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Competition Law and IPRs in Russia: Three years at a crossroad

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It is difficult to imagine economic development without innovation. However, competition is closely related to innovation too. At the same time, in spite of the importance of IPR protection for the flow of innovations, the interplay between competition and IPR protection is not simple. This was recognized both in research studies (for instance see: Crampes, Encaoua, Hollander, 2006; Regibeau, Rockett, 2011) and guidelines for antitrust law enforcement (U.S. DOJ, FTC, 1995, European Commission, 2004 a,b). This is so because IPRs might be used in order to restrict competition. This is why in developed and experienced jurisdictions there is not a total exemption for unilateral conduct and anticompetitive agreements as far as competition restrictions based on IPR use is concerned.
This fact is used as an argument in discussions for the upgrade of antitrust laws in emerging market economies with much less experience in antitrust and which are faced with more complicated issues for balancing it with other directions of economic policy (first of all, active competition policy, industrial policy). One notable example is Russia, where at the moment the federal law “On competition protection” (OCP) adopted in 2006 replacing the two previous basic laws (1991 and 1999), contains two exemptions for IPRs: (1) part 4 of article 10 for abuse of dominance[1] and (2) part 9 of the article 11 for anticompetitive agreements[2]. The issue of what has to be done with the IPR exemption has been vividly and publicly discussed at least for the last three years. The first round of discussions (2010-2011) led to a widening of the exemptions from only unilateral conduct to also include anticompetitive agreements within the so-called third antitrust package. However, within the subsequent amendment discussion (2012-2013) – “the fourth antitrust package” – the Russian antitrust authority (Federal Antimonopoly Service, FAS) insisted not simply on the total removal of the exemptions mentioned above but also on the adoption of a special legal norm about OCP applicability in relation to IPRs. This proposal was rejected. It doesn’t mean there is no FAS jurisdiction related to IPR. The OCP contains article 15 prohibiting unfair competition. However the main focus here is antitrust law.
Right now – in January-February 2014 – there is a new round of discussions with a novel option suggested: there should not be any direct mention in OCP about its applicability in relation to IPR use. In fact, these issues will be dealt by enforcement practice – both administrative and judicial. Is this better than the status quo? This practical question is directly related to the theoretical one: is there a way to improve the balance of errors of type I & II in OCP enforcement? And, as a consequence, is there a way to improve deterrence with regard to anticompetitive activity?
Inter alia, the answer to this question depends on (1) the recognition or the defiance of other aspects of the national antitrust regime or, more widely, competition policy regime, (2) the (non)applicability of the idea of importing institutions (borrowing best practices), taking into account not only norms as such but also enforcement mechanisms (North, 1990, p.3).
Recognition of other significant aspects (embededness) means at least taking into account issues of unfair competition and the degree of IPR violation in general, from the perspective of particular kinds of IPRs and objects covered by IPRs and sectors of goods/services production. Assuming that the erosion of IPRs is not basically strategic from the part of rights holders, is this a reason for a relaxed antitrust regime for IPR holders as it was mentioned above? A simple comparative analysis of four potential regimes demonstrates the worst results of strict antitrust and weak IPR protection (based on the example of unlawful copying) (Shastitko, Kurdin, 2011, 2013). Strengthening the IPR protection from unlawful use is a necessary condition for a stricter antitrust regime. From this point of view, the scale of type II errors in the area of unfair competition is an obstacle to increase deterrence, due to the risk of type I errors in case of removal of exemptions for antitrust bans in the sphere of IPR. Why is that?
First of all, it might be explained based on the criticism of the naïve theory of importing institutions in which managing the problems identified in one country is realized through the transfer of the best practices from other countries. But best practices are understood as the set of rules of the game. At the same time, mechanisms of enforcement do matter. In the case discussed, it relates (at least) to (a) evidence standards and (b) ways particular legal concepts, such as collective dominant position, are used in competition law enforcement in order to avoid errors of type I & II.
As in (Avdasheva, Kruychkova, 2013), it has been demonstrated that the FAS has limited capacities to process complaints and select the most important ones in order to continue investigations and make balanced decisions. This is an important source of type I errors deteriorating deterrence according to the conclusion reached in (Garoupa, Rizolli, 2012) as a general statement.
The second point is also important: the way the concept of collective dominance has been used in competition law enforcement. Details are considered in (Shastitko, 2011). This is also a source of errors of type I, due to the prevalent areas of enforcement selection: abuse of dominance instead of merger control. Moreover, the specific feature of the main antitrust case against the “big four” (main Russian oil companies) was the exploitation of the individual abuse of dominance under collective dominance, which was not somehow related to explicit or implicit collusion.
Summing up the hypothesis: although current Russian antirust legislation is not in line with EU and US as far as IPR are concerned, the status quo, ceteris paribus, is better – from the perspective of errors of types I&II balance – than the removal of the exemptions for IPRs.

References

Avdasheva S., Kruychkova P (2013). ‘Reactive’ Model of Antitrust Enforcement: when private interests run the actions of executive authority (case of Russia). // The paper presented for The 11th annual International Industrial OrganizationConference http://editorialexpress.com/conference/IIOC2013/program/IIOC2013.html#97
Crampes .C., Encaoua D., Hollander A.(2006) Competition and Intellectual Property in the European Union, Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr“>http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
European Commission (2004a). Commission Regulation (EC) No 772/2004 of 27 April 2004 on the application of Article 81(3) of the Treaty to categories of technology transfer agreements // Official Journal of the European Union. April 27, 2004. P. L123/11 – 17.
European Commission (2004b). Guidelines on the application of Article 81 of the EC Treaty to technology transfer agreements // Official Journal of the European Union. April 27, 2004. P. C101/2 – 42.
Garoupa N., Rizolli M. (2012). Wrongful Conviction Do Lower Deterrence. Journal of Institutional and Theoretical Economics 168: 224–231.
North D. (1990). Institutions, Institutional Change and Economic Performance, Cambridge University Press.
Regibeau P., Rockett K. (2011). Assessment of Potential Anticompetitive Conduct in the Field of Intellectual Property Rights and Assessment of the Interplay Between Competition Policy and IPR. – Luxembourg: Publications. Office of the European Union.
Shastitko A. (2011). CPI Antitrust Chronicle // Summer, V.8, N.2 https://www.competitionpolicyinternational.com/collective-dominance-through-the-lens-of-comparative-antitrust/
Shastitko A., Kurdin A. (2011). Intellectual Property Rights Protection Versus Antitrust: Tug of War? // CPI Antitrust Chronicle, December, V12. N1.
Shastitko A., Kurdin A. (2013). Structural alternatives of Intellectual Property Rights Protection & Antitrust balancing // The paper presented for The 11th annual International Industrial Organization Conference https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=IIOC2013&paper_id=254
U.S. DOJ, FTC (1995). Antitrust Guidelines for the Licensing of Intellectual Property
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[1] “Requirements of this Article are not extended over the actions on implementation of exclusive rights for the results of intellectual activity and equalized to them means of individualization of a legal person, means of individualization of production, executed works or rendered services” (see http://en.fas.gov.ru/legislation/legislation_50915.html).
[2] “This Article does not apply to the agreements about providing and (or) alienating the right of using the results of intellectual activity or the means of individualization of a legal entity, the means of individualization of products, works or services” (see http://en.fas.gov.ru/legislation/legislation_50915.html).