademarks do not give an exclusive right for the use of particular prod-
uct, they would normally not result in market power. Trademark right and licenses may fore-
most be used for territorial market sharing, which is largely unconnected to matters of
validity of the trademark right, because a licensee would have minor incentives to engage in a
challenge against the validity of the trademark right. The situation is different as regards pat-
ents, design rights and copyright, which may provide protection for products and a whole
market. As copyright is not subject to registration, issues regarding the validity of registra-
tions do not come into play. As regards patent and design rights, these IPRs may result in
protection of products and in extreme cases a whole market. Apart from situations where a
design right may protect an aftermarket,47 normally there will be vital competition between
different designs, for instance in markets for clothing or accessories. The main problematic
issue in competition law cases is the use of no-challenge clauses regarding patents.
The Commission has taken quite a hard stance towards no-challenge clauses on patent
rights because of the public interest of getting rid of invalid patents described above. This is
illustrated by the statement of the Court in the so-called pay-for-delay cases that challenging
patent validity is a form of competition in the market.48 In the block exemption regulation of
agreements on technology transfer (TTBER), such clauses are explicitly subject to an indi-
vidual assessment.49 The same applies to a softer form of no-challenge clauses, so-called ter-
mination clauses that gives the licensor the right to terminate the licensing agreement if the
licensee challenges the validity of the patent. However, the accompanying guidelines to the
regulation (TT Guidelines), the Commission seems to presume that such clauses breach
Article 101(1) TFEU when the patent is valuable.50 This follows also the previous case-law
of the Court, where it has found that no-challenge clauses to be restrictive of competition.51
Moreover, it is also stated in the TT Guidelines that it is unlikely that a no-challenge clause
that breaches Article 101(1) TFEU can meet the requirements under Article 101(3)
TFEU.52 The only exception to the harsh approach towards no-challenge and termination
clauses is that termination clauses in exclusive licenses are block exempted.53
Obviously, it is true that there may be many patents out there that would be invalidated if
they were subject to patent litigation. Moreover, as stated by the Commission, when such
patents are valuable, they may restrict competition by companies that should freely be able
to use the technology. It is also true that licensees may be in a best position to make an
46
Commission Decision 90/186/EEC of 23 March 1990 relating to a proceeding under art 85 of the EEC Treaty (IV/
32.736 - Moosehead/Whitbread) OJ [1990] L 100/32 (Moosehead).
47
See eg Case 238/87 AB Volvo v Erik Veng (UK) Ltd (EU:C:1988:477) (Volvo/Veng).
48
Generics para 81.
49
art 5(1)(b) TTBER.
50
51
Case 193/83 Windsurfing International Inc v Commission of the European Communities (EU:C:1986:75) (Windsurfing),
paras 89–93.
52
53
art 5(1)(b) TTBER.
assessment of the (in)validity of the licensed patent rights as they together with the patent
holder are likely to have the best insight into the technology. However, the main problem
with an overly negative view on no-challenge clauses is that a patent holder may be disincen-
tivized to engage in a collaboration with potential licensees. In particular, if the patented
technology is valuable, there may be incentives for the licensee to litigate or to threat with lit-
igation. Importantly, it should not be presumed that just because litigation may occur, that

the patent is probably invalid. Patent litigation is costly and time consuming. It cannot be
presumed that the patent holder is the stronger and larger party. A strong licensee may well
have the financial strength to burden a smaller licensor with litigation.54 Such strength may
be used to pressure and renegotiate a licensing agreement rather than getting rid of invalid
patents. In addition, the possibility for licensees to engage in patent litigation may be detri-
mental to stability in the contractual relationship and discourage a closer collaboration, eg by
transfer of know-how related to the patented technology from the licensor to licensee, which
is good for the dissemination of the technology. Importantly, the TTBER permits termina-
tion clauses in exclusive licenses which is likely to reduce some of the problems mentioned
above.55 Nevertheless, the Commission’s balance of interest as described in the TT
Guidelines seems to constitute a strong negative view on no-challenge and termination
clauses which do not consider the issues related to enforcement costs discussed above.
Moreover, from an innovation perspective, it may seem ironic that the Commission seems
to have a more lenient view on the presence of no-challenge clauses in agreements settling
patent litigation that on ordinary technology transfer agreements concerning a closer collabo-
ration on the commercialization and dissemination of the licensor’s technology.56 As illus-
trated by the discussion on reverse payment agreements above, the consideration of
enforcements costs in the settling of patent disputes are generally merely related to the in-
centive effect which focuses solely on the patent holder. A closer and more long-term collab-
oration between the parties to commercialize technology may be more beneficial as both
parties play a role in the organization of innovation. In such a situation it may be more im-
portant to protect the collaboration and stability of the license arrangement by permitting
the presence of no-challenge and/or termination clauses. Such a collaboration may bring
about the positive effects of the agreement in terms of innovation in contrast to protecting
an agreement than only resolves a dispute between two parties which collaboration has no or
little positive effects on innovation. Such considerations are however not expressed in the
TT Guidelines.
Refusal to offer and conclude licenses on FRAND terms

