FRAND-Encumbered Patents, Injunctions and Level Discrimination : What Next in the Interface between IP Rights and Competition Law?

Standards are of fundamental importance in our economy and competition law has an important role to play in ensuring that standard setting procedures are not distorted so as to result in negative effects on technological progress and social welfare. The Court of Justice in Huawei ruled on the circumstances in which the seeking of an injunction or a product recall by the holder of a standard essential patent (‘SEP') may be an abuse of dominance under Article 102 TFEU. However, Huawei left many questions unanswered. One of them is whether the practice known as level discrimination is compatible with EU competition law. Level discrimination occurs when the holder of a SEP, having made a FRAND commitment, decides to license only undertakings at a given level of the supply chain, typically, the end-product manufacturers, rather than the component manufacturers. The economic and policy arguments for and against level discrimination are finely balanced and it may not be obvious whether this practice is likely to cause competitive harm if the SEP holder does not enforce the SEP against the component manufacturers who operate without a licence. However, as a matter of law, it appears that a refusal to license component manufacturers has the potential to exclude them from the market and, if the SEP holder made a FRAND commitment, such a refusal to licence may well be abusive, at least when the SEP holder is a vertically integrated undertaking. For non-practising entities, a first-principle analysis appears to point to the same conclusion. Both in the case of practising and non-practising entities, the abuse would be exclusionary. Somewhat paradoxically, the prohibition of abusive discrimination under Article 102(c) has no role to play in the competition law assessment of level discrimination