1. Introduction
Standards, as both the driver and outcome of rapid technology development in the marketplace, are powerful market tools that facilitate product efficiency and consumer welfare. On the one hand, interoperability among products gained from standardization ‘is critical to developing and introducing innovative products that satisfy a range of consumer needs’.Footnote 1 Moreover, standards ‘provide many benefits for technology consumers, including not just interoperability but also lower product costs and increased price competition’.Footnote 2 As the US Department of Justice (DOJ) and US Patent and Trademark Office (PTO) pointed out, ‘[v]oluntary consensus standards-setting activities benefit consumers and are in the public interest’.Footnote 3 On the other hand, however, standards can also be misused, such as when holders of standard-essential patents (SEPs) ‘sought to ban competitors’ products from the market on the basis of their SEPs’.Footnote 4 Therefore, SEP holders are required by standard setting organizations (SSOs) to commit to licensing their SEPs on Fair, Reasonable, and Non-Discriminatory (FRAND) terms. The operation of FRAND terms alleviates potential anticompetitive concerns and ensures that ‘the technology incorporated in a standard is accessible to the manufacturers of standard-compliant products’ and that SEP holders are financially rewarded.Footnote 5 Due to SEPs essentiality to a standard, and their importance for industries, the frequency of patent disputes, in particular those related to SEPs, has increased considerably over the last three decades.Footnote 6 The ‘Smartphone Wars’ outbreak in the FRAND context in 2010 has now drawn in almost every phone manufacturer worldwide.Footnote 7 Due to the significance of intellectual property rights (IPRs) in regional and international trading frameworks,Footnote 8 FRAND wars certainly have significant implications for market operation, technology development, and international trade.
The interpretation of FRAND terms has both theoretical significance and international implications. Firstly, interpretation of the diverse FRAND terms and ensuing controversies have attracted much academic discussion,Footnote 9 and the theoretical justifications vary, ranging from patent law to antitrust, contract, and property law.Footnote 10 While some suggest a contract-based theory offers a better approach in many situations than that of patent and antitrust approaches due to the effective support of the property-based approach,Footnote 11 others argue a novel ‘market reliance’ theory creates ‘a stronger and more defensible foundation’ for FRAND enforcement than that of the ‘inaccurate and incomplete’ contractual understanding.Footnote 12 At the international level, while China has been mainly concerned with the ‘negative impacts’ of the combination of IPRs and standards on international trade,Footnote 13 economic development, and technology dissemination,Footnote 14 the European Community suggested that standards that contain any IPR ‘can be used by market operators’ on FRAND conditions.Footnote 15 The academic confusion as to the theoretical foundations of the enforcement of FRAND terms and the issue's international implications warrant an in-depth theoretical analysis of the FRAND justification to be based not only on domestic frameworks but also against the background of the international trading regime.
Connecting jurisprudential critiques of property and contract with interpretation of international treaty obligations, the paper offers a critical analysis of the nature of FRAND commitments and its implications for the regime of the WTO's Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). Section 2 reveals that, while the competition-minded TRIPS harmonized intellectual property protection across member states, Members’ approaches to the enforcement of FRAND terms vary between contractual and antitrust approaches. Section 3 suggests that although the contractual and antitrust approaches both have their own theoretical foundations, the diversity in the enforcement of FRAND terms challenges TRIPS integrity. A jurisprudential critique of property and contract reveals that while recognizing SEPs as personal property lends constitutional support to the contractual approach, property theory's built-in limitation of private rights anticipates a complementary IP–competition dynamic in TRIPS. A further critical analysis of the circumstances of the TRIPS conclusion and an analytical examination of TRIPS antitrust obligations suggests that TRIPS antitrust obligations, which mandate Members to balance the contractual approach with antitrust concerns in FRAND enforcement, are indeed imperative. Finally, in Section 4 the paper concludes with a call for a contract–antitrust balanced approach to FRAND enforcement to develop an IPR friendly and competition-minded free trade framework for the benefit of ‘the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare’.
2. Harmonized TRIPS v. diversified FRAND enforcement
2.1 TRIPS as a competition-minded regime
Although intellectual property rights are generally territorial, TRIPS harmonizes the international protection of intellectual property under the WTO framework. As an integral part of the international trading framework, the TRIPS regime is inherently competition friendly. Indeed, trade policy and competition policy ‘can be mutually reinforcing policy tools’, and ‘trade and competition policy objectives are complementary’ to a certain extent.Footnote 16 Of course, the WTO framework is aware of the trade restraining effects of anticompetitive practices. Indeed, ‘core GATT provisions’, such as the basic non-discrimination principles of national treatment, most-favored-nation treatment, and transparency, ‘are supportive of an effective competition policy regime’.Footnote 17 For example, dumping and subsidization are both similarly regulated under the GATT regime and both considered as practices ‘unfair to domestic competitors’ that undermine international free trade.Footnote 18 While the WTO Agreement on Subsidies and Countervailing Measures (SCM Agreement) can be viewed as the trading framework's effort to regulate governments’ unfair practices,Footnote 19 the WTO Antidumping Agreement (ADA) can certainly be seen as the trading framework's antitrust control of company's unfair practices.Footnote 20 Under the SCM Agreement, Members are prohibited from using any subsidy that causes ‘serious prejudice to the interests of another Member’, such as displacing or impeding ‘the imports of a like product of another Member into the market of the subsidizing Member’, or ‘the export of a like product of another Member from a third country market’.Footnote 21 As to the international antidumping regime, its development from domestic antitrust experiences can be traced back to the pre-GATT era.Footnote 22 In contrast to the Canadian antidumping approach to ‘defusing protectionist pressure’, the American antitrust approach as stated in the US Antidumping Act of 1916 was to deal with predatory pricing in international trade.Footnote 23 This US characteristic further defines the antitrust nature of the WTO's antidumping regime, as the US Antidumping Act of 1921 set out the basis of the antidumping regime of the GATT 1947.Footnote 24 The WTO antidumping regime's origin from the US domestic antitrust regime explains the nature of antitrust control in the WTO framework. Other WTO agreements, too, provide mechanisms addressing anti-competitive practices. As to monopolies and exclusive services suppliers in the context of trade in services, GATS recognizes that certain business practices of service suppliers ‘may restrain competition and thereby restrict trade in services’, and Members concerned shall accord ‘full and sympathetic consideration’ to other relevant Members’ consultation requests.Footnote 25
When it comes to the dynamics between intellectual property and competition policy, the legitimate monopoly interests of intellectual property to some extent naturally make intellectual property something of an anti-competition concern.Footnote 26 The international framework's concerns regarding IP–competition tension were developed long before the TRIPS era. Indeed, the first international instrument that recognized the tension between IP and competition was the Paris Convention 1967, which allows compulsory licensing to perform a checking role against the abuse of patent's exclusive rights.Footnote 27 The Paris Convention recognizes Members’ right ‘to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work’.Footnote 28 Also, under the Paris Convention, Members are obliged to guarantee ‘effective protection against unfair competition’.Footnote 29 The Paris Convention defines ‘unfair competition’ as ‘any act of competition contrary to honest practices in industrial or commercial matters’, and prohibits dishonest practices in business, such as acts creating confusion, false allegations, and misleading the public.Footnote 30 In the context of the growing global concerns as to barriers from IPRs against technology transfer to developing countries, the International Code of Conduct on the Transfer of Technology was negotiated under the auspices of the United Nations (UN). Although it was suspended in 1985, the transfer-oriented (focusing on technology transfer) instead of competition-oriented Draft Code covers both aspects from contract law and competition law in technology transfer agreements. According to the Draft Code, restrictive business practices include grant-back provisions, challenges to validity, exclusive dealing, various undue restrictions, price fixing, tying arrangements, patent pool or cross-licensing agreements, and other arrangements.Footnote 31
The TRIPS negotiations superseded the UN forum, and the resulting TRIPS Agreement incorporated the Paris Convention 1967.Footnote 32 In general, the WTO provides no mechanism to balance IP protection with competition in the TRIPS Agreement. However, the TRIPS Agreement makes the objective of the regime clear in that intellectual property protection and enforcement ‘should contribute to … the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare’.Footnote 33 Under this objective, the TRIPS Agreement clearly sets the promotion of public interest ‘in sectors of vital importance to their socio-economic and technological development’ as one of the fundamental principles of the regime that is as important as, though not more important than, public health and nutrition protection.Footnote 34 If the exercise and licensing of SEPs is in an industry that falls within one of the ‘sectors of vital importance to socio-economic and technological development’, which should mostly be the case, interpretation of the FRAND terms for purpose of public interest promotion – such as the antitrust interpretation approach indicates – should then be WTO encouraged.
