Copyright © 1995 Robbie Downing.
First Published in the Web Journal of Current Legal Issues in association with Blackstone Press.
In its recent judgment in Magill, the ECJ held that a refusal to license copyright protected materials could be an abuse of a dominant position under Article 86 of the EC Treaty. The ECJ's analysis could be applied to certain cases where copyright protection of computer programs is relied on to control the creation of a third party product or service, although much depends on how we interpret the ECJ's notion of abuse. Courts would be better advised sensitively to circumscribe the scope of copyright protection under the Software Directive taking into account the experience of US courts. Article 86 is arguably not the proper instrument to strike the balance inherent in the grant of an intellectual property right. Moreover, in applying Magill, a realistic approach to market power in secondary markets is required.
- The Magill Cases
- Magill and the Software Directive
- 1. Interface information
- (i) decompilation inconvenient
- (ii) Article 6 conditions not fulfilled
- (iv) conclusions on interface information
- 2. Maintenance
- 3. User interfaces
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Although the situations discussed in the article involve distinct technical issues, there are wider lessons to be drawn for other Community legislation on intellectual property (both existing and proposed) as well as generally for the control which EC law can exercise over proprietary product standards. The attitude of EC law will also be significant in the context of interpreting the GATT Agreement on the Trade- Related Aspects of Intellectual Property Rights (TRIPs) as well as proposed moves to harmonise competition law at the international level (see the Commission's comments on establishing a global competition policy: EC Competition Newsletter Autumn/Winter 1994 at p3).
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The Court of First Instance (CFI) upheld the Commission's decision (RTE, ITP & BBC v Commission Cases T-69, 70 & 76/89  ECR II- 485, 535 & 575) and the ECJ has now dismissed the appeal. The ECJ held that the broadcasters each held a dominant position since they were the sole source of the information giving them "by force of circumstance" a de facto monopoly and putting them "in a position to prevent effective competition on the market in weekly television magazines" (para 47). The ECJ's finding of dominance was not based on the existence of copyright, although the ECJ did confirm its long-standing position that the mere ownership of an intellectual property right cannot confer a dominant position (para 46; for early recognition by the ECJ, see Sirena v Eda Case 40/70  ECR 69 para 16). Clearly, the ECJ recognises that it is important to assess whether there are any substitutes to be taken into account in defining the relevant market.
In reaching a finding of abuse, the ECJ relied on three characteristics of the Magill cases: first, there was a "specific, constant and regular potential demand on the part of consumers" for a new product, namely, a comprehensive weekly guide; secondly, there was no justification for the refusal to provide the information; thirdly, the broadcasters reserved to themselves the secondary market for guides by denying access to the raw material. There are obvious links between the definition of dominance and abuse. Both findings are based on the definition of a secondary market from which competition is excluded.
There are a number of points which can be made at the outset. First, the Magill cases concern both access to and use of information. The dominant position arose from the fact that the broadcasters were the sole source of information. The refusal to allow access to and reproduction of the information was the basis for the finding of abuse. Secondly, each broadcaster entirely excluded competition in the narrowly defined market for weekly magazines for their own channel. Thirdly, Magill was attempting to market a new product which would include programme information from all broadcasters as well as commentary and pictures created or obtained independently. Finally, the new product would compete with the broadcasters' own magazines. This factor had led the Advocate General Gulmann to conclude that no compulsory licence should have been granted (Opinion of 1 June 1994 para 96).
One issue which has exercised the attention of commentators on the Magill cases is how to apply the various concepts which the ECJ has traditionally used to justify its decisions on the application of EC law to intellectual property (see, for example, Vinje 1992, p398). In particular, the ECJ has on numerous occasions referred to the distinction between the existence of an intellectual property right and its exercise (Consten & Grundig v Commission Cases 56 & 58/64  ECR 299). The former escapes the application of EC law whilst the latter can be caught. In applying this distinction, the ECJ has taken into account the specific subject matter of intellectual property which, in the case of copyright, would include the exclusive right to reproduce the protected work ( CFI in RTE v Commission Case T-60/89  ECR II-485 para 70). The ECJ has also referred to the essential function of an intellectual property right which, in the case of copyright, is to protect the moral rights in the work and ensure a reward for the creative effort (Warner Bros v Christiansen Case 158/86  ECR 2605 para 15). The Advocate General's opinion contains a very useful analysis of these concepts but it is significant that the ECJ did not feel the need to deal with the concepts in any detail. What the ECJ did say is that a refusal to license will only amount to an abuse "in exceptional circumstances" (para 50). However, the ECJ clearly approves of the CFI's view that competition law can catch the exercise of a right which forms part of the specific subject matter of an intellectual property right. What is not clear is how the concept of essential function fits into this analysis: the Advocate General thought the essential function could not be undermined by Article 86 (para 84); the CFI thought that the essential function was qualified by the need to respect the aims of Article 86: RTE v Commission Case T-60/89  ECR II-485 para 71). The absence of a statement by the ECJ of a role for the essential function reflects the lack of a theoretical basis for the intervention of competition law. On the other hand, this would not matter in practice provided the circumstances in which a compulsory licence can be granted under Article 86 were clear. We will see that this is not yet the case.
