The Potential Impact of the Essential Facilities Doctrine on the Biotechnology Industry

University essay from Lunds universitet/Juridiska institutionen

Abstract: This thesis deals with the application of the so-called Essential Facilities Doctrine in Community law against the background of the special characteristics and needs of the biotechnology industry. The Essential Facilities Doctrine obliges under competition law the dominant owner of an essential facility to grant access to third parties on non-discriminatory terms. When obliged to grant access the dominant undertaking has in turn to be given adequate compensation. The Doctrine is applicable to both private and state-owned companies. It can be applied in any industry, but has typically been applied when the essential facilities result from a (previous) legal monopoly or geographical particularities in the individual case. The precise substance of the Doctrine varies from jurisdiction to jurisdiction and from one commentator to another. In EC law the Doctrine is a sub-category to the principle obliging dominant undertakings to supply, a principle emanating from Article 82 of the EC Treaty. According to the Doctrine a refusal to grant access to an essential facility constitutes an abuse of dominant position provided that the refusal would have a serious effect on Community competition. The major difference between the more general duty to supply and the Doctrine is that the first mentioned applies only to existing customers. A legal doctrine mandating access to private property is very controversial from both a legal and an economic point of view. Its application can therefore be justified only in very special circumstances. The facility, which can be an infrastructure, a raw material, a product, a service, an intellectual property right, etc., needs to be ''essential''. That is there has to be an insuperable barrier to enter a market, which is usually situated downstream from the market where the facility exists. Without the facility the third party must not be able to compete in the concerned market. The definition of the ''relevant market'' will influence the assessment of whether a particular facility is ''essential''. The narrower the market the more likely is the facility to be declared essential. The rationale of the Doctrine is the belief that access will result in increased or developed competition, which will benefit consumers in term of more price worthy and qualitative products/services but also in term of entirely new products/services. The Doctrine has been criticized for not taken into consideration the long-term effects of its application. The effects are said to be disincentives to invest and innovate. Such effects would have a particular harmful impact on the high technology industries. These industries are characterized by heavy investments in research and development and short product cycles resulting in first mover advantages. Intellectual property protection is in these industries crucial to protect the firms' investments and preserve their incentives to innovate. In the biotechnology industry the phase of research and development of products is particularly long. Furthermore the outcome of the ventures is often uncertain due to the high failure rate and the need of regulatory approval. The process of putting products on the market is therefore extremely expensive. The attraction of risk capital is thus vital to the survival of the industry. Unfortunately investors' approach to the industry has traditionally been hesitant. The application of the Doctrine to products/services provided by the biotechnology industry might further strengthen investors' disapproving investment policy. Potential useful products/services would never reach the market and the victim would not only be the industry itself but also, and more importantly, the individual consumer. The ECJ has applied the Doctrine to essential facilities enjoying intellectual property protection. The circumstances were however extraordinary&semic the intellectual property right prevented the emergence of a new product for which there was potential consumer demand and thus conferred on the dominant undertaking a monopoly over a secondary related market. The Doctrine does not generally apply to intellectual property rights. To conclude, in theory nothing prevents the Doctrine from being applied to products in the biotechnology industry. The potential harmful effect of its application on the industry could be reduced through the introduction of more predictable criteria, which at least would prevent companies from cutting back on research and development expenses out of fear from a possible application in the future. It is vital that when assessing the impact on competition of a refusal to grant access the long-term effects are taken into consideration.

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