European Competition Law Newsletter – June 2014

June 2, 2014

European Commission Sets Out Framework for Enforcement of SEPs

On 29 April 2014, the European Commission (EC) handed down two decisions dealing with the application of EU competition law to the enforcement of “standard essential patents” (SEPs). The principles outlined in the cases are relevant to any industry in which standards are used.

SEPs are patents that are technically essential to implementing a specific standard; in practical terms, it is not possible to manufacture products, such as mobile phones or tablets, that comply with the standard without using such patents. In order to comply with competition law, holders of SEPs who are willing to be included in a standard must commit to giving access to their technology and to doing so on fair, reasonable and nondiscriminatory (FRAND) terms.

The two decisions relate to enforcement of SEPs in the telecommunications sector by, respectively, Motorola Mobility and Samsung Electronics. They confirm that, for the purposes of EU competition law, recourse to injunctions is generally a legitimate remedy for patent infringements. However, the seeking of injunctions may be an abuse of dominance, and therefore illegal, when two conditions are met: First, an SEP holder has given a commitment to license on FRAND terms during standard-setting; and second, the potential licensee is willing to enter into a licence on FRAND terms.

These cases won’t be the end of the story on SEP enforcement. In the future, patent owners no doubt will argue that their particular cases are, on the facts, different. For example, it probably will not be abusive to seek an injunction if the potential licensee cannot pay, doesn’t have the assets to exploit the innovation or is unwilling to negotiate. There is still considerable room to play and to argue.

European Commission Makes it Easier to Obtain R&D&I Aid in the EU

Rules adopted on 21 May 2014 by the EC will make it easier for EU member state governments to provide state funding (aid) for research, development and innovation (R&D&I) in their countries.

The sums involved are significant. In total, R&D&I state aid awarded under the old rules (from 2007) amounted to over €62.4 billion. Companies involved in or considering R&D&I investments of any nature in the EU should make themselves aware of the new state aid rules (and Horizon 2020, which governs funding by the EU itself).

The main changes to the EU state aid rules are: There is an expanded list of types of aid that are automatically allowed; there will be much higher notification thresholds (below which specific approval from the EC is not needed); there will be higher permissible aid levels, or "aid intensities" (for example, member states will be allowed to grant aid for applied research for up to 90 percent of the eligible costs of a project); and the operation of the regime has generally been simplified.

Application of Competition Law to Use Restrictions in a Commercial Lease

A UK court recently considered the application of UK competition law to proposed use restrictions in the commercial lease of retail premises. Since competition law principles are generally the same throughout the EU, the case is relevant in any EU member state.

The case concerned a proposed permitted-use restriction in a lease renewal. The landlord (who owned the other shops in the immediate local area; a “parade” of shops) proposed that the permitted uses of the premises should expressly exclude the sale of alcohol, groceries, fresh food and other convenience goods. The tenant, a newsagent/tobacconist who wanted to compete with one of the other shops by selling convenience goods, argued that the proposal was unlawful on the grounds that it was prohibited by UK competition law and therefore would be void and unenforceable.

During the trial, the landlord conceded that the clause as proposed would be prima facie anti-competitive under the relevant provisions of UK competition law. The judge stated this this was correct because the effect of such a clause, in the context of the letting scheme used for the parade, would be to restrict competition in the sale of convenience goods. Under the letting scheme, the tenants were subject to reciprocal obligations protecting each of them from competition by the others in the parade.

This left the issue of an exemption under UK competition law, should the countervailing benefits outweigh the anti-competitive effects. The judge found that, based on the facts, an exemption was not available.

UK Regulator Considers Abuse by Leveraging Dominance into a Downstream Market

On 22 May 2014, Ofwat (the UK water sector regulator) opened a consultation on proposed commitments from water supplier Bristol Water PLC. If formally accepted by Ofwat, these commitments would deal with concerns about Bristol Water abusively leveraging a dominant position (in breach of UK competition law) in certain upstream services to harm effective competition for certain downstream services for which it competes with third parties.

This is a rare example of a vertically integrated company being found (albeit provisionally, and with no formal finding likely) to be leveraging its upstream dominance into downstream markets. The same principles apply throughout the EU.

Bristol Water is the monopoly provider in its geographic area of certain upstream, noncontestable services (supply and maintenance of water infrastructure). Downstream, it competes with independent third parties (self-lay organisations or SLOs) to provide new connections infrastructure. As a result, where a property developer customer asks Bristol Water (instead of an SLO) to provide new water infrastructure, Bristol Water effectively provides noncontestable services to itself so as to facilitate those services over which it competes with SLOs.

Following complaints, Ofwat identified four specific competition concerns related to Bristol Water’s conduct that potentially could restrict entry and expansion of competitors in the provision of new water connections. The main commitments offered by Bristol Water are structural and process commitments designed to recognise that Bristol Water’s own downstream developer services function competes with SLOs and that both are customers of Bristol Water’s noncontestable (dominant) upstream services.

Additional European competition law news coverage can be found in our news section.

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