The Organic Act for Regulation and Control of Market Power (LORCPM) is the main piece of legislation dealing with the protection and promotion of competition in Ecuador. The LORCPM prohibits abuse of dominant position, anticompetitive agreements and unfair practices. On the other hand, since December 2016, intellectual property (IP) has been regulated at a national level by a new piece of legislation, the Organic Code for the Social Economy of Knowledge, Creativity and Innovation (the IP Code), which replaced the Intellectual Property Act of 2006. At a regional level, Decision 486 of the Andean Community (Decision 486) establishes the legal framework for IP in the Andean Community (Bolivia, Colombia, Ecuador and Peru). The LORCPM makes some provision regarding the interplay between competition law and intellectual property law, as do, to a lesser degree, the IP Code and Decision 486.
First, the LORCPM contains specific provisions regarding the abuse of intellectual property rights (IPR) as an abuse of dominant position. In addition, this Act also refers to cases where the use of IPR may be considered an unfair practice, specifically when it affects economic efficiency, consumers, general welfare or competition. Matters relating only to rights that do not affect economic efficiency, consumers, general welfare or competition fall exclusively under IP law and are not subject to competition law.
From an IP perspective, Decision 486 of the Andean Community contains several provisions referring to unfair practices related to IP, which mainly revolve around acts of confusion, misappropriation of trade secrets and false statements regarding the quality or characteristics of products. In addition, the IP Code contains some provisions regarding the grant of compulsory licences as a remedy for anticompetitive practices and as a reminder that the exercise of IPRs must not unlawfully restrict competition.
In general terms, the exclusivity granted by IP is commonly assumed as a legal monopoly granted over a set period in favour of the rights holder. It is one of the few legal monopolies permitted by competition law.
II YEAR IN REVIEW
The Superintendency of Market Power Control (SCPM) has been the Ecuadorian competition authority since the entry into force of the LORCPM in October 2011. However, the appointment of the head of the SCPM in September 2012 marked the beginning of its activities as the enforcing body for competition law in Ecuador. Despite budget cuts in the past year, the SCPM continued to have a significant turnover in personnel in both the prosecution units and the adjudicating posts. Despite this, given that the SCPM is relatively new and the proceedings are lengthy, there have not been major advances in case law. In consequence, doctrine and international case law continued to be used as a reference by both by the authority and private parties, to help better understand the interplay between IP and antitrust.
Most of the antitrust cases involving IP refer to unfair competition and many of them are dismissed by the SCPM as cases exclusively concerned with IP law. A reduced amount of cases involving IP are handled as abuses of dominant position. To the best of our knowledge, there have not been any anticompetitive-agreement cases involving IP. Although there have not been any high-profile cases dealing with the intersection of competition law and IP rights, the SCPM has been very active in several sectors where IP is very relevant, specifically in the pharmaceutical sector. The outcome of these investigations will allow us to assess the position of the SCPM in regard to IP rights and competition law.
As mentioned above, in December 2016 the IP Code was enacted (commonly known as Código Ingenios - the Ingenuity Code). The IP Code significantly changed the legislation regarding IP, with a view to promoting wider dissemination of IP (although perhaps at the expense of reducing protection for IP owners). The IP Code also seeks to promote competition by promoting cross-licensing, compulsory licensing and other measures that would limit exclusionary enforcement of IP.
III LICENSING AND ANTITRUST
i Anticompetitive restraints
The LORCPM does not specifically refer to anticompetitive restraints regarding the licensing of IP rights. However, it is possible for the general provisions of the LORCPM to be applied to cases regarding the licensing of IP rights. Any limitation imposed by a licensing agreement could be considered an anticompetitive restraint either as an abuse of dominant position or an anticompetitive agreement.
It is important to take into consideration that the simple exercise of an IP right is far from being an infringement of the LORCPM; a test must be applied to determine if the exercise of this right produces an anticompetitive effect, such as facilitating price fixing (an anticompetitive practice per se), foreclosing access to an important input, reducing output or dividing the market among undertakings that would otherwise have competed. The relevant test is therefore if the restraints in a licensing agreement would be anticompetitive or affect the general welfare or that of consumers.
ii Refusals to license
The exercise, licensing or transfer of IP or even a refusal to license is not treated differently by the LORCPM from similar non-IP related conducts. Either as an abuse of dominant position or as an anticompetitive agreement, refusals to license could be considered anticompetitive when deemed unjustifiable in accordance to the LORCPM's requirements.