Moreover, the principles expressed in Article 8.1 above serve the ‘general exceptions’ function in the TRIPS Agreement, which enables Members policy flexibility in managing intellectual property rights for public interest promotion.Footnote 35 Accordingly, to ‘promote public interest’ in vital sectors would be one of the justifications qualifying intellectual property rights, as long as it were in a manner consistent with the TRIPS Agreement. For the issue of patentable subject matter, for example, the TRIPS Agreement allows Members to exclude certain inventions from patentability for the purpose of offering protection to ‘human, animal or plant life or health’.Footnote 36 Therefore, the objectives and principles as expressed in Articles 7 and 8.1 of the TRIPS Agreement clearly accommodate the interests of public concern and should not be interpreted lightly.Footnote 37 In fact, it has also been similarly reiterated in the Doha Declaration, that ‘each provision of the TRIPS Agreement shall be read in the light of the object and purpose of the Agreement as expressed, in particular, in its objectives and principles’.Footnote 38 The WTO panels’ practice in general also confirm this. In the discussion of the limiting conditions of adopting the patent right exceptions prescribed in Article 30 of the TRIPS Agreement, the Panel in Canada–Pharmaceutical Patents states that, when examining the limiting conditions, ‘[b]oth the goals and the limitations stated in Articles 7 and 8.1 must obviously be borne in mind’.Footnote 39
Following this reasoning, the TRIPS Agreement recognizes that IPRs can be abused and potentially harm competition policy and other considerations of public good. Under the TRIPS Agreement, appropriate measures ‘may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology’ providing that they are also TRIPS-consistent.Footnote 40 Under the TRIPS framework, therefore, it is clearly envisaged that public health, development needs, or competition policy considerations are legitimate factors to balance or control IPR abuses. The TRIPS Agreement, therefore, goes beyond abstract intellectual property philosophy statements, and also establishes Member's obligations to act against anticompetitive contractual licensing practices. The TRIPS Agreement recognizes that ‘some licensing practices or conditions pertaining to intellectual property rights which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology’.Footnote 41 The TRIPS Agreement further lists examples of anticompetitive practices – including exclusive grantback conditions, conditions preventing challenges to validity, and coercive package licensing – and vests the authority of determining whether a certain practice is anticompetitive or not to a given Member's laws and regulations.Footnote 42
In addition to the general anti-competition control over contractual licensing practices, the TRIPS Agreement also touches the IP–competition dynamics in the context of a compulsory licensing exception to patent rights. According to TRIPS, on the condition of ‘do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties’, Members may provide limited exceptions to a patent's exclusive rights.Footnote 43 Also, if some procedural limitations as to prior attempt of license negotiation, limitation on domestic market supplies, and the requirement of adequate remuneration are satisfied, Members may also take compulsory licensing measures to serve as the exception to patent rights.Footnote 44 Where there is a need ‘to remedy a practice determined after judicial or administrative process to be anti-competitive’, Members are not obliged to follow the compulsory licensing's conditions of prior negotiations and applications limited to domestic market supplies, and may take ‘the need to correct anti-competitive practices’ into account in determining the amount of remuneration of compulsory licensing.Footnote 45 Most importantly, TRIPS allowing compulsory licensing for dependent patents confirms the availability of the anticompetitive relief when standards on interoperability require a new patent to use currently existing patents.Footnote 46 When the exploitation of a new patent is impossible without infringing an existing patent, Members may authorize compulsory licensing if a new patent presents an important technical advance, the cross-license of the new patent is available to the owner of the existing patent, and assignability of the existing patent is limited.Footnote 47
The WTO as the world's free trade regime is inherently competition friendly. As an integral part of the WTO trading framework and inconsistent with the global trend of anti-competition control – from the Paris Convention to UN Code of Conduct – the TRIPS Agreement is indeed a competition-minded framework. TRIPS is truly the first international treaty to generally recognize the need to regulate IPR-related anticompetitive practice, though it does not provide a detailed mechanism for management of IP–competition dynamics. As a harmonized intellectual property protection system, yet without a detailed mechanism to manage IP–competition dynamics, Members’ practices as to the enforcement of FRAND terms across different jurisdictions vary substantially, which potentially erodes TRIPS integrity. Before discussing the erosion of TRIPS integrity, the next section next will reveal the diversified FRAND approaches among TRIPS Members.