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Since jurisprudence on some of the issues covered in this article is well developed in the US, some references are made to US cases. Care should be taken in applying US approaches to the interpretation of the Software Directive. In the context of interpreting UK copyright law, Jacob J remarked that he did "not find the route of going via United States law particularly helpful" (Ibcos Computers v Barclays Finance  FSR 275 at p302).
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If access to or implementation of an interface were to be restricted, there is a concern that the supplier of the target program could control the supply of compatible products. The essence of the debate is whether copyright can be used to restrict access to and use of an interface and, if so, whether competition law can provide any remedy. Thus, there are issues of intellectual property law and, possibly, issues of competition law. It is important to recognise that the factors to be considered in the interpretation of intellectual property law may be different to those relevant to the application of competition law. This follows from the different functions of those laws. Intellectual property involves a balance between promoting creativity and allowing others access to the results. Competition law is primarily concerned with the control of market power and yet the existence of market power may be simply a reflection of the existence of an intellectual property right. We will see that difficulties will arise if competition law is relied on to deal with issues which are better dealt with under intellectual property law.
What is the position under the Software Directive? The Directive does address the issue of whether interfaces are capable of protection. Article 1(2) provides that:
"Ideas and principles which underlie any element of a computer program, including those which underlie its interfaces, are not protected by copyright under this Directive."
In other words, to the extent that implementation of an interface only involves copying an idea or principle, there is no breach of copyright. The Recitals to the Software Directive confirm the need to apply the principle that copyright protects expression of ideas and principles and not the ideas and principles themselves. Further, as the Commission pointed out in its Explanatory Memorandum to the original proposal:
"If similarities in the code which implements the ideas, rules or principles occur as between interoperative programs, due to the inevitability of certain forms of expression, where the constraints of the interface are such that in the circumstances no different implementation is possible, then no copyright infringement will normally occur, because in these circumstances it is generally said that idea and expression have merged" (COM(88) 816 final of 17 March 1989 para 3.13) - the so-called "merger doctrine".
Finally, even if implementation of an interface does involve copying of material protected by copyright, it may be that the copying is not sufficient to amount to infringement.
At this point in time, it is difficult to predict how courts will approach the distillation of ideas and principles from protected material and the application of the merger doctrine. We might be able to learn from US experience. In a famous case, in 1987, one US Court of Appeal adopted a very narrow definition of the idea in a computer program so expanding the scope of copyright protection (Whelan v Jaslow  FSR 1). More recent cases have rejected this approach and narrowed copyright protection (see Computer Associates v Altai 982 F2d 693 (2nd Circuit, 1992)). Unfortunately, it is precisely on the meaning of ideas in this context that an English court found reference to US law to be unhelpful. It is to be hoped that comparative analysis will be more acceptable to other judges in Member State courts, although, even in the US, there are still concerns that the balance is not yet properly struck (see, for example, Stern 1995, p173). At this stage, we certainly cannot exclude the possibility that implementation of an interface will infringe copyright. On English law, for example, see Sherwood-Edwards (1993, p173); for an example from the US, see Atari Games v Nintendo 975 F2d 832 (Federal Circuit, 1992).
What about access to interface information? The starting point is that decompilation to obtain information will probably constitute translation for the purposes of Article 4(b) and so infringe the copyright owner's exclusive rights. However, Article 6 provides an important exception. It permits "reproduction of the code and translation of its form within the meaning of Article 4(a) and (b)". This would include decompilation. There are a number of qualifications which include, first, that decompilation is "confined to those parts of the original program which are necessary to achieve interoperability" (Article 6(1)(c)). Interoperability is defined in the Recitals as "the ability to exchange information and mutually use the information which has been obtained". Secondly, those permitted to decompile are restricted to persons having the right to use the original program or a third party authorised by them (Article 6(1)(a)). Thirdly, the information necessary to achieve interoperability must not have previously been made been readily available to those permitted to decompile (Article 6(1)(b)). It is not clear whether payment can be demanded for provision of information: Czarnota & Hart (1991, p80) conclude that a payment can be demanded; Dreier (1991, p324) seems to conclude that no payment can be demanded. Finally, and crucially, use of the information is not permitted for "the development, production or marketing of a computer program substantially similar in its expression, or for any other act which infringes copyright" (Article 6(2)(c)). This proviso does not stop the creation of competing products. Rather, it stops the taking of copyright material. It follows that the impact of Article 6 will depend to a large extent on how the courts resolve questions over the extent to which interfaces are protected by copyright under the Software Directive.
