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Tenth Circuit holds IPRs defense available to rebut a refusal to deal antitrust claim

By Valerio Cosimo Romano

On 31 October 2016, the United States Court of Appeals for the Tenth Circuit (the “Court of Appeals”) held that the invocation of IPRs is a presumptively valid business justification sufficient to rebut a refusal to deal claim.

The case involved a dispute between a software company and the developer of aviation terminal charts (which provide pilots with the information necessary to navigate and land at a specific airport). The developer holds copyrights for portions of its charts, which use a proprietary format. The parties negotiated and executed a license and cooperation agreement under which the developer would waive its standard licensing fee and grant the software company access to proprietary products that facilitate the integration of the developer’s terminal charts into third-party systems. In exchange, the software company would create a data management reader that works in conjunction with an e-book viewer. After the execution of the agreement, the software company registered with Apple as a software application developer and requested the necessary toolkit from the developer to develop an app. The developer did not provide the toolkit. Rather, it announced it had created its own app, offered to its customers at no additional cost beyond their terminal chart subscription fee.

The software development company sued the developer. The district court granted summary judgment for developer on the antitrust claims but denied summary judgment on the remaining claims for loss of profits, awarding more than $43 million in damages. The developer appealed, challenging only the district court’s ruling related to the loss of profits. The software company cross-appealed, challenging the dismissal of its antitrust claims, alleging a single anticompetitive conduct consisting in a refusal to deal, in violation of § 2 of the Sherman Act.

To determine whether a refusal to deal violates § 2, the Court of Appeals first looked at market power in the relevant market, in which the court assumed that the developer enjoyed monopoly power. Second, the Court of Appeals looked at the use of the product, and concluded that the assertion of IPRs is a presumptively rational business justification for a unilateral refusal to deal. In its legal reasoning, the Court of Appeals relied on the approach taken by both the First and Federal Circuits in Data General and Xerox, respectively. In Data General, the First Circuit held that while exclusionary conduct can be pursued by refusing to license a copyright, an author’s desire to exclude others from use of its copyrighted work is a presumptively valid business justification for any immediate harm to consumers. In Xerox, a Federal Circuit declined to examine the defendant’s motivation in asserting its right to exclude under the copyright laws, absent any evidence that the copyrights were obtained by unlawful means or used to gain monopoly power beyond what provided for by the law. Quoting Novell and Trinko, the Court of Appeals also recognized the existence of a limited exception, available only where the plaintiff can establish the parties had a preexisting, voluntary, and presumably profitable business relationship, and its discontinuation suggests a willingness to forsake short-term profits to achieve anti-competitive ends. On this last point, the Court of Appeals held that the software developer did not present any evidence.

Therefore, it concluded that the developer did not have an independent antitrust duty to share its intellectual property with the software company. Consequently, it reversed and vacated the jury’s award of lost profits, but affirmed the partial summary judgment on software company’s antitrust claims.

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Samsung alleges that Huawei used FRAND promises to monopolize smartphone technology

By Nicole Daniel

In an ongoing dispute, Samsung accused Huawei of breaching its patent licensing commitments in order to gain control over the market for commonly used cellular technologies.

In May 2016 Huawei sued Samsung in the U.S. and in China for infringing 11 standard essential patents for smartphones. The technology covered by these patents is allegedly used in almost all of Samsung’s cell phones. Huawei seeks damages in the U.S. proceeding; however merely seeks injunctions in the Chinese proceeding. In this regard, it must be noted that Chinese courts are becoming increasingly involved in patent disputes between big technology companies.

In July 2016 Samsung in turn sued Huawei in China for infringing six of its patents. In August 2016 Samsung responded to the U.S. lawsuit and filed antitrust counterclaims. Samsung accuses Huawei of breaching its promise to license the patents on FRAND terms thereby getting an unlawful monopoly over 3G and 4G wireless device technology. Furthermore, Samsung accused Huawei of patent infringement for 11 smartphone patents that may already be or may become essential to cellular technologies. Samsung also argued that two of Huawei’s patent infringement claims should be dismissed, since the underlying intellectual property are unpatentable math formulas.

Samsung further argued that Huawei merely sued for injunctions in China to gain leverage in licensing negotiations in other areas of the world.

Samsung is seeking damages as well as injunctions to block the injunctions sought by Huawei.