2.2 International diversity in the enforcement of FRAND terms
2.2.1 US Contractual approach to FRAND licensing
1nternationally, approaches to the interpretation of FRAND terms are quite diverse. Although there has been a growing trend towards increasing use of antitrust sanctions on SEP holders who rely on injunctive relief against alleged infringement and break their FRAND commitments in the EU, Korea, Canada, and Japan,Footnote 48 this is not exactly the case in the US. No court in the US has ever held that ‘seeking injunctive relief on a FRAND-encumbered SEP violates the antitrust laws’, and US courts address the issue under contract law principles instead.Footnote 49 In the US, a FRAND commitment has been treated as a contractual commitment by the courts,Footnote 50 which reflects the rationale that contractual opportunism alone gives rise to no antitrust issue other than a contractual issue.Footnote 51 According to the US District Court (W.D. Wisconsin) in Apple v. Motorola Mobility for example, the combination of the policies and bylaws of the SSOs – ETSI and IEEE in the case – and SEP holder's – Motorola's in the case – membership in these SSOs and FRAND assurances ‘constitute contractual agreements’.Footnote 52 This conclusion was reached through a detailed analysis of the offer, acceptance, and consideration.Footnote 53
Moreover, FRAND commitments, as legally binding contracts, apply not only between the parties of these ‘contracts’, but also to willing ‘third-party beneficiaries’.Footnote 54 The third-party beneficiary approach under contract law has been well recognized by US federal courts.Footnote 55 The US Court of Appeals (9th Circuit), for example, stated in Microsoft v. Motorola that FRAND declarations create a contract enforceable by a third-party beneficiary, and the contract governs what actions an SEP holder may take to enforce its SEPs.Footnote 56
Of course, the popular recognition of the contractual nature of FRAND commitmentsFootnote 57 does not absolutely exclude an antitrust interpretation of FRAND terms in the US. In a relevant context, the US Supreme Court in eBay v. MercExchange established that, ‘traditional principles of equity’ applies to the injunctive relief application ‘in patent disputes no less than in other cases governed by such standards’.Footnote 58 According to the US FTC, the eBay standard of injunctive relief ‘allows courts to take these important competition and innovation policy issues into account’.Footnote 59 Since the eBay case in the US, the percentage of prevailing patent owners that obtained permanent injunctions dropped from close to 100% of cases to about 75% of cases.Footnote 60 According to the DOJ & USPTO, a FRAND-encumbered SEP holder's use of an injunction or exclusion orders ‘may harm competition and consumers’ and ‘may be inconsistent with the public interest’, in particular if it is based on a FRAND-encumbered patent and appears to be inconsistent with the FRAND commitment.Footnote 61 Nevertheless, an exclusion order may still be an appropriate remedy if the putative licensee acts outside of the FRAND commitment or ‘is not subject to the jurisdiction of a court that could award damages’.Footnote 62 Therefore, the antitrust approach to the interpretation FRAND terms is, of course, also available in the US.Footnote 63
However, the eBay standard's antitrust implications should not be overstated. Among the four eBay equitable factors of irreparable injury, remedy inadequacy, balance of hardships, and public interest, the ‘public interest’ factor is admittedly the closest one that may be tethered to competition interest. The ‘public interest prong’ has been interpreted by the courts in the majority of post-eBay cases as that the ‘public has an interest in maintaining a strong patent system. This interest is served by enforcing an adequate remedy for patent infringement.’Footnote 64 Moreover, due to the difficulties of establishing Sherman Act violations and the fact that US law ‘generally doesn't condemn excessive pricing in and of itself’, ‘the role of US antitrust law as a means for enforcing FRAND commitments seems quite limited’, and does not hold much promise.Footnote 65 In a recent high-profile investigation by the US ITC, SEP holder Samsung was entitled to an exclusion order prohibiting certain Apple products from entering into the US due to a SEP violation.Footnote 66 The ITC's June 4 exclusion order, unfortunately, was disproved by the US Trade Representative shortly after due to concerns about patent holdup.Footnote 67 To a certain extent, the USTR's disapproval indicates that the antitrust approach has limited application as to the interpretation of FRAND terms in the US.
2.2.2 The spreading antitrust approach to FRAND enforcement
Quite different from the US’ contractual approach, the European approach shows a clear antitrust perspective on FRAND disputes. According to the European Commission, FRAND commitments are designed to ‘prevent IPR holders from making the implementation of a standard difficult’ by refusing to license, requesting excessive fees, or by charging discriminatory royalty fees.Footnote 68 In its investigation against Samsung, the European Commission stated that IPRs ‘should not be misused when they are essential to implement industry standards’; and upon ‘a commitment to license the patents in return for fair remuneration’, SEP holder's ‘use of injunctions against willing licensees can be anti-competitive’.Footnote 69 The European Court of Justice (ECJ) too, in the case when standards on interoperability require the use of current basic technology, has confirmed that ‘the refusal by an undertaking in a dominant position to allow access to a product protected by an intellectual property right, where that product is indispensable for operating on a secondary market, may be regarded as abusive’ if the undertaking requested produces new goods or services for consumers.Footnote 70 Recently in Huawei v. ZTE, the ECJ emphasized that ‘the exercise of an exclusive right linked to an intellectual property right by the proprietor may, in exceptional circumstances, involve abusive conduct’.Footnote 71 As FRAND undertaking ‘creates legitimate expectations on the part of third parties’, according to the ECJ, ‘the abusive nature of such a refusal may, in principle, be raised in defence to actions for a prohibitory injunction or for the recall of products’.Footnote 72
Some European national courts in general have shown reluctance in granting injunctive relief in relation to FRAND-encumbered SEPs. The Higher Regional Court of Karlsruhe in Germany in a 2012 judgement, for example, overturned a lower court's ruling granting an injunction for a SEP on the ground that ‘a request to restrict sales would infringe EU competition law’.Footnote 73 The UK and the Netherlands also delivered rulings similarly based more on an antitrust approach involving other firms.Footnote 74 In fact, some EU Member States provide the possibility of linking SEPs to the compulsory licensing mechanism under a patent regime. In Germany, for example, the Federal Court of Justice ‘has tethered standard-essential patents to the compulsory licensing provisions’ of the German Patent Act.Footnote 75 Under the German Patent Act, a party is entitled to plead to the Patent Court for a compulsory license provided certain conditions are met.Footnote 76 Compulsory licensing is therefore a legal defense for SEP users in patent infringement suits ‘to plead that antitrust regulations force the patentee to grant a compulsory license for the subject matter of the patent in dispute’.Footnote 77 In the Netherlands, similarly, a patentee is free to enforce a FRAND-encumbered patent except when the compulsory licensing requirements under the Dutch Patent Act are met.Footnote 78 It has therefore been submitted that it is a ‘emerging consensus’ in the EU that ‘a [F]RAND obligation is closely tied to a jurisdiction's compulsory licensing regime’.Footnote 79
FRAND enforcement has also recently become a topical issue in China,Footnote 80 and both China's court and enforcement agency show clear preference for an antitrust approach to FRAND disputes. Firstly, two recent Huawei v. IDC cases by the Guangdong High Court showed China court's antitrust preference to FRAND enforcement.Footnote 81 Indeed, as early as in 2008, China's Supreme Court indicated that, if a patent holder has participated in the development of or consented to including its patents in a national, industrial, or local standard, the patent holder will be deemed to have consented to allow standard implementers to use the SEPs, and those uses constitute no patent infringement.Footnote 82 As to a voluntary national, industrial, or local standard, the Supreme Court further clarified in 2016 that, while an implementer should not raise an infringement defense simply because of the SEPs inclusion into the standard, an SEP holder should not be entitled to injunction relief if the holder willfully breaks FRAND commitments which lead to the failure of the licensing negotiations with the willing licensees.Footnote 83 Secondly, China's enforcement authority shows similar preference for an antitrust approach.Footnote 84 For a patent to be included in a national standard, the holder will have to agree to license to standard implementers on free or FRAND terms, or a compulsory national standard generally will not include patents.Footnote 85 Any market dominant firm who, without legitimate reason, breaks FRAND commitments through license denial, tie selling, or imposing unreasonable conditions, will be considered to be anticompetitive and reined in by Anti-Monopoly Law.Footnote 86 Moreover, as all IPRs antitrust decisions are entitled to remedies through administrative action to a relevant intellectual property court where the enforcement decision was made,Footnote 87 China's judicial and administrative preferences towards an antitrust approach are synchronized.