The cases on refusal and conclude licenses on FRAND terms follow from several cases on
negotiation of licenses with a holder of a Standard Essential Patent (SEP), in particular the
judgment in Huawei.57 This case concerned the situation when an SEP holder has agreed to
license its SEP to Fair and Reasonable and Non-Discriminatory terms (FRAND).58 The idea
with a FRAND-obligation is to prevent a SEP-holder from exercising its market power from
refusing to license or to distort competition amongst its customers with discriminatory terms.
However, in practice it turned out that SEP-holders and a potential user sometimes have not
54
IB Ørstavik, ‘Technology Transfer Agreements: Grant-Backs and No-Challenge Clauses in the New EC Technology
Transfer Regulation’ (2005), 36 IIC 83, 102–103.
55
art 5(1)(b) TTBER.
56
57
Case C-170/13 Huawei Technologies Co Ltd v ZTE Corp and ZTE Deutschland GmbH (EU:C: 2015:477).
58
Communication from the Commission—Guidelines on the applicability of Article 101 of the Treaty on the Functioning
of the European Union to horizontal co-operation agreements Text with EEA relevance OJ [2011] C 11/1(Horizontal
Guidelines), para 285.
been able to agree on the terms of the license. Naturally, as these negotiations sometimes
have dragged on without the parties reaching an agreement, patent holders have ultimately
used patent law to enforce its SEP to ask for injunctions and damages. This has raised the is-
sue whether such enforcement constitutes an abuse of a dominant position under Article 102
TFEU. In essence, the main question to be answered in these cases is when a patent holder
or a potential licensee could be deemed to have acted in good faith to reach an agreement as

both parties could claim that the licensing terms offered by other party are unreasonable and
unfair.
The Commission took decisions in Samsung59 and Motorola60 before the Court made its
judgment in Huawei.61 As the judgment seemed to have raised more questions than were an-
swered, there has also occurred development after Huawei, but in national jurisdictions. One
issue has concerned when an offer could be classified to be on FRAND-terms. Other issues
have concerned the meaning of the different steps discussed by the Court in Huawei. The
Court has been criticized for not stating what FRAND is. However, it seems unrealistic that
the Court could have defined FRAND in sufficiently precise manner. FRAND is likely to var-
iate depending on the sector, the use of the technology and other market conditions.
Instead, the Court set a procedure that would determine when a breakdown in negotiations
that would result in that the SEP-holder’s claim for injunctions to stop users from applying
the patent protected technology would be classified as an abuse under Article 102 TFEU.62
Importantly, if the SEP-holder would comply with the requirements set out in Huawei, it
could legally, under Article 102 TFEU, to request an injunction against unlicensed users of
the technology. However, the uncertainty about the definition of FRAND and different steps
in the procedure described in Huawei, has still left room for national courts to take decisions
that could be viewed as inconsistent.
This article does not however purport to discuss a definition of FRAND or the intricacies
of the judgment in Huawei. Instead, the focus lies on the consideration of enforcement costs
as these may affect the possibility for technology to be disseminated and the SEP-holder to
organize innovation around standardization procedures and a FRAND-commitment. In par-
ticular, there is an argument that the costs for the SEP-holder to ‘chase’ unlicensed users in
multiple jurisdictions negatively affects the possibility to receive compensation for the li-
censed technology. At the same time, it could be claimed that if the SEP-holder would be
granted too strong enforcement rights, it would obstruct follow-up innovation and the com-
petition in downstream markets where the standard is used.
As stated above, the problem with enforcement costs is that it may be difficult for an SEP-
holder to surveil and act against breaches of its patent rights. Moreover, and similar to the
cases on reverse payments, even if an SEP-holder would win such a case, it is not certain that
they would get a compensation that would provide a fair return to its investments (the re-
verse hold-up problem). In this context, it must also be noted that the amount of compensa-
tion could vary depending on in which jurisdiction enforcement occurs. While one should
not go as far to claim that it may become more beneficial for users to drag out negotiations
and commit infringements in bad faith, it may be so that users may not have the adequate
incentives that would avoid enforcement costs for everyone involved. From such a perspec-
tive, Huawei determines the balance between the SEP-holder and the users that affects en-
forcement and negotiating costs. Placing the burden on the SEP-holder to actively pursue
59
Commission Decision of 29 April 2014, case AT.39939, Samsung—Enforcement om UMTS standard essential patents,
C(2014) 2891 Final (Samsung).
60
Commission Decision of 29 April 2014, case AT.39985, Motorola—Enforcement of GPRS standard essential patent,
C(2014) 2892 Final (Motorola).
61
Case C-170/13 Huawei Technologies Co Ltd v ZTE Corp and ZTE Deutschland GmbH (EU:C:2015:477) (Huawei).
62
Huawei, paras 60–71.
infringers of the SEP to make the first FRAND-offer before applying for an injunction
increases the cost of enforcement. This may decrease the revenues from SEP and negatively
affect the patent holder initial incentives to create the patented technology and the incentives
to engage in the standardization process. In contrast, placing the burden on the potential in-
fringer to make a FRAND-offer to the SEP-holder can give the latter the power to delay en-
try by refusing a license, eg on the ground that the offer made by the user is not FRAND.