At a court hearing on 13 September 2016 in San Francisco, District Judge William Orrick said that he was not inclined to break up the patent and antitrust dispute between the companies to allow Huawei to seek a court-ordered global FRAND license rate for its patent portfolios prior to litigation over the alleged patent infringement and Samsung’s antitrust counterclaims. However, Judge Orrick allowed Huawei to argue for bifurcation by filing a five-page brief within the next week.

Judge Orrick then set a case schedule for a trial starting in two years on 17 September 2018. He also urged the opponents to settle the dispute sooner than that, noting that their plan to delay mediated settlement talks until deeper into the litigation proceedings was counterproductive. Furthermore, filing numerous lawsuits against each other to resolve their differences “is not the wisest way of dealing with the problem” that the companies have with each other.

Google formally investigated on Android operating system and applications

By Gabriele Accardo

On 20 April 2016, the European Commission issued a statement of objections (see also the fact sheet, and infographic) to Google and its parent company, Alphabet, based on the preliminary view that Google has implemented a strategy on mobile devices to preserve and strengthen its dominance in general internet search, allegedly in breach of Article 102 of the Treaty on the Functioning of the European Union that prohibits the abuse of a dominant position that may affect trade and prevent or restrict competition, substantially upholding what the Commission had stated when it opened the investigation (for additional background, see Newsletter issue 2/2015, p. 6).

According to the Commission’s preliminary findings, Google is dominant in the markets for general internet search services, licensable smart mobile operating systems and app stores for the Android mobile operating system, with more than 90% market share in each of these markets.

The allegedly abusive practices carried out by Google are three-fold:

  • requiring manufacturers to pre-install Google Search and Google’s Chrome browser and requiring them to set Google Search as the default search service on their devices, as a condition to license certain Google proprietary apps;
  • preventing manufacturers from selling smart mobile devices running on competing operating systems based on the Android open source code;
  • giving financial incentives to manufacturers and mobile network operators on the condition that they exclusively pre-install Google Search on their devices.

Besides consolidating Google’s dominant position in general internet search services, these practices may affect the ability of competing mobile browsers to compete with Google Chrome, and hinder the development of operating systems based on the Android open source code and the opportunities they would offer for the development of new apps and services.

This investigation is distinct and separate from the Commission’s ongoing formal investigation under EU antitrust rules on other aspects of Google’s behavior in the EEA, including the favorable treatment by Google in its general search results of its own other specialized search services (see Newsletter issue 2/2015, Newsletter 1/2014Newsletter 5-6/2013Newsletter No. 2/2013Newsletter 2/2010, for additional background), and concerns with regard to the copying of rivals’ web content (known as ‘scraping’), advertising exclusivity and undue restrictions on advertisers.

Italian Competition Authority investigates alleged abuse in the market for professional legal software

By Gabriele Accardo

On 20 May 2016, the Italian Competition Authority (ICA) launched an investigation (text only in Italian) against Net Service, holding that the company may have carried out allegedly abusive practices in the market for software applications used to create and manage online legal documents and files on the online civil proceedings platform, in breach of Article 102 of the Treaty on the Functioning of the European Union.

The ICA found that Net Service had been granted the contract (extended in various instances until today) to build, manage and service the infrastructure used to manage online civil proceedings, and as a result, the company gained a dominant position (a monopoly) in such (upstream) market.

Besides being the exclusive service provider of that online platform, Net Service also develops software applications that are used to create and manage online legal documents and files on the platform for online civil proceedings. In such (downstream) market, Net Service holds a 30-35% market share.

According to the ICA, Net Service has put in place certain allegedly abusive practices on the downstream market against competing developers of software applications, leveraging its dominant position held in the upstream market for the management of the platform, ultimately seeking to foreclose competing software applications providers.

In particular, Net Service did not provide its competitors all the technical information required in a timely and complete fashion to ensure full interoperability between the online platform and the software applications that can run on such platform.

In addition, Net Service had made available a model office (that is a working prototype of the product that shall be used for testing) to competitors different from the one Net Service uses to develop its own software applications.

Finally, Net Service either installed patches without informing competitors about the problems the patches would fix, or did not even inform about the existence of the patches altogether.

As a result of such practices, competing software application developers would only be able to develop a final functioning version of their own applications after Net Service has released its own products. This entails an advantage in terms of marketing of about one year since Net Services releases its products, whereas in practice, professional users of legal software applications appear to consider Net Services as the most reliable provider of such software applications.

