Compulsory Licensing: A Violation of the Fundamental Principles of Intellectual Property Law? - Fordham Intellectual Property, Media & Entertainment Law Journal
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Compulsory Licensing: A Violation of the Fundamental Principles of Intellectual Property Law?

Compulsory Licensing: A Violation of the Fundamental Principles of Intellectual Property Law?

The granting of exclusionary rights to the inventor/author lies at the heart of intellectual property law. Since the development of antitrust law and the ever-increasing grants of patents and copyright protection, tensions exist between the interfaces of these two areas of law.  Society has addressed these tensions in a variety of ways and one of these solutions is compulsory licensing.  Despite the fact that compulsory licensing has been used to address the conflicts between antitrust issues and the exclusive rights of inventors/authors, the use of this solution is itself a controversial topic because it speaks to the question of whether compulsory licensing is a violation of the fundamental principles of intellectual property law.

Notwithstanding the frictions between these two areas of law, certain presumptions have been established.  For example, in Volvo v. Veng, the European Court held that “exercise by an owner of intellectual property rights of his exclusive rights, in particular his refusal to grant a license, cannot in itself be regarded as an abuse of a dominant position.”  Similarly, in Data General Corp. v. Grumman Systems Support Corp., the First Circuit held that “while exclusionary conduct can include a monopolist’s unilateral refusal 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.”  Several years later, the Federal Circuit took it even further in In re Independent Service Organizations Antitrust Litigation and held that a patentee’s refusal to sell or license its patented inventions does not violate antitrust laws irrespective of the intentions behind the patentee’s refusal.  These presumptions imply that the owner of an intellectual property right has the fundamental right to refuse to license or sell his protected intellectual property to any and/or all third parties.

However, that has not always turned out to be true.  For example, in IMS Health, the European Court of Justice held that an intellectual property right owner’s refusal to license its protected creation/invention constitutes as an “abuse of a dominant position” where three conditions are met:  the party requesting the license intends to offer a new product not provided by the intellectual property right owner and for which there is potential consumer demand; lack of objective considerations to justify the refusal; and the refusal effectively serves to eliminate all competition in the relevant market for the benefit of said owner. With this holding, the Court supported and clarified its decision in MaGill TV, in which the Court affirmed the lower court’s ruling that the appellants, RTE, ITP, and BBC, had to supply their copyrighted weekly program listings to MaGill TV subject to reasonable royalties.  The Court explained this affirmation by concluding that these weekly program listings, although under copyright protection by each appellant, was “indispensable raw material” for the new product that MaGill TV was trying to produce–a general, comprehensive weekly TV guide that included listings from all stations, a product that consumers would likely have been interested in.  Consequently, through their refusal to grant licenses to MaGill TV, the appellants “reserved to themselves the secondary market of weekly television guides by excluding all competition in that market” since they were the only sources of the weekly listings for each of their stations.

MaGill TV is an example of the application of compulsory licensing used to alleviate the clash between antitrust and intellectual property law.  Even though the above three conditions had to be met before the Court held that the appellants were required to release their weekly listings to MaGill TV, the Court’s order still violated the fundamental right of the appellants to the exclusive right of their copyright material as it forced the intellectual property owners to provide their copyrighted information to a third party.  This violation of the exclusive right of intellectual property law is obvious but the Court still decided to issue this order in order to prevent the anti-competitive effects in a secondary market that would have resulted from the appellants’ refusals.  The Court ruled in favor of antitrust law.  This then raises the following question–is compulsory licensing, a violation of an intellectual property owner’s exclusive right, consequently then a violation of the fundamental principles of intellectual property law?

The initial response is obviously yes.  If compulsory licensing violates an inventor’s exclusive right, then that automatically should imply that it also violates the fundamental principles of intellectual property law.  However, a closer, more detailed analysis provides a different answer.  Although the purpose of intellectual property protection is to give the intellectual property right owner exclusive right over his invention/creation, that is not the only facet of intellectual property law.  The reason for the provision of this exclusive right and the consequent protection it brings is to promote creativity.  This conference of exclusive right over an invention/creation provides individual members of society the incentive to come up with new or improved inventions/creations, whose entrance into the market then serves to increase competition.  When compulsory licensing is scrutinized within this context, a strong argument can be made that compulsory licensing does not in fact violate the fundamental principles of intellectual property law even if it negatively impacts the owner’s exclusive right to make, sell, distribute, or use its protected invention/creation.

First, it has been well established that an intellectual property right owner cannot use his patent or copyright protection to unreasonably extend his power in the relevant market. Specifically, an inventor/creator cannot use his patent or copyright protection to unreasonably restrain competition.  This clearly indicates that the exclusive right given to intellectual property right owners is not absolute and that owners are restricted by certain limitations.  Compulsory licensing is an example of such a limitation.  Compulsory licensing is not always ordered whenever a conflict rises that involves both antitrust and intellectual property issues.  For example, in the European Union, three conditions must be met before compulsory licensing can even be considered as a solution.  Furthermore, allowing an inventor/creator to continue to refuse to license its protected intellectual property to third parties when that refusal leads to a monopoly or unreasonably restrains competition in some way clearly goes against the prohibition against intellectual property owners from using their protection to establish an unfair advantage over other competitors.

Second, compulsory licensing preserves the monetary benefit of the intellectual property right owner’s exclusive right.  Even though the owner is obligated to license his invention or creation at a reasonable royalty, the owner is still the only entity that can receive such royalties.  The monetary compensation received by the owner through compulsory licensing will be fairly comparable to that received by it were it to have voluntarily agreed to license its invention or creation.  Therefore, this monetary compensation should suffice to preserve the goal of stimulating creativity within society.  Potential inventors are still aware that even if their creations should be subject to compulsory licensing, they will still receive royalties for the license.  The monetary benefit of an intellectual property right is certainly not eradicated by compulsory licensing.

Compulsory licensing acts as one of the solutions to ensure that intellectual property owners do not monopolize a market or use their conferred protection to unfairly restrain trade.  These prohibitions have been well established in order to ultimately benefit society as a whole by promoting competition and ensuring that consumers benefit from the advantages of an open market.  Additionally, compulsory licensing protects the monetary benefit gained by the intellectual property owner’s exclusive right in the form of reasonable royalties.  This compensation consequently acts in a way to preserve the exclusive right of the intellectual property owners because they are the only entities to receive these royalties.  This then functions to ensure that creativity and ingenuity are still encouraged.  These two effects of compulsory licensing support the conclusion that it does not violate the fundamental principles of intellectual property law because inventiveness continues to be fostered while ensuring that intellectual property protection is not used to unreasonably restrain competition.  Consequently, the United States, similar to the European Union, should consider incorporating compulsory licensing into its intellectual property arena.

Lydia Choi

Lydia Choi is a 2L student at Fordham Law. She obtained a B.S. in biochemistry and a M.S. with a thesis in synthetic organic chemistry from Syracuse University. She is interested in patent prosecution and hopes to practice in California.