What is the impact of Magill on access to and use of interface information? At first sight Magill certainly seems to be analogous. Those cases involved information created as a by-product of another product (television broadcasting) the sole of source of which information refused to allow third party access and use. Moreover, there are situations in which Article 86 might present a better option than Article 6 of the Directive to someone seeking to create an interoperable program. Three such situations will be looked at: first, where, even though there is a right to decompile under the Software Directive, decompilation is expensive or inconvenient; secondly, where the conditions laid down in Article 6 are not fulfilled; and, thirdly, where the Software Directive has not been properly implemented.
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There may be an argument that Article 6(3) of the Directive has an impact on the application of Article 86. Article 6(3) prohibits Article 6 to be interpreted "in such a way as to allow its application to be used in a manner which unreasonably prejudices the right holder's legitimate interests or conflicts with a normal exploitation of the computer program". The wording comes from Article 9(2) of the Berne Convention for the Protection of Literary and Artistic Works. Its inclusion in the Software Directive has been described as "a draftman's nightmare which ought to have been left in the field of dreams" (Cornish 1993, p199)), but does it affect the application of Article 86? An argument was put forward in Magill that a compulsory licence under Article 86 would contravene the Berne Convention. The ECJ side- stepped the issue by deciding that the Berne Convention did not override EC law as between Member States (para 84). The issue could crop up in the context of the Software Directive because of Article 6(3). On the other hand, the Advocate General concluded that Article 86 did indeed satisfy the requirements of the Berne Convention (para 166), although on the basis of a narrower role for Article 86. It may well be that the ECJ would take a similar approach and find that Article 86 is consistent with the Berne Convention.
In what circumstances could Article 86 be applicable? In Magill, the ECJ states that, if a supplier is the sole source of information, the resultant de facto monopoly may amount to a dominant position if it gives the power to exclude others from the market. There may be an argument that the ability to obtain the information under Article 6 of the Directive does amount to a second source. Otherwise, dominance will depend on the definition of the relevant market. Both the ECJ and the Commission have shown willingness to define narrow markets for products which are supplied subsequently to work with a primary product. The classic example is spare parts. In Hugin v Commission (Case 22/78  ECR 1869), the ECJ upheld a finding of dominance in the supply of spare parts despite the fact that Hugin held a small share of the market for the primary product. In the case of interface information, this could mean that there may well be a dominant position on the market for interoperable software, even though the market share for the target software is small. There are arguments that the Commission and the ECJ should take greater account of competition from the primary product market since suppliers are frequently constrained in the price they can charge for secondary products by competition for the principal product (see Downing 1995b). The assessment of competition in secondary markets is a key issue in the IT industry (see, generally, Downing 1995a).
On the question of abuse, although Magill concerns copyright information, a similar approach can be expected in the case of access to information which is not protected by copyright. Again, though, we come back to the availability of the decompilation right because, the owner of rights in a target program, unlike the broadcasters in Magill, is denied the power to exclude competition in the downstream market by Article 6 of the Directive. In other words, unlike Magill, the owner of rights in the target program cannot reserve to itself a secondary market. The problem case would be where decompilation is so costly that there is effective control over the market for compatible products. How do we apply the other characteristics of abuse identified in Magill? If the supplier of software has excluded competition, the key question is how we apply the test for a new product for which there is a potential consumer demand. It is important to bear in mind that Magill permits access to information for the creation of a competing product. What is not clear is how new the product must be for a compulsory licence to be available. Presumably, it is not enough that the new product is cheaper. But is it enough that the new product has more features? Is more up to date? Or is it enough that it is simply different? Indeed, could it be argued that, since the new product does not infringe copyright (otherwise the decompilation right is not available), it is by definition a new product? We should bear in mind, though, that the new magazine in Magill was substantially different from the existing magazines and that the ECJ did say that a refusal to license will only amount to an abuse in exceptional circumstances. The difficulty is that, once we concede the principle that competing products cannot be stopped, it is difficult to draw the line on intervention. Even a narrow view of the Magill judgment surely turns Article 86 into a powerful potential weapon in this field.