Under the LORCPM, refusals to license could be considered under the broader category of refusals to deal or supply. Either as an abuse of dominant position or as an anticompetitive agreement, refusals to deal or supply are considered an infringement to the LORCPM if they are deemed unjustifiable from a competition perspective. To date there has not been a case where the limits between justifiable and unjustifiable refusals to deal or supply have been established, although such a violation has been alleged (regarding precisely IP rights), but the allegation was considered baseless as the IP owner did offer a licence on fair, reasonable and non-discriminatory terms, whereas the claimant insisted on its own terms.
Refusals to license could also be construed under the essential facility doctrine. In this regard, the LORCPM in general prohibits the unjustifiable denial of access to an essential facility as an abuse of dominant position. In these cases, the SCPM could consider an intellectual property right as ‘essential' facility if it considers that this is an indispensable and irreplaceable condition to compete in a market. In this case, the authority could determine that the holder must share these rights with its competitors.
In conclusion, it is important to take into consideration that not allowing others the use of an IP right is a legitimate exercise of those rights. Only in specific situations could unjustified refusals to license be deemed as a violation of competition law.
IP law seeks to protect innovation, recognising certain rights to its creators, and rewarding this effort with the right to commercially exclusively exploit their product. On the other hand, competition law prohibits an unjustified refusal to sell by companies with a dominant position in a relevant market, to enable access to the same relevant market to competitors.
iii Unfair and discriminatory licensing
Just like refusals to license, unfair and discriminatory licensing are not specifically mentioned under the LORCPM or other regulation.
Nevertheless, the general provisions of the LORCPM could be used to assess any unfair (i.e., exploitative) and discriminatory licensing allegation. Unfair and discriminatory licensing could be analysed under the provisions prohibiting unjustifiable discriminatory treatment to others. Article 9, in regard to abuse of dominant position, and Article 11, regarding anticompetitive agreements, of the LORCPM prohibit unjustifiable discrimination when it puts third parties in equivalent transactions in an unequal position downstream that would result in a disadvantage.
iv Patent pooling
Patent pooling is not a concept that is described either by the Ecuadorian competition or IP laws. However, the general provisions of competition law would also apply to this type of conduct. Given that patent pooling requires cross-licensing between two or more undertakings the main focus would be under Article 11 of the LORCPM as an anticompetitive agreement. Nevertheless, patent pooling could also fall under Article 9 of the LORCPM as an abuse of dominant position.
Under Article 11 of the LORCPM patent pooling could be considered anticompetitive if it excludes third parties that in consequence are also excluded from a given market or markets. There are several provisions in Article 11 that could be used to challenge patent pooling; for example, refusals to deal if a third party is unjustifiable excluded from the benefits of the patent pool, the limitation of technological development, unjustified discrimination, etc.
Although less evident, under Article 9, patent pooling could also be considered as an abuse of dominant position, especially if each individual patent grants a monopoly in a given market to its holder. This Article could also be used to create a case of collective dominance. In this Article, there are several provisions that could be used to challenge patent pooling; for example, refusals to deal, unjustified disturbance of technological development, or if conditions imposed on non-participants are deemed exploitative (unfortunately there is no standard or guideline as to what may be exploitative).
v Software licensing
Ecuadorian competition law does not provide any specific provisions regarding antitrust issues arising from software licensing. There are some specific issues to be considered, as usually software licensors seek to exclude third parties not licensed from offering maintenance of their software - thus ‘tying' the licensing of the software with maintenance services.
These issues may be analysed under the general provisions of the antitrust legislation for tying, bundling, or exclusionary practices - sale of the software licence and the maintenance services separately (as well as bundled together), and allowing others to offer maintenance service as well, would prevent a finding that the licensing breaches the antitrust legislation.
vi Trademark licensing
Like IP rights licensing in general, trademark licensing is not mentioned in the LORCPM. Therefore, trademark licensing that is designed and enforced primarily to restrict competition, such as territorial division, must be assessed under the general provisions of the LORCPM that prevent market division or segmentation that restricts competition and any action that is exclusionary.
