Brazil's Antitrust Counsel to Decide Leading Patent Pool Case

On January 27, 2009 the Administrative Council for the Economic Defense (CADE), which is the Brazilian antitrust agency, released a public official report on a case involving IP rights and antitrust law enforcement.

Two Brazilian companies from the electronics market – named Gradiente Eletrônica S.A. and Cemaz Indústria Eletrônica da Amazônia S.A. (CCE) - filed a representation before the Secretary of Economic Defense (SDE) against Koninklijke Philips Eletronics, N.V. and Philips do Brasil. The representation before the SDE was based on the argument that Koninklijke Philips Eletronics, N.V. and Philips do Brasil were exercising abusively their dominant position in the Brazilian DVD market secured by the granted patents and strong IP rights.

Most specifically, those companies were accused to promote a market closure in the DVD players producing and commercializing field, by adopting essentially the following market strategies: (i) informing suppliers and distributers of Gradiente and CCE products that the supply, distribution and sales of DVD products manufactured by such Brazilian companies would be a patent infringement if royalties to Philips do Brasil is not paid for such technologies; (ii) including in their DVD player patent pool technologies to which it was not entitled; (iii) charging royalties for the commercialization of DVD players manufactured by the authors of the representation; and (iv) overpricing the DVD technology patent pool sublicense, thus deliberately excluding its competitors from the market.

After a long period of investigation, SDE issued a technical note stating that the allegations of Gradiente and CCE did not proceed, as the DVD technology is being thoroughly used by other competitors by means of a mutual licensing system. Also, the Philips patent pool is not the only source of the DVD player technology and, therefore, it cannot be considered an “essential facility” to the DVD market. Finally, the branch for the electronic goods was not considered a saturated market. Therefore, SDE did not consider Philips’ behavior as anti-competitive nor could it cause a collateral harm to the consumers.

This is regarded as a leading case in Brazil, as informed by the antitrust researchers Mr Felipe Oquendo and Mr Glauco Faé:

“Patent pools as a potential means of unfair competition was looked upon by economists and attorneys, until now, as just a didactic hypothesis in Brazilian antitrust literature. This case will be definitely one of the priorities of CADE for this year 2009”. Since the matter will be further addressed by the CADE, the final decision issued by the Council will determine the landmarks in future analysis of veiled anticompetitive behavior behind the formation of patent pools.”

In fact, this case may be just a preview of future litigation involving the recently introduced Blue Ray and HD-DVD technologies.