Essential patents and free competition

Many inventions which are initially novel and unique, with the passing of time are enhanced and, eventually, the technological development turns them into a use standard for certain categories of goods or services. Technological development itself tends to standardization for enabling the generation of a scale economy within a process of equality of the agents that compete in the market and facilitating the international commerce and for reasons related to the social interest of offering a minimum guarantee of quality and reliability regarding the goods or services offered in the market in subjects so diverse as health, nutrition, environmental management, safety of diverse industrial or construction activities and transport operations, inter alia.

In this scenario emerge the so-called “Essential Patents” or “Standard Technology Patents”, that is, those patents which are necessary for using the standards resulting from the standardization process and which allow interoperability and interchangeability of different invented and developed products, particularly those of technological kind.  It is usually considered from a clearly technical perspective that manufacturers of technical products can avoid the use of non-essential technologies without sacrificing a key functionality of the apparatus or device, whereas in the case of the technology protected by an “Essential Patent”, it is not possible to disregard the use of said essential technology when manufacturing a product according to a technical rule recognized as standard, for example, for devices such as smartphones or tablets.

It is worth mentioning that owners of invention patents, in certain circumstances, try that their patent becomes a technological standard because a technology usually acquires greater value when it is massively adopted by its users instead of being one of the many alternatives that can be adopted in the market. In this sense, if a certain technology is recognized as a technological standard by the corresponding standardization entities or by self-declaration of a consortium of patent holders of a certain essential technology which is massively recognized by the public as such, this immediately confers an intrinsic value to the invention patent recognized as “essential”. In contrast, competent standardization entities generally require that holders of essential invention patents undertake that the technology made standard be put at the disposal of all agents of the market voluntarily granting a license for its use on fair, reasonable and non-discriminatory (FRAND) terms. If the technical standard is recognized as such by self-declaration of a consortium of patent holders of a certain essential technology, massively accepted as such by the public, the members of the consortium generally try to license this technology in the same fair, reasonable and non-discriminatory terms, in order not to be involved in legal proceedings for free competition violation.

Now then, the interaction between the development of patentable inventions and the standardization process is not friction-free, although, in theory, the invention patent protection system and the standardization process seek to encourage innovation and technological development. In the field of “Essential Patents” or “Standard Technological Patents”, the conflict occurs when the exercise of the exclusive rights in these patents lead to restrictive practices of free competition and/or when they get dominance positions as a result of their essential character in virtue of standardization.

As to the abusive exercise of dominance positions, it is understood that one or more companies enjoy a dominance position in the market, when they can act in an independent way regardless of their competitors, purchasers, clients or providers, due to factors such as the significant participation of companies in the respective markers, the features of the offer and demand of the products or services, the technological development or involved services, the access of competitors to financing sources and supplies, as well as to distribution networks.  This particularly happens when one or more companies, which are in a dominance position, act unduly with the purpose of obtaining benefits and causing damages to others, which would not have been possible if the dominance position did not exist.

It is considered that restrictive practices of free competition and/or abuse of the dominance position in the market exist when there is the arranged and unjustified refusal to satisfy the demands of purchase or acquisition, or the offers of sale or rendering, of products or services, the agreed limitation or control of production,  distribution, technical development or investments, and the application in the business relations of different conditions for equivalent contracts, which place some competitors in a disadvantageous situation compared to others.  Nevertheless, it is important to make clear that it is not a restrictive practice of free competition the granting of discounts and bonus which correspond to generally accepted business practices, granted for certain compensatory circumstances, such as advanced payment, considerable amount or volume of purchase or others granted on a general basis, in all cases where equal conditions exist.

According to the foregoing, it can occur that in the exercise of the rights in the “essential” patent of a technology invention in virtue of the standardization process, the patent holder intends to grant the license for using said standard technology under excessively onerous conditions or with unjustified inequality, thus preventing or making the access to said technology too much difficult and distorting the normal operation of the market. In general, it is legitimate that the patent holder exercises its exclusive rights in the invention in an unrestricted way while the patent is in force. Nevertheless, the situation is different when it is about “Essential Patents” in which the title holder voluntarily undertakes to grant a license on fair, reasonable and non-discriminatory terms while trying to get that its patent be considered a technological standard by the corresponding standardization entities and, even more, if said technology is finally recognized as a standard by said entities. The essence of the voluntary compromise of granting a license on fair, reasonable and non-discriminatory terms constitutes a recognition by the “essential patent” holder that, given the social purpose of the standardization process, a license of its essential patent will be granted in exchange for a fair, reasonable and non-discriminatory remuneration, unlike those patents which are not essential and with respect to which the owner has not offered a compromise of licensing the technology on fair reasonable and non-discriminatory terms.

Some examples of the way in which the behavior of the “essential patent” holder could have effects contrary to free competition are: (i) temporal prohibition of on-line sale of products by a certain agent in the market in respect of others that also have access to the technology of an essential patent; (ii) the inclusion of particularly onerous and/or different conditions for the use of the essential technology, in prejudice of a certain licensee compared to other licensees in the market; and (iii) a negative impact on the preparation of standardization rules; these ways of conduct could be considered illicit with respect to free competition.

In the foregoing cases, free competition rules could be applicable.