We should not forget that the ECJ did leave open the possibility of justification of a refusal to license. Justification is a part of the ECJ's jurisprudence on Article 86 even if invariably referred to in rejecting arguments that particular behaviour is objectively justified (see, for example, the CFI in Hilti v Commission Case T- 30/89  ECR II-1439 paras 115-119). In the absence of anything other than the simple assertion that there was no justification on the facts in Magill, it is difficult to know what the ECJ had in mind. The ECJ does refer to the following paragraph from the CFI's judgment in ITP v Commission:
"The [broadcaster's] refusal to authorise third parties to publish its weekly listings was, in this case, arbitrary in so far as it was not justified by the requirements peculiar to the activity of publishing television magazines. It was thus possible for the [broadcaster] to adapt to the conditions of a television magazine market which was open to competition in order to ensure the commercial viability of its weekly publication ..." (para 58).
It is difficult to see what this adds to the analysis of abuse - is the test for justification really based on whether the copyright owner can compete successfully with the third party product?
If the decompilation right cannot be relied on because information is made available, could there be a difference in payments which can be demanded pursuant to Article 6 of the Directive and Article 86? The Commission's decision in the Magill cases did permit a reasonable royalty to be charged. This sort of order might be limited to copyright protected material, although it is worth noting that the Commission did permit IBM to charge for the cost of providing information in the settlement of its dispute with the Commission on the issue of interface information (paras 4 and 7 of Appendix B to IBM's undertaking  3 CMLR 147 at p161). As we have seen, it is not clear how this issue is to be resolved under Article 6. Czarnota & Hart (1991, p80) conclude that payment under Article 6 should be judged "in competition terms" which would suggest that payments under Articles 6 and 86 would be the same.
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If Article 86 is available as a remedy, in what circumstances would it apply? So far as dominance is concerned, it may well be that the owner of rights in the target program is the sole source of the interface information. Although there is still an argument that the information can be obtained by decompilation under Article 6 of the Directive, in this case, the owner can rely on copyright to prevent the use of this information affecting its market. The question of dominance would then turn on the definition of the market. As we have seen, both the Commission and the ECJ are willing to ignore competition from the primary market which serves to limit the scope of markets in interoperable secondary products. We then need to turn to the characteristics identified by the ECJ in Magill as supporting a finding of abuse. We have the same difficulties already discussed in interpreting what the ECJ means by a new product and justification.
Another case where the decompilation right may not be available is where the supplier of the target program relies on the law of confidence to stop the use of interface information. Where the software has been released to the market, it may well be that there is no possibility of arguing that the interface information is confidential (cf Sega v Accolade 977 F2d 1510 (9th Circuit, 1992) at p1526 n9). But what about the case where a third party is provided with a pre-release version? In a US recent case, Stac was found to have illegally used Microsoft's trade secrets when it used interface information derived from pre-release software (see Vinje (1994)). The first point is that any contractual restriction on decompilation will not survive Article 9(1) which provides that any contractual provision contrary to Article 6 "shall be null and void". However, Article 9(1) also states that the Directive is "without prejudice to any other legal provisions such as those concerning ... trade secrets ...". If a court were to prohibit reliance on Article 6 where interface information was confidential, could Article 86 be relied on instead? Apart from the questions on the application of Article 86 already discussed, there may be an argument here that the confidentiality of the information justifies a refusal to license. On the other hand, the IBM settlement certainly envisages the disclosure of confidential information (see para 2 of Appendix B to the Undertaking:  3 CMLR 147 at p160).
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How does the Software Directive deal with these issues? There is one provision which may assist. Article 5(1) permits (amongst other restricted acts) reproduction and translation where "necessary for the use of the computer program by the lawful acquirer in accordance with its intended purpose, including for error correction." This may give the right to decompile but there are a number of reasons why it may not be sufficient for third party maintainers. First, this right applies "in the absence of specific contractual provisions" although there seems to be a conflict here with the Recitals. Secondly, Article 5(1) would not permit reproduction or translation by a third party maintainer unless it was itself a lawful acquirer (for an example of the practical importance of who has the right, see the US case of MAI Systems v Peak 991 F2d 511 (9th Circuit, 1993)). Thirdly, the right only extends to error correction which is only one function which a third party maintainer might seek to perform. Finally, it is clear that the Software Directive gives no right to obtain access to diagnostic programs.