The contrasting contractual vs antitrust approach to FRAND enforcement among TRIPS Members obviously reveals the diversity of national competition policy. As the UNCTAD pointed out, due to the diversity of domestic competition standards, ‘a global harmonization of the interface between competition policy and IPR seems unlikely in the near term’.Footnote 88 As TRIPS harmonized international intellectual property protection while keeping competition in mind, how much will TRIPS accommodate Members’ diversified FRAND approaches and what are the implications for the international trading regime? These questions warrant an in-depth critical examination of the nature of FRAND commitments and TRIPS antitrust obligations.
3. SEPs, antitrust and trade in WTO law
3.1 Diverse FRAND approaches and the IP–competition dynamics
3.1.1 SEPs as private rights and the contractual approach
A better grasp of FRAND commitments is necessary to understanding the theoretical justification of FRAND enforcement, warranting a close look at the nature of SEPs. Keeping in mind that both ‘the general principles of law’ and ‘the teachings of the most highly qualified publicists’ give subsidiary, if not significant, support to the determination of international law,Footnote 89 we will begin with an analysis of the proprietary nature and limitations of patents. Building on this analysis, the paper further looks into the circumstances of TRIPS conclusion in order to elucidate the tension between property interests and limitations, and their implications for the FRAND SEP debates.
Under the US Patent Act, patents in general or SEPs in particular ‘shall have the attributes of personal property’ and ‘shall be assignable in law’.Footnote 90 The TRIPS Agreement too states that WTO Members recognize that ‘intellectual property rights are private rights’.Footnote 91 As a WTO Panel suggested, the ‘common feature’ of the Sections in Part III of the TRIPS Agreement, in resting the responsibility of initiating various protection procedures on private right holders, for example, well indicates ‘the nature of intellectual property rights as private rights’.Footnote 92 Moreover, recognizing intellectual property rights as private rights not only shifts the responsibility of enforcement to private rights holders from the governments, but also at the same time creates a barring effect against unwanted government actions. This is because the private right nature means that limits are set on third parties and public authorities, preventing them from engaging in illegitimate infringement, which also reveals the negative right nature of intellectual property rights. Taking trademark right as an example, a WTO Panel pointed out that the right conferred under TRIPS is an exclusive right that belongs to the right owner ‘who may exercise it to prevent certain uses by ‘all third parties not having the owner's consent’, and the TRIPS provision ‘only provides for a negative right to prevent all third parties from using signs in certain circumstances’.Footnote 93 Accordingly, ‘the TRIPS Agreement does not generally provide for the grant of positive rights to exploit or use certain subject matter, but rather provides for the grant of negative rights to prevent certain acts’.Footnote 94
Recognizing the personal property attributes of SEPs in particular or patents in general has both practical and theoretical significance. Having ‘the attributes of personal property’, the US Supreme Court recognized, patents’ ‘statutory right to exclude alone justifies its general rule in favor of permanent injunctive relief’.Footnote 95 Due to ‘the difficulty of protecting a right to exclude though monetary remedies’ – it has been a ‘long tradition of equity practice’ from at least the early nineteenth century – US courts ‘have granted injunctive relief upon a finding of infringement in the vast majority of patent cases’.Footnote 96 Theoretically, moreover, this recognition gives SEPs constitutional significance, as private property bears fundamental significance to our social progress.Footnote 97 The right to private property is indeed the foundation of individual freedoms as ‘freedom of individual decision is made possible by delimiting distinct individual rights’.Footnote 98 Private property is thus argued to be the precondition of the development of liberal, democratic social political institutions.Footnote 99 Moreover, it is the free movement of private property through the system of contract that marks ‘the beginning of civilization’, as private property ‘is the heart of the morals of any advanced civilization’, and its prior development ‘is indispensable for the development of trading’.Footnote 100 Therefore, the dynamics between property, freedom, and contract situate at the center of the contractual approach to the interpretation of FRAND terms.
The dynamics between private property, individual freedom, and system of contract indicate that contract is indeed a great institution without which the evolution of human civilization is not even possible. First of all, under classic property theories, individual freedom depends on and manifests itself through private property ownership, as Hegel argues, the wholly abstract and undetermined ‘will’ as the ‘basis of right’ needs to be expressed through property as ‘the first embodiment of freedom’.Footnote 101 The same holds true to the other classic property theorist Locke who suggests that it is private property ownership that separates individuals from the common, which gives birth to the autonomous self.Footnote 102 Secondly, individual freedom gains momentum in private property only when property comes alive through alienation by contract. When private property ownership separates the self from others and the public through which the individual gains independence and autonomy, the self becomes self-sufficient and alienated from others and the public.Footnote 103 The Hegelian modifications of property that are determined in the course of free will's relation to the thing through taking possession, to use, then to alienation upon which the free will that was put into the external thing is ‘back from the thing into itself’ indicate that private property also has ‘a bearing on the anticipated relation to others’.Footnote 104 According to Maine, contract, as an institution ‘without which modern society can scarcely be supposed capable of holding together’, has ‘exercised the greatest influence in transforming human society’,Footnote 105 thus bears fundamental significance for individual freedom. Finally and most importantly, as property comes alive only in contract, contract – in particular freedom of contract – is indeed not only necessary, but also imperative for promoting individual freedom. According to Hegel, contract brings the existence of property beyond ‘mere things’ to something external that ‘contains the moment of a will’ to two free individuals, through which not only brings the property of the given individual to life, but also puts an end to the self-alienation of the self by linking him/her back to a social relationship.Footnote 106 Therefore, freedom of contract goes beyond civil law to be recognized as a basic constitutional right.Footnote 107 The process of the development of freedom of contract has been the result of efforts minimizing the functions of the state in favor of individuals’ freedom.Footnote 108 Thus, ‘[a]greements lawfully entered into take the place of the law for those who have made them’.Footnote 109 Freedom of contract, therefore, is both the means and the ends to individual freedom.Footnote 110
The recognition of personal property attributes and the nature of negative rights provide a solid constitutional endorsement of the enforcement of SEPs. Any refusal of SEP holder's injunctive relief constitutes a prima facie violation of the contract freedom of the individual and goes against the sanctity of private property, which might potentially undermine the constitutional foundation of modern society. This intimacy between property and contract and its significance to individual freedom provides solid constitutional support to the contractual approach to the interpretation of FRAND terms. Moreover, the nature of negative rights of IPRs certainly lends solid jurisprudential support to SEP holders in preventing other external interferences – including of course antitrust application – in addition to contractual applications of SEPs’ FRAND commitments.
