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Competition Law and Intellectual Property (I)

Ian S. FORRESTER,Q.C.

In the early days of European law, intellectual property rights were an inconvenience for the achievement of the Treaty’s prime competition law goal, which was market integration. Intellectual property rights were seen as the way by which companies might partition the common market to prevent free movement of goods between the 6 (and latterly the 9) Member States. The concern was not baseless, but resolving it required considerable encroachments on classical IP privileges. IP rights in Europe are territorial; so far there has been full harmonisation only in the area of Community trademarks, biotechnological inventions and plant variety rights (legislation on a Community patent is pending). Companies sought to use IP fights to prevent parallel trade in genuine products either to protect higher prices in the country where prices were higher, or to protect their territory in situations where the rights to sell a product had been divided among unrelated parties.

Thus the “abuse” of IP fights, as an instrument of territorial division was one concern. Another, which is today more controversial in classical competition law, is the “abusive” use of IP rights by a “dominant” company. As we shall see, the disparate nature of Europe’s IP rights (and the surprising privileges they can confer) has been critical in permitting the development of European competition law in this field.

The first phenomenon is illustrated by the early cases of Sirena v Eda1 and Hag2. In Sirena, the rights to use a trademark to a particular cosmetic brand had been sold by a US company to different companies in Italy and Germany before the entry into force of the Treaty of Rome. The Italian company applied for an injunction to prevent imports of the German cream into Italy. The European Court was asked for its advice on whether the agreement to split the trade mark rights could infringe Article 85 and whether the use of the trade mark to block imports could be abusive under Article 86. The Court ruled that Article 85 applies if the effects of the agreement to partition the common market were still in force, irrespective of the circumstance that the agreement between the Italian and the German owner and the American company were separate.3