The possibility for the SEP-holder to stop entry with an injunction may have serious
repercussions on the activities of the user with negative effects on market competition (and
potentially follow-on innovation). In addition, it could give a SEP-holder a strong negotiation
position to press the user to accept unfavourable licensing terms.
In this context, it is important to note that the standardization process is bound to give
SEP-holders market power, sometimes a dominant position, which may be used to extract ex-
orbitant royalties (the hold-up problem). In addition, in cases when the SEP-holder com-
petes with the users on the downstream market, it could use its market to engage in
providing unfair conditions or engage in an implicit refusal to supply that would result in a
competitive disadvantage for the users in the downstream market.63 The positive effects
from standardization stems from that standards are open to everyone and that they promote
competition (and follow-on innovation) in downstream markets. In particular, if a SEP-
holder gets in a position of market power after a formal standardization process, it could be
claimed that it is the only reason that the patent holder has emerged as a dominant company.
It would not have a position of market power without standardization. Accordingly, it would
be problematic if the SEP-holder would exploit market power that it would not have had in
the first place. In addition, if the SEP-holder easily could apply for an injunction against
users, there may be decreased incentives to comply with the FRAND-commitment. Such an
outcome would also deny the benefits of the standardization process on competition and the
dissemination of innovation recognized in competition law. From such a perspective, it
would perhaps make sense to put a more onerous burden on the SEP-holder as regards en-
forcement cost, as the predominant goal would be to promote competition and follow-up in-
novation in downstream markets. Arguably, this is also what the Court has done in Huawei.
The Court did not eliminate the possibility for the SEP holder to engage in a patent prohibi-
tory injunction procedure, which in practice seems to have been the position of certain US
courts in early cases. However, the Court did put a burden on the SEP holder to alert the in-
fringer and to be the first party to present a FRAND offer before requesting a prohibitory in-
junction.64 Thus, there is a threshold before patent holders can stop the activities of users
with an injunction. Importantly, this does not hinder SEP-holders from receiving compensa-
tion for the use of the SEP, but may increase the costs of detection of infringements and ne-
gotiation of licenses. To the extent that an SEP-holder would not have been a position of
market power in the absence of the standardization process, the costs of enforcement could
be seen as the price paid by the SEP-holder for its privileged position. The trade-off for the
patent holder is that its technology may have a wider spread through the standard, which
gives a higher revenue. In such a case, it may also be seen as reasonable that the SEP-holder
bears such a burden. On the other hand, if a patent holder has such an important technology
that it would have had an essential technology even without the standardization process, a
patent holder may have a stronger incentive to stay out of the standard. Potential users
would then be forced to approach the patent holder and could only force a license under the
refusal to license cases discussed above (section ‘Article 102 TFEU and the intersection’),
63
See eg Case C-165/19 P Slovak Telekom, as v European Commission (EU:C:2021:239).
64
Huawei, paras 61 and 63.
which is arguably much more difficult than under Huawei. Such an outcome could also have
negative effects on the dissemination of technology and follow-on innovation.
While there is no room in this article to make a more extensive analysis of the fleshing out
of the details in Huawei in national jurisdictions, all in all, it seems that the more general
stance of the Court regarding SEPs is justifiable regarding enforcement costs. While an SEP-
holder is more burdened with enforcement costs under Article 102 TFEU, it has (poten-