3.1.2 The IP–competition dynamic and its antitrust foundation
Although recognizing IPRs as private rights lends solid support to the constitutional significance of IPRs in general or patents/SEPs in particular, it does not mean that IPRs are unlimited, but rather that they are subject to checks and balances from public interests and the needs from others. As SEPs have ‘the attributes of personal property’, the SEP holder is entitled a ‘statutory right to exclude’ that ‘justifies its general rule in favor of permanent injunctive relief’.Footnote 111 However, ‘the Patent Act itself indicates that patents shall have the attributes of personal property “[s]ubject to the provisions of this title”, including, presumably, the provision that injunctive relief “may” issue only “in accordance with the principles of equity”’.Footnote 112 The US Supreme Court further emphasized that the approach of equity's qualification of patents’ exclusive rights ‘is consistent with … [the US Supreme Court's] treatment of injunctions under the Copyright Act’.Footnote 113
Indeed, traditional property theory has an in-built limitation on the sanctity of private property. In recognizing IPRs as personal property rights, one thing that should not have been forgotten is that both Lockean and Hegelian property theories implicitly or explicitly imply limitations on private property rights. The Lockean ‘common law of nature’, for example, indicates a clear limit on property rights and sets the measure of property nature by the extent of people's labor and the convenience of their life.Footnote 114 As whatever is beyond the limit set by the ‘common law of nature’ is more than the owner's share and ‘belongs to others’,Footnote 115 the limit of private property rights therefore comes from the needs of others. For Hegel, the modifications of property are determined in the course of the free will's relation to the thing from ‘taking possession’, to ‘use’, then to ‘alienation’ upon which the free will that was put into external thing is ‘back from the thing into itself’. Footnote 116 Upon property alienation, the previous owner gains true freedom as the self does not depend on the property anymore; and the new owner attains self-realization through new ownership. Therefore, private property's ‘bearing on the anticipated relation to others’Footnote 117 sets a limit, though in a different sense, on private property rights. This Hegelian modification of property in relation to others to some extent endorses the Lockean implicit limitation of private property rights from the needs of others.
Neither is the freedom of contract, though imperative to private property rights, absolute and unlimited. Freedom of contract, as the manifestation of individual freedom through property ownership, has its own path of historical development, and its development and the movement ‘from status to contract’ might not always be linear and straightforward. According to Pond, ‘[t]he first extended discussion of the right of free contract as a fundamental natural right is in Spencer's Justice, written in 1886’.Footnote 118 As Pond pointed out, the pursuit of freedom of contract was born together with the establishment of the laissez-faire, at the age of industrial revolution when the rise of capitalism was intertwined with the flourishing of freedom of contract.Footnote 119 Around the turn of the twentieth century, we see the development of the large-scale enterprise and the predominant use of standardized contracts in business. With the ‘decline of the free enterprise system’ upon the shift from ‘competitive capitalism towards monopoly’, freedom of contract became ‘a one-sided privilege’ as law protected the unequal distribution of property.Footnote 120 Therefore, ‘the fact that the belief in freedom of contract has remained one of the firmest axioms in the whole fabric of the social philosophy of our culture’ has greatly facilitated the reverse of the historical evolution of the law ‘from status to contract’.Footnote 121 Common Law's advent of the anticipatory breach doctrine in the nineteenth century, according to Corbin, which transcended traditional theory that a person could only be bound by his own consensual promise, is a good example.Footnote 122 As social value changes following the change of social conditions, according to Corbin, contract rights and duties are determined more and more by ‘the needs of the all’ instead of the contractors only, and ‘the line where personal privilege ceases and legal duty begins is now more greatly determined not by the will of the individual for himself, but by the desires and wills of the many’.Footnote 123 Therefore, the freedom of contract that underpins the contractual approach to FRAND terms of enforcement will be under the pressure of change in recognition of ‘the needs of the all’.
Therefore, neither the sanctity of property nor freedom of contract preclude inbuilt limitations, which set a foundation for the accommodation of the antitrust approach. Although the personal property nature of SEPs and the institutional significance of contract freedom lend solid support to the contractual approach to the interpretation of FRAND terms, neither is personal property absolute nor is contract freedom unlimited. The sanctity of personal property is qualified by the Lockean ‘common law of nature’ in consideration of the needs of others, or limited by ‘a bearing on the anticipated relation to others’ in a Hegelian term. Freedom of contract that underpins the binding force of individual consensual promise has also been qualified and gradually determined more and more by ‘the needs of the all’ other than by contracting parties only. Indeed, in addition to its recognition of intellectual property rights as both private and negative rights, the TRIPS Agreement also emphasizes IPRs’ public implications. TRIPS philosophy is to achieve a balance between rights and obligations in intellectual property rights protection.Footnote 124 For this purpose of balancing rights and obligations, the TRIPS Agreement allows Members to adopt measures ‘necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development’, and measures to prevent abuse of right holders’ IPRs or anti-competition practices, as long as these measures are TRIPS consistent.Footnote 125 Also for this purpose of balancing rights with obligations, the TRIPS Agreement provides various exceptions and limitations to the exclusive rights conferred by a copyright, trademark, industrial design, or patent respectively.Footnote 126
Accordingly, IPRs are not unlimited in TRIPS, and public interests and social concerns can provide legitimate limitations on the exploitation of IPRs.Footnote 127 The TRIPS philosophy of the balance of rights and obligations certainly justifies the possible limitation on SEPs in the technology users’ interest of social and economic welfare facilitation, which arguably might include antitrust consideration for public good. As its common usage, the word ‘balance’ as a noun means ‘a situation in which different elements are equal or in the correct proportions’.Footnote 128 Therefore, neither should private IPRs override public interest or social economic welfare, nor should social and economic welfare considerations triumph private IPRs. Rather private IPRs and social and economic welfare should coexist and should even be mutually complementary with one and other. Indeed, it is submitted that IPRs and competition policy are the twin engines of development and share goals of promoting innovation and enhancing consumer welfare.Footnote 129 Intellectual propertyin fact is ‘inherently pro-competitive’, as it ‘ensures the protection of differentiated, intangible business assets’ and ‘allows consumers to make choices between competing entrepreneurs’.Footnote 130 Therefore, it has been well established that ‘[t]he intellectual property laws and the antitrust laws share the common purpose of promoting innovation and enhancing consumer welfare’.Footnote 131 According to UNCTAD, the IP–competition dynamics ‘is crucial for the economic dynamics of developing as well as of industrialized countries seeking to promote innovation, technology transfer, a fair chance for competitive firms on the markets and affordable good quality products for consumers’.Footnote 132 Under the philosophy of the balance of rights and obligations, how would TRIPS deal with the interpretation of FRAND terms and what are the implications?