Given the limited scope of the Software Directive, could Article 86 be relied on to obtain information and other materials for the purposes of third party maintenance? If the Software Directive does not preempt the application of Article 86 in the situations already looked at, it is difficult to see why the position should be any different in the case of third party maintainers. If so, the third party maintainer's position will depend on whether refusal to allow access to and use of materials could be caught by Article 86. It may well be that the supplier of the software is the sole source of the relevant information and other materials so again a finding of dominance may well depend on the definition of the market. As we have seen, the Hugin case supports a narrow definition of downstream markets even in the absence of market power in the market for the principal product. If the supplier of software refuses to allow access to information and other materials so as to reserve the maintenance market to itself, there is an argument for dominance. How do the characteristics of abuse identified in the Magill judgment apply in this case? Once again the key question is the extent to which the "services" offered by the third party maintainer could be argued to be a "new product". It may well be more difficult to identify differences in the services being performed by a third party maintainer sufficient to satisfy this test. There may also be arguments here on justification, in particular, if information is confidential.
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The Software Directive contains no provision dealing specifically with user interfaces. It will be for the courts to decide whether a user interface is protected by copyright in accordance with the Directive. One provision which is relevant is the exclusion of protection of ideas and principles under Article 1(2). The courts ought to take some lessons from the US. The Lotus v Borland decision of the Court of Appeals for the First Circuit suggests that the courts in the US are moving towards limited protection for user interfaces. However, that court relied on the exclusion from copyright protection of "methods of operation" (§102(b) US Copyright Act). There is no such exclusion in the Software Directive and, as we have seen, it may be that Member State courts will reject straightforward application of the principles of US law.
If Member State courts do hold that a user interface is protected by copyright, could a compulsory licence be sought under Article 86 as interpreted in Magill? Although the user interface could be considered to be raw material for which the sole source is the owner of copyright, the key difference to the situations already discussed is that a supplier relying on copyright over a user interface is less likely to be able to exclude competition in the market. In this case, the copyright is not used to exclude all competition from a downstream market such as an interoperable program. Rather it makes it more difficult for competitors to achieve success in the market for the principal product. This makes it much less likely that the owner of copyright over a user interface will be held to be dominant and for there to be a finding of abuse. If the success of the user interface does indeed create a substantial barrier to entry, again, the question will arise as to what we mean by a new product. Similar considerations will apply as those discussed in relation to interface information.
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There are wider lessons to be drawn from the analysis of Article 86 and the Software Directive. For one, the issues will also arise in the context of other Community legislation on intellectual property, for example, the proposed Database Directive (Amended Proposal for a Council Directive on the legal protection of databases (OJ 1993 C308/1) on which the Council adopted a common position in June 1995).
There is much discussion at the moment over the extent to which Article 86 can be used to permit access to proprietary standards. Where the standards are necessary for interoperability, Article 86 can now clearly be relied on to force the standards to be shared. Again, much will depend on the definition of the market. The Commission has shown readiness to define markets in the IT industry according to interoperability standards (see, for example, AT& T/NCR Case IV/M050 (OJ 1991 C16/20)).
A further wider issue is the international situation. The Commission competition directorate is focusing its attention on international agreement on the application of competition law but the Magill approach may not appeal to the wider international community. There is now widespread international agreement on intellectual property in TRIPs, in particular, requiring compliance with the Berne Convention (Article 9). We have seen that the ECJ in Magill side-stepped the question whether a compulsory licence under Article 86 is consistent with Article 9(2) of the Berne Convention. The issue will have to addressed squarely at some point.
There is a good deal of uncertainty over the application of Magill, but there is no doubt that we can expect a significant amount of litigation before the issues are resolved.
Band & Katoh (1995) Interfaces on Trial (Oxford: Westview Press).
Cornish (1993) in Lehman & Tapper (eds) A Handbook of European Software Law (Oxford: Clarendon Press) p183.
Czarnota & Hart (1991) Legal Protection of Computer Programs in Europe - A Guide to the EC Directive (London: Butterworths).
Downing (1995a) EC Information Technology Law (Chichester: Chancery Law).
Downing (1995b) 'Hilti: The Final Nail' 16 European Competition Law Review 53.
Dreier (1991) 'The Council Directive of 14 May 1991 on the Legal Protection of Computer Programs' 13 European Intellectual Property Review 319.
Sherwood-Edwards (1993) 'Seven Degrees of Separation: the Software Directive and UK Implementation' 9 Computer Law & Practice 169.
Stern (1994) 'Reverse Engineering for Future Compatibility' 16 European Intellectual Property Review 175.
Vinje (1994) 'Threat to Reverse Engineering Practices Overstated' 16 European Intellectual Property Review 364.
Vinje (1992) 'Magill: Its Impact on the Information Technology Industry' 14 European Intellectual Property Review 397.