tially) been granted a position of market power (tolerated under competition law) in ex-
change for contributing to the dissemination of technology and follow-on innovation. Even if
the increased burden of enforcement costs may decrease the incentive effect, it could also be
argued the fact that competition law tolerates standardization increases the incentive effect
for the development of technology classified as SEPs. In addition, the main benefit of the
standardization process is the dissemination of technology to potential users and follow-on
innovators. As stated above, the decentralization argument view IPRs as instruments not
only concerned with initial incentives of patent holders but also with the organization of in-
novative activities, which would include dissemination of technology and follow-on innova-
tion. The balance struck in Huawei is arguably in compliance with such a view. The interests
of dissemination and follow-on innovation weighs more than the interests of the SEP-holder,
which could be justified that the higher value of the SEP is partly ‘artificially’ created through
the standardization process.
V. CONCLUSIONS
All in all, the stance of both the Commission and Union Courts could be claimed to ignore
or underestimate the importance of enforcement costs of IPRs, in particular patent rights.
Cases on reverse payments and the regulation of non-challenge clauses under the TTBER in-
dicate that reduction of enforcement costs are not seen as being relevant in the protection of
innovation. As regards SEPs, while Huawei arguably makes an appropriate balancing between
enforcement and follow-up innovation, the issue of enforcement costs is not really addressed
by the Court.
Arguably, the reluctancy to take enforcement costs into explicit consideration in the com-
petition law assessment illustrates a somewhat narrow view on the role of IPRs in the innova-
tion process. In practice, it seems as the Court and the Commission do not accept that the
incentive effect of IPRs should always be fully protected. In the application of Articles 101
and 102 TFEU to cases not concerning enforcement costs, it follows that competition is
sometimes favoured over protecting the initial incentives to create new technology.
Arguably, the cases on refusal to license give room for such an outcome. In addition, under
the application of Article 101 TFEU, the Court and Commission has sometimes recognized
the need of protecting the licensee justifying restrictions, which do not concern the incentive
effect. Moreover, all restraints that would fall within the scope of the patent, which normally
also increases the incentive effect, have also not been accepted. Accordingly, the assessment
of IPRs under competition law could be criticized for not protecting initial investments into
innovation. However, such an assessment can be explained and justified. IPRs can mainly be
viewed as instruments which decentralize innovation rather than instruments that merely
serve to generate a patent reward. Such a perspective is more flexible as it permits not only
the consideration of the incentive effect, but also the interests of other parties in the innova-
tion process (such as licensees), and follow-on innovation.
However, IPRs viewed as a method of decentralization also means that factors such as en-
forcement costs also should be part of the competition law assessment of the exercise and
licensing of IPRs. The risks and costs of enforcement of patent rights (like in the cases on re-
verse payments) may negatively impact the initial incentives to develop technology.
Likewise, such risks and costs may also negatively affect the stability of licensing agreements
in the collaboration to commercialize technology (like in the cases on no-challenge and ter-
mination clauses). Moreover, enforcement costs may also affect the willingness of patent
holders (like in Huawei) to enter into a standardization process which may negatively impact

both initial incentives to invest in R&D as well as the dissemination of technology.
The point in this article is not that the competition law assessment and the outcome in in-
dividual cases described above are necessarily faulty. The point made here is that costs of en-
forcement of IPR matter, but that the current framework of analysis is inadequate to make a
proper assessment of such costs.

Jnac 027

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Jnac 027

Uploaded by

Copyright:

Available Formats

Journal of Antitrust Enforcement, 2023, 11, i37–i56

Intellectual property rights, enforcement

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

C The Author(s) 2022. Published by Oxford University Press.

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

II. INTELLECTUAL PROPERTY RIGHTS AND THE COSTS OF

III. THE INTELLECTUAL PROPERTY RIGHTS–COMPETITION LAW

The general problem in the intersection

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

Article 102 TFEU and the intersection

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

Article 101 TFEU and the intersection

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

IV. THE ASSESSMENT OF ENFORCEMENT COSTS UNDER EU

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

Refusal to offer and conclude licenses on FRAND terms

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

Downloaded from https://academic.oup.com/antitrust/article/11/Supplement_1/i37/6713582 by guest on 17 August 2023

You might also like