3.2 TRIPS and the IP–competition dynamics in context
While recognizing IPRs as private rights lends constitutional support to the contractual approach of SEPs to the interpretation of FRAND terms, TRIPS objectives and principles that mandate public interest consideration to balance IPR abuse legitimize the antitrust approach to the enforcement of FRAND terms. Nevertheless, the goal of balancing rights and obligations might be difficult to achieve or even mission impossible, as WTO judgements have ruled the sovereign exception defense in rejecting copyright protection to unconstitutional publicationsFootnote 133 or stockpiling patent provisions allowing consumers efficient access to low-cost generic drugsFootnote 134 to be WTO inconsistent. Indeed, there have long been heated debates as to ‘what constitutes an adequate balance between proprietary intellectual property rights and the public interest’ without much consensus reached.Footnote 135 While emphasis on the proprietary nature of IPRs ‘neglects the conditions under which copyrighted materials are used’, ‘emphasis on public policy interests ignores the conditions necessary for their creation’.Footnote 136 This dilemma perfectly reflects the inherent tension between rights and obligations, a balance that should be, yet can hardly be, maintained; the TRIPS philosophy paradox that can in fact be traced back to the founding moment of the TRIPS regime.
Before the introduction of intellectual property rights into the international trading framework through the TRIPS Agreement, intellectual property was still the domain of specialists and intellectual property right producers.Footnote 137 TRIPS incorporation of intellectual property into the international trading framework ‘elicited great concern over its pervasive role in people's lives and in society in general’.Footnote 138 The TRIPS negotiations started in September 1986, at a critical moment ‘when the negotiations between developed and less-developed countries over the revision of the Paris Convention were deadlocked at WIPO’.Footnote 139 Before the Uruguay Round, in the 1970s, developing countries, in particular, were on the whole public interest oriented and focused on establishing new rules on a New International Economic Order (NIEO) that depended on developed countries’ technology transfer. Developed countries, however, were more concerned with the WIPO system's failure to provide effective protection of the interests of their technology-based and expressive industries.Footnote 140 During the Uruguay Round negotiations, the incorporation of intellectual property rights into international trade was quite controversial and opinions were divided between developing and developed countries.Footnote 141
The context of TRIPS negotiations between developed and developing countries clearly indicate the contentious nature of the discussions surrounding intellectual property rights protection. While the draft legal text from developed countries including the EC, the US, Japan, Switzerland, and Australia – the ‘A’ text – emphasizes domestic enforcement and the applicability of the GATT dispute settlement mechanism to TRIPS disputes, a dozen developing countries proposed another legal text – the ‘B’ text – with a focus on maintaining flexibility to implement economic and social development objectives.Footnote 142 At the very beginning of the negotiations, developed countries and a few developing countries were only expecting a Tokyo Round type ‘code’ to be incorporated into the GATT framework. The US proposal submitted to the Group of Negotiations on Goods (GATT) in 1988 for example, suggests, as one of the objectives, to ‘[e]ncourage non-signatory governments to adopt and enforce the agreed standards for protection of intellectual property and join the [GATT] agreement’.Footnote 143 In relation to revisions and amendments of the GATT, the US proposed an open mechanism that is able to accommodate future consensus on improved protection for new forms of technology and creativity.Footnote 144 India, however, submitted a detailed paper indicating a developing country perspective in sharp contrast with the US proposal.Footnote 145 India suggested that only the restrictive and anti-competitive practices of the intellectual property right owners ‘can be considered to be trade-related because they alone distort or impede international trade’.Footnote 146 India therefore suggested that, according to the mandates from the Trade Negotiation Committee, the negotiation on trade-related aspects of intellectual property rights ‘should be governed by the concerns and public policy objectives underlying the national systems for the protection of intellectual property, including developmental and technological objectives’.Footnote 147 Therefore, India concluded that ‘[i]t would … not be appropriate to establish within the framework of the General Agreement on Tariffs and Trade any new rules and disciplines pertaining to standards and principles concerning the availability, scope and use of intellectual property rights’.Footnote 148
When it became clear that the significance of the TRIPS negotiations would certainly go beyond counterfeiting and piracy matters, the developing countries insisted on including the issue of anticompetitive practices into the TRIPS framework.Footnote 149 For example, together with clear, objective, and detailed measures, Peru's communication expressed the common concerns of developing countries and suggested that all countries should be able to adjust an intellectual propertyprotection system to facilitate national development and technology transfer.Footnote 150 Developed countries with established rules for the control of IPRs related anticompetitive practices, however, had no interest in incorporating the competition framework in the TRIPS context. Eventually, due to the threats of sanctions and implicit dismantling of the GATT, as well as concessions offered by developed countries in other areas like agriculture and textiles, ‘the resistance of developing countries was overcome’.Footnote 151 The final result of the Uruguay Round mirrored the ‘A’ text and ‘embodied norms that had been accepted by industrialized countries’, and developing countries’ concerns ‘were reflected in large part in two provisions – Articles 7 and 8 [of the TRIPS Agreement]’.Footnote 152 Developing countries’ concerns about the control of abuses of IPRs and the ‘pernicious effects’ of some contractual practices – that were first reflected in the 1990 Anell DraftFootnote 153 – eventually became Articles 8.2 and 40 of the TRIPS Agreement.Footnote 154
The negotiating process of the compulsory licensing provision Article 31 in TRIPS perfectly reflects this dynamic. Prior to TRIPS, compulsory licensing was indeed a common practice internationally.Footnote 155 The Paris Convention, for example, explicitly states that each country ‘shall have the right to take legislative measures providing for the grant of compulsory licenses’.Footnote 156 The negotiations revising the Paris Convention broke down in 1982, ‘in significant part because of competing demands concerning compulsory licensing’ between the NIEO demands of developing countries for technology sharing and the demands of developed countries for stronger protection of proprietary interests of patents.Footnote 157 India's submission in 1989, for example, proposed a compulsory licensing regime that covered licensing for non-working, and licenses of rights relating to food, medicine, and agricultural chemicals.Footnote 158 It is worth noting that the Paris Convention expressly permitted compulsory licensing of patents on the grounds of ‘failure to work’.Footnote 159 Nevertheless, the final result of the compulsory licensing negotiation reflected developed countries’ interests more than developing countries’ interests and the compulsory licensing on grounds of non-working was removed.Footnote 160
The successful incorporation of intellectual property rights – as a regime of private rights with relatively limited attention to competition policy and public concerns – into the WTO through the conclusion of the TRIPS Agreement to some extent recognizes the power asymmetry and legalizes the fragmentation between the developed and developing countries. This unfortunate intellectual property rights divide between the North and the South in this regard is the birth defect of the TRIPS regime within the WTO framework.Footnote 161 Competition as one of the ‘Singapore issues’ was kicked off at the 1996 Singapore Ministerial Conference upon the establishment of the new working group on competition policy. The 2001 Doha Ministerial Declaration further recognizes ‘the case for a multilateral framework to enhance the contribution of competition policy to international trade and development’.Footnote 162 The issue of the ‘interaction between trade and competition policy’, unfortunately, was dropped from Doha agenda in the 1 August 2004 decision due to no consensus. The negative implications of the TRIPS birth defect, however, travel beyond the intellectual property rights framework and affect the entire WTO framework. Developing countries adopted new commitments regarding intellectual property rights protection in the Uruguay Round in the expectation of getting better market access in agriculture, textiles, and other sectors.Footnote 163 When these benefits failed to materialize, developing countries’ dissatisfaction has become one of the key factors causing the deadlock of the Doha Round negotiation.Footnote 164 The birth defect of the TRIPS and the deadlock of the Doha Round negotiation have indeed been key to the lost balance between rights and obligations and the complexity of the IP–competition dynamics in the TRIPS.