On the other hand, unfair competition provisions could be relevant to trademark licensing in cases of unlawful use of the trademark that has been licensed or any ‘piracy' of trademarks (acts of confusion, imitation, taking advantage of other party's reputation.
IV STANDARD-ESSENTIAL PATENTS
In general terms, all actions to obtain an increased revenue or advantage by one undertaking that is dominant in a relevant market, whether they involve an IP right or not, could result in liability for abuse of dominance under the LORCPM.
In particular, LORCPM addresses the misuse or abuse of intellectual property rights. There is no legal or statutory reference specific to standard-essential patents (SEPs); the main national standard-setting organisation is a public agency (INEN) that does take into account the recommendations of the industry, and therefore may decline to include in a standard a patent held by one undertaking that would be detrimental to others, although there is no requirement or precedent for demanding licensing of SEPs by INEN. These standards are voluntary unless referenced in mandatory technical regulations.
Owning an SEP does not automatically result in dominance in the relevant market pursuant to the law, statutes or (limited) case law in Ecuador. However, it could be alleged that the owner of the SEP is in the position to impose entry barriers and to limit access to technology, and that there are no acceptable substitutes (precisely because of the fact that it is an SEP), which are some of the criteria used to determine dominance.
The owner of an SEP may seek injunctive relief, and once infringement is proven, it should ordinarily be granted unless there is an overriding public interest; an obligation to license under fair, reasonable and non-discriminatory (FRAND) terms is not a viable defence at this stage.
Any potential violation of antitrust provisions in the LORCPM should be brought in a separate claim that would be initially adjudicated administratively by the SCPM, whose decision is subject to judicial review.
Unfortunately, there is no established policy or concurring precedents to determine whether seeking an injunction by the owner of an SEP would incur a violation of antitrust law.
iii Licensing under FRAND terms
Licensing of an SEP under FRAND terms is not mandatory nor ruled out by Ecuadorian law. Private standard-setting organisations may contractually demand licensing under FRAND terms, although an agreement to regulate quality, when not pursuant to a national or international standard, may also be a violation of antitrust regulations (Article 11.10 of the LORCPM).
However, unjustified refusal to deal (i.e., to license an IP right), demanding exploitative prices (i.e., outsized royalties) or establishing different conditions for similar considerations (i.e., discriminating) are violations of antitrust provisions pursuant to the LORCPM, and would apply to the owner of the SEP if deemed to be dominant in the relevant market, or if it is the result of an agreement with other undertakings.
iv Anticompetitive or exclusionary royalties
There are general provisions that prohibit ‘exploitative prices', ‘exploitative practices', ‘exclusionary practices', and the abuse of IP rights that may be invoked against anticompetitive or exclusionary royalties regarding SEPs (or any IP right), but little guidance as to how and when a price (i.e., royalty) may be deemed exploitative, or a ‘safe harbour' or threshold.
V INTELLECTUAL PROPERTY AND MERGERS
In accordance with the provisions of the LORCPM, the analysis of a merger should not change in cases in which IP rights are involved. The competition authority applies the same criteria to all merger cases. The elements that must be taken into consideration are the market power or dominance of the parties involved, the relevant market structure, the effect of the merger in competition in the relevant market (improvement in production or commercialisation of products, technological or economic advancement, enhanced competition in the international market, higher well-being of consumers, the positive effects outweigh the negative, etc.).
i Transfer of IP rights constituting a merger
Ecuadorian law requires certain ‘economic concentration operations' (defined as the change in control of one or more economic agents, such as, among others, the acquisition of the assets) to obtain pre-merger approval.