The ICA considers that Net Service has an obligation to share the same technical information on which it relies on to develop its own software applications, so that competitors are able to offer new and reliable products, thus allowing consumers a wider and better choice of products.

Joint report on competition law and Big Data, and the Facebook investigation

By Gabriele Accardo

On 10 May 2016, French and German Competition Authorities published their joint report on competition law and Big Data. Separately, the French Competition Authority announced the launch of a full-blown sector inquiry into data-related markets and strategies.

The joint report provides an overview of how the two authorities would look at relevant competition issues raised by the collection and commercial use of data, in particular the assessment of data as a factor in establishing market power

Interestingly, the authorities make reference to established antitrust principles (e.g. data as a barrier to entry, or use of data in exclusionary or exploitative abuses), and not to new theories to look at such issues. In fact, a number of past cases illustrates how competition authorities have analyzed the “data advantage” in “non-digital” markets, and provides useful guidance on which issues the authorities are likely to focus on in future cases.

While it is noted that there are several possible “data-based” conducts, whether exclusionary or exploitative, which may lead, depending on the circumstances, to enforcement action, however, the theories of harm underlying the prohibition of such conducts are premised, mainly, on the capacity for a firm to derive and sustain market power from data unmatched by competitors. Yet, before concluding whether a company’s “data advantage” has created or strengthened market power, enforcers should undertake case-specific assessments on whether data is scarce or easily replicable, and whether the scale and scope of data collection matters.

Two considerations are worth singling out.

First, the two authorities recall that refusal to access to data can be anticompetitive if the data is an essential facility to the activity of the undertaking asking for access. Based on existing EU case law, compulsory access to essential facilities can be granted only in exceptional circumstances as even a dominant company cannot, in principle, be obliged to promote its competitors’ business. In this context it is further noted that access to company’s data may raise privacy concerns as forced sharing of user data could violate privacy laws if company exchange data without asking for consumer’s consent before sharing their personal information with third companies with whom the consumer has no relationship.

Secondly, with specific regard to privacy concerns, it is recalled that under EU case law, any issues relating to the sensitivity of personal data are not, as such, a matter for competition law, but may be resolved on the basis of the relevant provisions governing data protection. Still, according to the two authorities, Decisions taken by an undertaking regarding the collection and use of personal data can have parallel implications on economic and competition dimensions. Therefore, privacy policies could be considered from a competition standpoint whenever these policies are liable to affect competition, notably when they are implemented by a dominant undertaking for which data serves as a main input of its products or services. In such instances, there may be a close link between the dominance of the company, its data collection processes and competition on the relevant markets, which could justify the consideration of privacy policies and regulations in competition proceedings.

For instance, looking at excessive trading conditions, especially terms and conditions which are imposed on consumers in order to use a service or product, data privacy regulations might be a useful benchmark to assess an exploitative conduct.

Facebook investigation in Germany

The presence of excessive trading conditions is the underlying theory of harm for the investigation launched by Germany’s Federal Cartel Office (FCO) Bundeskartellamt into Facebook to assess whether it has abused its dominant position in the market for social networks through its specific terms of service on the use of user data. In particular, the FCO will assess whether Facebook’s position allows it to impose contractual terms that would otherwise not be accepted by its users.

Andreas Mundt, President of the FCO, stated that dominant companies are subject to special obligations, including the use of adequate terms of service as far as these are relevant to the market. For internet services that are financed by advertisements such as Facebook, user data is very important. For this reason, it is essential to also examine the abuse of market power and whether consumers are sufficiently informed about the type and extent of data collected.

In order to access the social network, users must first agree to the company’s collection and use of their data by accepting the terms of service. It is difficult for users to understand and assess the scope of the agreement accepted by them. According to the FCO, there is considerable doubt as to the admissibility of this procedure, in particular under applicable national data protection law. If there is a connection between such an infringement and market dominance, this could also constitute an abusive practice under competition law.

The FCO is conducting the proceeding closely with the competent data protection officers, consumer protection associations as well as the European Commission and the competition authorities of other EU Member States.

Microsoft and Google make up

By Nicole Daniel

On 22 April 2016, Microsoft and Google announced that following their patent settlement, they have decided to end their long-running feud.