The lengthy discussion of the evolution of TRIPS birth defect carries significant weight in our analysis of the nature of Members’ antitrust obligations under TRIPS, as the circumstances of the TRIPS conclusion provides an ideal ‘supplementary mean of interpretation’ under Vienna Convention on the Law of Treaties (VCLT) 1969.Footnote 165 Firstly, the philosophy of balancing rights and obligations indeed mirrors the tension between the NIEO demands of developing countries for technology sharing and antitrust control of abuses of IPRs versus the demands of developed countries for stronger protection of the proprietary interests of patent holders. The mutual concessions between developing and developed countries serving as the foundation of a TRIPS conclusion indicates that the balance between rights and obligations is indeed imperative rather than just for convenience. Secondly, antitrust control of IPRs pernicious contractual practices under Article 40 of TRIPS is indeed very closely related to the objectives and principles laid down in Articles 7 and 8 of TRIPS to ease Members’ concerns about IPRs’ anticompetitive abuses.Footnote 166 Therefore, Members are obliged to take into consideration antitrust obligations in their management of the contractual licensing of IPRs. We are thus led to the next section, on the TRIPS obligation to control anticompetitive practices.
3.3 TRIPS Obligation against Anticompetitive Practices
As mentioned above, the TRIPS intellectual property philosophy of balancing rights and obligations to some extent warrants integration of the contractual and antitrust approach of SEPs to the interpretation of FRAND terms. While Articles 7 and 8.1 endorse the IP–competition complementary dynamics and the mandate of balancing rights and obligations, Articles 8.2 and 40 indeed directly put the objectives and principles in the context of the anticompetitive abuses of IPRs. Article 8.2 of the TRIPS Agreement, going beyond a mere ‘policy statement’ or a permissive and limiting principle, is indeed ‘an enabling provision’ that indicates Members’ agreement on the existence of, and the need to, remedy such anticompetitive practices.Footnote 167 The Article lists three kinds of IPRs related practices that should be prevented: the IPR abuse by rights holders, practices which unreasonably restrain trade, and practices which adversely affect the international transfer of technology. Article 40 as the lex specialis in relation to Article 8.2, confers WTO Members a minimum obligation to act against IPRs related to ‘licensing practices or conditions’ which ‘restrain competition [and] may have adverse effects on trade and may impede the transfer and dissemination of technology’.Footnote 168 Different from Article 8.2's mere recognition of certain IPR abuses and anticompetitive practices, Article 40 imposes ‘an obligation on Members to address certain forms of anticompetitive practices in licensing agreements’ as these practices restrain competition, and may have adverse effects on trade and technology transfer.Footnote 169 These IPR related practices include yet are not limited to ‘exclusive grantback conditions, conditions preventing challenges to validity and coercive package licensing’.Footnote 170
Moreover, the structure and wording of TRIPS Article 40 indicates a very clear antitrust orientation to IPR abuses. While Article 8.2 as the enabling provision recognizes the need to prevent certain IPR abuses and anticompetitive practices, Article 40 serves as the lex specialis regarding control of anticompetitive practice only in contractual licenses. Within Article 40, while Article 40.1 provides Member's consensual recognition of the potential harmful licensing practices and conditions, Article 40.2 provides the lex specialis in the given context focusing on particularly harmful abuses – including exclusive grantback conditions, conditions preventing challenges to validity and coercive package licensing – together with the qualification of the ‘adverse effect on competition in the relevant market’. This structure certainly enshrines a competition approach to the Members’ regulation of IPRs contractual licenses.
Furthermore, the cooperation and consultation procedure under Article 40.3 and 40.4 stipulates Members’ obligation to cooperate in acting against anticompetitive abuses which provide a procedural guarantee of the control of anticompetitive contractual practices. Firstly, when IPRs anticompetitive contractual practices take place, while any consultation requesting Member is entitled ‘sympathetic consideration’ and ‘adequate opportunity’ for consultation as well as cooperation in supplying all relevant information possible from the requested Member;Footnote 171 the requested Member shall also be entitled to consultations under the same condition.Footnote 172 The obligation of consultation and cooperation, therefore, clearly indicates that the anticompetitive practices from Members’ ‘nationals or domiciliaries’ are not only matters falling within domestic affairs, but also issues covered under the WTO regime of antitrust control preventing IPR abuses. Secondly, the obligations of cooperation and consultation should not be taken lightly in the WTO framework. To ‘accord sympathetic consideration to and afford adequate opportunity for consultation’, however, as a fundamental obligation clearly stated in the DSU, is something subject to no derogation within the WTO framework.Footnote 173 As a WTO Panel stated, ‘Member's duty to consult is absolute’ and its compliance is ‘vital to the operation of the dispute settlement system’.Footnote 174 Under the DSU, should the consultations fail, a WTO panel will be established upon request according to the rule of negative consensus.Footnote 175 As consultation forms an integral part of the dispute settlement system, which centrally provides ‘security and predictability’ to the trading system and preserves Members’ ‘rights and obligations’ under WTO agreements,Footnote 176 the cooperation and consultation obligation is therefore fundamental to TRIPS call for IPR abuse control.