In essence, IP rights are considered an asset and treated no differently from other tangible assets, so if one of the criteria required for approval is met, the transfer of IP rights would indeed be deemed a ‘merger' and need to be notified and obtain an approval. The criteria are: (1) when the combination of the market share of the parties involved reaches or exceeds 30 per cent of the relevant market; or (2) when the total turnover of the parties involved in the merger surpasses US$75 million (unless in the financial or insurance industries, where the threshold is US$1.2 billion or US$80.25 million respectively).
ii Remedies involving divestitures of intellectual property
The LORCPM does not contemplate remedies that are specific to IP matters. The only provisions regarding remedies are applicable to all cases in which competition has been affected, including those involving IP rights.
Obviously, the remedies may include an obligation to divest, assign or license IP rights, as the SCPM has ample authority to define remedies. Last year, in a much discussed case regarding an international merger in the beer market, the SCPM ordered the divestiture of several beer trademarks as a condition for its authorisation of a merger notification.
VI OTHER ABUSES
i Sham or vexatious IP litigation
Vexatious litigation regarding IP rights can be considered a violation of the LORCPM both as an abuse of IP rights (Article 9.17) or the abuse of legal proceedings that limit the access or permanence in the market of competitors (Article 9.18), if the claimant enjoys dominance (‘market power') in the relevant market.
Furthermore, sham or vexatious IP litigation could also be considered an unfair practice that also violates antitrust law because it constitutes an abuse of the legal or administrative proceedings to prevail in the market (Article 27.9 of the LORCPM).
ii Misuse of the patent process
Ecuadorian competition legislation does not have a specific provision regarding the misuse of the patent process, and case law is very limited because of the relatively recent enactment of antitrust legislation and the significant time for the proceedings to be adjudicated administratively (and then for judicial appeals to work their way through the system).
However, misuse of the patent system could clearly be construed as abuse of an IP right (Article 9.17 of the LORCPM), abuse of the legal proceedings (Article 9.18) if the abuser has dominance (market power), and if not, it could be framed as an unfair practice because of violation of rules or abuse of legal proceedings (Article 27.9).
iii Anticompetitive settlements of IP disputes
There are no special provisions regarding settlement agreements terminating an IP infringement dispute. Consequently, any settlement agreement would be reviewed under the general provisions of the LORCPM, especially if the IP owner has dominance in the relevant market.
Any settlement agreement of IP disputes that limits market entry (i.e., generic producers in the pharmaceutical sector) could violate the LORCPM as it may be deemed to constitute incitement or persuasion to refuse selling or delivering goods (Article 9.10), the conditioning of acts or agreements to acceptance of terms that according to their nature or commercial use are not related thereto (Article 9.13), an exclusionary practice (Article 9.15), abuse of an IP right (Article 9.17), unjustified implementation of legal actions that result in restricting access to the market of actual or potential competitors (Article 9.18), or finally preventing or impairing market access to actual or potential competitors for reasons other than economic efficiency (Article 9.22).
Furthermore, even if the owner of IP rights does not enjoy dominance, the settlement agreement could breach the LORCPM if it imposes entry barriers (Article 11.18) or prevents or impairs market access to actual or potential competitors for reasons other than economic efficiency (Article 11.20).
VII OUTLOOK AND CONCLUSIONS
More than five years have passed since the LORCPM was enacted in late 2011 as the first antitrust legislation in Ecuador. Although five years is still a relatively short period for new legislation to take roots in a country's legal system, competition law is slowly being incorporated in all aspects of corporate activity. Unfortunately, despite five years of existence in the country, there is still little guidance or case law on the related policies, standards or enforcement priorities. We expect this to change in the years to come, as precedents are set both by the authority and through judicial review.
The promotion and protection of generic drugs will continue to be an important focus of the SCPM, as it has continued to stress the importance of generic drugs and has warned patent or branded drug owners to refrain from using their IP rights to stop or delay the entry of generic drugs on to the market.
There are several ongoing investigations taking place, some of them touching on IP issues. If the SCPM were to find any evidence or indications of competition law infringements, then it would need to establish how the antitrust and IP laws and statutes need to be combined, and which provisions should prevail in specific cases.
The enactment of a new IP law may also affect the current understanding of how competition and IP statutes can coexist in a way that promotes competition while providing incentives for innovation.
1 María Rosa Fabara Vera is the founding partner, Diego Ramírez is a partner and Daniel Castelo is a senior associate at Fabara & Compañía Abogados.