Strong Medicine for Competition Ills: The Judgment of the European Court of Justice in the IMS Health Action and Its Implications for Microsoft Corporation

I. INTRODUCTION On April 29, 2004, the European Court of Justice (ECJ), the European Community's highest court, rendered its judgment in IMS Health GmbH & Co. OHG v. NDC Health GmbH & Co. KG, (1) thereby clarifying the ECJ's approach to the inherent tension between competition law and intellectual property rights. (2) The ECJ expanded upon its judgment in Magill, (3) in which the Court had set forth the "exceptional circumstances" (4) that must be satisfied before a dominant firm must engage in compulsory licensing of its intellectual property. (5) The ECJ's judgment in the IMS action is vulnerable to critique on several grounds, both because it subjects dominant firms to much broader duties to license than had previously been the law under Magill, and because it neglects to clarify some of the legal issues raised in the action. First, the ECJ placed too much emphasis, in determining whether intellectual property is indispensable, upon the relevancy of customers' participation in creating intellectual property and the potential costs of switching to an alternative. Second, while previous ECJ cases finding a dominant firm's refusal to supply to be abusive had required the existence of two different markets, meaning that the dominant firm's refusal to license an essential facility had to impede competition in a distinct downstream market, the ECJ accepted in the IMS action a potential or hypothetical market to satisfy the two-market criterion. Third, the ECJ failed to clarify what sort of product would satisfy the condition set forth in Magill that a refusal to license cannot be abusive unless it impedes the emergence of a new product. Finally, the ECJ neglected to elucidate the requirement in Magill that a refusal to license an indispensable facility must lack any objective business justification in order to be abusive. Ultimately, the particular outcome facing the parties to the IMS action remains to be decided by the German national court that referred the case to the ECJ, (6) as Article 234(a) of the Treaty Establishing the European Community reserves to national courts the role of determining questions of fact, while the ECJ clarifies matters of EC law. (7) Nonetheless, the ECJ judgment is highly significant due to the guiding principles of EC competition law that it enunciates for the national courts to follow. The ECJ judgment in the IMS action will prove especially important for industries in which intellectual property serves to create a particular "standard," such as the information technology and software industries. In these industries, one specific method of presenting information typically becomes so established that it emerges as a de facto standard, since it proves too difficult for customers to switch to another system. (8) In particular, the ECJ's judgment in the IMS action undoubtedly will influence the outcome of the pending EC competition case relating to the refusal of Microsoft Corporation (Microsoft) to license certain computer information to its rivals. Part II of this article examines the complex intellectual property and competition proceedings leading to the ECJ's judgment in the IMS action. Part III analyzes the ECJ's holding, while Part IV critiques certain aspects of the judgment. Finally, Part V examines the implications of the ECJ's judgment in the IMS action for the pending Commission action against Microsoft. II. THE INTELLECTUAL PROPERTY AND COMPETITION PROCEEDINGS LEADING UP TO THE ECJ'S JUDGMENT IN THE IMS ACTION The IMS action before the ECJ arose from a complex factual and procedural history involving two parallel sets of proceedings, the intellectual property case heard by the national courts of Germany, and the competition action before the EC courts. At issue in all of these proceedings is a copyright held by IMS Health in Germany in a database relating to pharmaceutical sales. A. Brick Structures Defined IMS Health Inc. …