Microsoft’s spokesperson said that Microsoft will withdraw its regulatory complaints against Google. This step reflects its changing legal priorities. Google’s spokesperson said that the two companies came to an understanding that they wanted to compete on the merits of their products as opposed to legal proceedings.

In fall 2015, the two companies have since entered into a settlement agreement thereby dropping a number of patent lawsuits in the US and Germany.

Complaints to be dropped by Microsoft include a complaint filed in 2011 at the European Commission and complaints filed in Latin America.

This announcement is a further sign that the so-called worldwide smartphone wars are indeed winding down.

Google wins fight against Streetmap

By Nikolaos Theodorakis

Google secured a legal victory on February 12, as a London court ruled that a clickable map display box on the company’s search page did not harm competition.[1] In essence, the court rejected Streetmap’s allegations that the thumbnail display resulted in granting preferential treatment for Google Maps.

A London High Court handed down the judgment following a two-week preliminary trial in November. Streetmap, a UK provider, accused Google that it abused its power via bundling Google Search with Google Maps. In fact, Streetmap alleged that its traffic drastically dropped following Google’s action to automatically display a clickable thumbnail map once someone searches for a specific address or venue. This practice began in 2007, and Streetmap associated it with a huge loss of traffic and, consequently, profit. It claimed that its market share significantly shrunk, and is not on the verge of collapsing, as a result of Google’s policy.

Streetmap argued that, by using the thumbnail display, Google did not compete on the quality of its map service and that it should have displayed third-party maps in its search results. Google counter-argued that it bears no obligation to incorporate other maps in its results. It argued that in fact, thumbnail maps benefit consumers and form an integral part of its search service. Such conduct improves the quality of its service and makes Google more appealing to customers. It also argued that thumbnail maps do not amount to bundling or unjustified discrimination.

Mr. Justice Roth ruled that Google’s introduction of the new-style Maps OneBox in 2007 was “not reasonably likely appreciably to affect competition in the market for online maps” and that Google’s conduct was “objectively justified”. The judge found that, assuming that Google held a dominant position, it did not commit an abuse. His argument was that “…on consideration of all the evidence that the introduction of the new-style Maps OneBox in June 2007 did not in itself have an appreciable effect in taking customers away from Streetmap.” Further, “if contrary to my primary finding, it was likely to have such an effect, Google’s conduct in that regard was objectively justified.”

The judge also held that Streetmap did not appear to regard the thumbnail maps as a threat to its ability to compete for several years. Since the party most closely involved in the market, and hence most at risk, did not pursue a case earlier, they are unlikely to be actually affected by Google’s policy. In other words, if Streetmap was actively affected by the thumbnail map practice, it would have reacted sooner.

In reaction to the decision, Google said that the court recognized that the company is trying to improve the quality of its services and that the decision altogether promotes innovation. Streetmap, on the other hand, argued that the subject matter of the case belongs to a new field of competition law that merits further legal exploration. Streetmap further suggested that the judge did not apply the appropriate tests to determine whether there has been an effect in the relevant markets and if Google rightfully did so.

In terms of future steps, Streetmap plans to turn to the Court of Appeal since the High Court judge dismissed its entire claim and declined permission to appeal the judgment. The company asked for 35 days to bring the case before the Court of Appeal and further challenge the case.

In particular, Streetmap wishes to appeal the judgment on two grounds: first, Streetmap claims that the decision is unfavorable for small businesses since it raises the threshold of information required to prove causal effect. If the standard of proof rises from probability to appreciable effect, then a complainant needs to have information that will, under normal circumstances, only be known to the dominant company. In other words, raising the burden of proof will make it more difficult to establish a violation. Second, Streetmap suggests that Google is not compliant vis-à-vis its legal obligations since it did not conduct a UK test when introducing Google Maps to examine what would the effects be on the market. Instead, it relied on the effects its service had on the U.S. market, which does not necessarily reflect the UK market reality.

This case settles Google’s obligations in connection with its dominant position in the mapping context, at least for now. On a relevant note, Google is facing two ongoing antitrust investigations with the European Commission: one into allegations that the company gives preference to its own services in search results, and the other into alleged restrictions on its mobile-operating system, Android.

[1] Link to the case available here: http://www.bailii.org/ew/cases/EWHC/Ch/2016/253.html