Of course, this obligation comes with certain flexibility, as flexibility that is demanded from member states’ sovereign autonomy to balance the rigidity of the international regime is built into the WTO framework.Footnote 177 WTO rules thus ‘must strike a balance between commitments and flexibility’.Footnote 178 The TRIPS Agreement indeed provides certain flexibility. According to the TRIPS Agreement, Members on the one hand ‘shall give effect to’ TRIPS provisions, yet on the other hand are ‘free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice’.Footnote 179 As to the obligation to consult and cooperate, the original correspondent text of Article 40 mandating an obligation to consult and to cooperate ‘with a view to ensuring compliance’ of nationals or domiciliaries with domestic legislation was removed during TRIPS negotiations to ease industrialized countries’ concerns about the rigidity of the obligation.Footnote 180 Under international law, while states are required to fulfil their international obligations, generally they are also ‘free as to the manner in which, domestically, they put themselves in the position to meet their international obligations’.Footnote 181 The jurisprudence of ‘direct effect’ of international law also calls for deference to domestic authority.Footnote 182 However, this flexibility of treaty compliance should not be overstated, rather it should be understood in the right context of the dichotomy between domestic and international affairs in international law. The WTO is a ‘member-driven organization’,Footnote 183 and thus is accountable to Members instead of the nationals of Members. The framework of the relationship between individuals and states under an international regime, therefore, is a ‘two-tiered social contract’, ‘under which the individual relates to the state in domestic law and only the state relates to the international legal order in international law’.Footnote 184 What the direct effect of jurisprudence really indicates is that WTO Members are not of the same legal order as their nationals, and the GATT/WTO consequently creates neither rights nor obligations on Members’ nationals.Footnote 185 Rights of individuals are defined in domestic law and therefore are out of the purview of international law,Footnote 186 which necessitates the international regime's deference to national authority in domestic affairsFootnote 187 . Therefore, the doctrine of direct effect suggests only international law's deference to domestic affairs, yet provides no support at all to any derogation of international obligations. While the rights of individuals are issues related only to domestic constitutional law, their use is not. As a general jurisprudence, indeed, ‘the creation of a right is distinct from the provision of remedies for violations of that right’.Footnote 188 While TRIPS would not address particular positive rights of patent, trademark, or copyright, it does address the use of rights in Articles 30, 31 – in relation to compulsory licensing – and Article 40 – in relation to contractual licensing – and acquisition, maintenance and enforcement.Footnote 189 Article 8 of the TRIPS Agreement, for example, ‘concern[s] the use of rights, not the rights themselves’.Footnote 190 Hence, the flexibility of international compliance is constitutionally confined to domestic affairs autonomy to reflect the member-driven nature of the WTO's ‘two-tiered’ institutional structure. The ‘balance’ between flexibility and rigidity denotes the interdependent and complementary relationship between flexibility and rigidity. When the freedom of compliance method or manner is ensured, WTO Members ‘shall give effect to’ TRIPS provisions.Footnote 191
Therefore, flexibility in compliance does not equal non-compliance. As the analysis above shows, the TRIPS Agreement sets out a very clear obligation for Members to act against IPRs anticompetitive practices, and the cooperation and consultation procedure therein brings such practices of Members’ ‘nationals or domiciliaries’ into the international framework. Moreover, the operation of this antitrust control against IPR abuses is firmly grounded on TRIPS principles,Footnote 192 which undoubtedly lends solid support to the significance of the antitrust control of IPRs licensing practices. Under the WTO Agreement, each Member ‘shall ensure the conformity of its laws, regulations and administrative procedures’ with its WTO obligations.Footnote 193 GATT 1994 states similarly that, ‘[e]ach contracting party shall take such reasonable measures as may be available to it to ensure observance of the provisions of this Agreement by the regional and local governments and authorities within its territories’.Footnote 194 Indeed, Pacta sunt servanda has been a well-established customary international law, and flexibility is not a good defense for non-compliance.Footnote 195 Therefore, ‘[a] party may not invoke the provisions of its internal law as justification for its failure to perform a treaty’.Footnote 196 It is therefore important to know that the compliance flexibility is the flexibility of the compliance ‘method’ or ‘manner’ rather than flexibility of non-compliance.Footnote 197
In conclusion, a Member's consistent reliance on a contractual instead of an antitrust approach to FRAND terms interpretation might act against its TRIPS obligation of preventing IPRs related ‘licensing practices or conditions’ that ‘restrain competition [and] may have adverse effects on trade and may impede the transfer and dissemination of technology’, and may trigger concerns about WTO inconsistency. Indeed, it has been argued that FRAND licensing denial ‘can violate the boundaries set by Articles 7, 8 and 40 TRIPS’, as it directly and materially affects ‘promotion of technical innovation’ if ‘standard setting can, due to the patent holder's conduct, not perform its function as a catalyst for standard-based technological progress’.Footnote 198 A Member's courts' FRAND terms enforcement, to adopt a contractual and antitrust balanced approach, will certainly be more consistent with the Member's TRIPS obligation.
4. Concluding remarks
Under TRIPS unity, there exist contrasting perspectives on managing the dynamics of IP–competition between the US contractual approach and the increasingly used antitrust approach in the EU and elsewhere as to SEPs’ FRAND enforcement. While personal property recognition for SEPs lends constitutional support to the contractual approach to FRAND enforcement, private property's in-built limitation warrants a balance with the antitrust approach for needs from others. As the analytical examination above shows, Members’ obligation under TRIPS to act against IPR abuses is indeed imperative. TRIPS warrants integration of the contractual and antitrust approach to the enforcement of FRAND terms in order to reach a balance of rights and obligations and to ensure that the control of IPR abuses is conducive to social and economic welfare and the promotion of technological innovation and to the transfer and dissemination of technology. A Member's court's adoption of a contractual instead of an antitrust approach to FRAND terms enforcement, even on a discretionary basis, might constitute a prima facie WTO inconsistency.
A critical examination of the circumstances of the TRIPS conclusion and the analytical structure of Article 40 in relation to Articles 7 and 8 of TRIPS reveals that the TRIPS obligation of antitrust control is imperative. Recognition of the need to control IPR anticompetitive abuse without providing a detailed management mechanism indicates that this is the beginning rather than the end of balancing rights and obligations, an unfinished story meant to be completed through a later ‘Singapore issues’ negotiation. Dropping the competition policy issue from the Doha agenda in 2004 meant a lost opportunity to complete the story of a rights-obligations balance through future negotiation. The imbalance of a harmonized TRIPS with an un-harmonized antitrust regime continues. Given the significance of intellectual property in a regional and international trading framework, the diversified practices as to FRAND terms enforcement certainly reflect the birth defect of TRIPS and undermine TRIPS integrity. For TRIPS to be a intellectual property regime that truly promotes technological innovation and technology dissemination that is conducive to social and economic welfare, it is high time to bring the competition issue back to WTO negotiation and adhere to a contract–antitrust balanced approach to FRAND terms enforcement.
