Refusal to license

A patent owner would take active steps to exploit the invention by licensing or assigning them to others. However, if the patent owner simply sits tight and refuses to license the patent to competitors, he would breach competition policy and intellectual property law in some circumstances.

To intellectual property owners, competitors are potential infringers. They may themselves be downstream innovators or creators. If downstream innovation is blocked by an upstream patent, the patent owner would be imposed a duty to license the invention under the Doctrine of Essential Facilities.

Intellectual property would be a barrier to entry a market when it raises the cost of potential infringers to a level which is high enough to stop their product commercialization.

This is most likely to occur when the right in question is used in such a way as to inhibit the creation of new markets by limiting derivative or developmental use of protected products or processes; to facilitate market segmentation by erecting geographic obstacles to product movement; and to permit right holders to use the power conferred by the right to deter entry into markets not covered by the right, or required would-be entrants to enter all markets simultaneously or not at all.

In general, rights owner are free to license or not as they see fit.

The Doctrine of Essential Facilities had it origins in the early years of twentieth century.

“If facilities cannot practically be duplicated by would-be competitors, those in possession of them must allow them to be used on fair terms. It is anticompetitive to foreclose the scare facility. To be ‘essential’, a facility need not be indispensable; it is sufficient if duplication of the facility would be economically infeasible and if denial of its use inflicts a severe handicap on potential market entrants.” (Hecht v. Pro-Football Inc. (1970))

“A monopolist’s control of an essential facility can extend monopoly power from one stage of production to another, and from one market into another. Thus the antitrust laws have imposed on firms controlling an essential facility the obligation to make the facility available on non-discriminatory terms.” (MCI Communications Corporation v. AT&T (1983))

The Doctrine of Essential Facilities imposes on the owner of a facility that cannot reasonably be duplicated and that is essential to competition in a given market a duty to make that facility available to its competitors on a non-discriminatory basis.

In European Union, a dominant licensor may be obliged to grant a license under exceptional circumstances in order to preserve or create competition. Such exceptional circumstances exist in the case where the potential licensee wishes to exploit the license to produce a product for which there is an unmet consumer need. (EU Treaty Article 102)