Introduction

Over the past few years, there has been an unprecedented degree of interest among competition authorities, scholars, legal practitioners, industry analysts, and trade associations with respect to the level of royalties that are charged by holders of intellectual property rights (IPRs), especially when their patents are essential to an industry standard.

In particular, the last couple of years saw a lot of action on the antitrust front in the United States and Europe. The U.S. Federal Trade Commission (FTC) adopted a decision in which it found that by concealing its ownership of certain patents, Rambus persuaded the members of JEDEC, a standard-setting organization (SSO), to adopt two standards for computer memory (SDRAM and DDR SDRAM) incorporating those patents that, in turn, significantly contributed to Rambus's unlawful acquisition of monopoly power. The remedy imposed by the FTC consisted in imposing a cap on the level of royalty rates that could be charged by Rambus to the firms needing access to its technology to implement the standards in question. This decision was, however, reversed in April 2008 by the U.S. Court of Appeals for the District of Columbia Circuit. In the two years preceding, the U.S. Department of Justice (DoJ) granted business letter clearances to two SSOs – VITA and IEEE – to implement new IPR policies essentially designed to control the IPR costs for the standards they promulgate.

Introduction

On 15 February 1997, sixty-nine WTO Members reached an agreement, taking the form of a protocol to be attached to the General Agreement on Trade in Services (GATS), whereby they would open to foreign competition some or all of their basic telecommunications services markets. This agreement, the ‘Agreement on Basic Telecommunications’, came as a result of several years of negotiation, and was welcomed as a major breakthrough in the liberalisation of basic telecommunications services. TheAgreement is of considerable importance, as its sixty-nine contracting parties represent over 90 per cent of theworld's basic telecommunications revenues.

While the removal of barriers to entry into the telecommunications markets is a major step forward, it might not be sufficient in itself to create thriving competition in such markets. As will be seen below, this is because the telecommunications sector has a certain number of features that allow the incumbents to retain a substantial degree of market power. Controlling market power in telecommunications is usually achieved through a combination of competition rules and sector-specific legislation. In the European Union, for instance, the telecommunications sector is extensively regulated by a set of detailed directives. In addition, the EC competition authorities have often intervened to prevent abuses of market power on the part of the incumbents. Not all contracting parties to the Agreement on Basic Telecommunications, however, possess adequate tools to control market power in their telecommunications market. This raises the question of whether the WTO is able to provide remedies to foreign telecommunications operators suffering from abuses of market power on the part of the local incumbent. This issue is the theme of this paper.

The very recent dispute between Mexico and the United States concerning access pricing in telecoms by the former was, for most trade insiders, another dispute in the ever growing WTO docket. A deconstruction of this mundane phrase, however, should help raise a few eyebrows: telecoms, access pricing, compulsory third (WTO) party adjudication. Surely all of this seemed to be a distant future in the aftermath of the Tokyo Round. So what happened these last twenty-five years?

Essentially, domestic policies became more and more rational under the influence of exogenous parameters (technology) which greatly helped mobility of production factors around the world to reach unprecedented levels. Rationalisation of domestic policies meant, inter alia, rethinking the extent of the state along more or less economics-friendly lines.

Now, it is true that rationalisation did not occur everywhere and, even where it did, it evidenced different speeds. Regulatory diversity continues to be very much the case in most state expressions of societal-revealed preferences. This observation notwithstanding, however, it is this process of rationalisation that made it possible to discuss within and across national borders issues which remained ‘untouchables’ over the years.

Telecoms is one of the areas where the prevailing orthodoxy (general service means only state carriers can undertake such operations, natural monopoly, etc.) was put emphatically into question. Some states started a de-monopolisation process which, although looked at with suspicion by less than innocent bystanders, found imitators around the globe in record time.

There was, it is true, a growing discomfort with the fact that, in many democracies (there is not much room for public discomfort in nondemocracies), monopolies like telecoms were often used as outlets for dumping unemployed people.

The broad picture

The subject of this edited book is the interface between four major trends in the global economy, which have become apparent during the last two decades.

The first of these trends is the large expansion in trade between nations. International trade has been growing since the adoption of the GATT in 1947, but it has significantly accelerated over the last two decades. During the period 1980–2000, global trade grew very significantly. In addition, a number of new nations (e.g. China) have joined the WTO in recent years, thereby expanding the scope of application of WTO trade rules. It is widely believed today that participation in international trade is a key factor in economic development, and that increased global trade contributes to the prosperity of nations.

The second of these trends is the revolution that took place in the telecommunications sector. The first aspect of this revolution relates to market-opening reforms. For much of the twentieth century, telecommunications were organised in many countries around a monopolistic operator. The performance of these operators proved, however, to be disappointing and, in the 1980s, some countries decided to liberalise their telecommunications sector. These countries believed that competition in telecommunications would provide for lower prices, greater innovation, and a greater degree of consumer satisfaction. Such reforms have now extended to a large number of countries. While less than twenty countries had opened the provision of any fixed basic telecommunications services by the mid-1990s, 40 per cent of all countries had done so by the year 2000, including about seventy countries which have allowed competition in basic local services.

The principle of free trade

The textual source of the Supreme Court's authority to review the constitutionality of state measures interfering with trade is to be found in Article I, section 8 of the Constitution (the ‘Commerce Clause’), which in its relevant part reads: ‘The Congress shall have the power … to regulate commerce with foreign Nations, and among the several states.’ On its face, the Commerce Clause appears to be a grant of authority to Congress to regulate commerce rather than a limitation on state activity when Congress has not acted. However, acknowledging the framers' intention to create a common market and to avoid economic balkanization of the Union, the Supreme Court has long recognized that the Commerce Clause also contains a ‘dormant’ dimension that operates as a prohibition on interferences with commerce by the states. ‘The very purpose of the Commerce Clause,’ the court has written, ‘was to create an area of free trade among the several states’. Yet, the objective of ensuring free interstate trade has not been construed as an absolute prohibition on state measures interfering with commerce. In this context, an important task for the court has been to develop devices for distinguishing between permissible and impermissible state interferences with commerce.

Since its first recognition of a dormant dimension in the Commerce Clause more than one and a half centuries ago, the Supreme Court has experimented with a variety of formulations for the Commerce Clause limitation upon the states.

The previous chapters examined how the Court of Justice and the Supreme Court have attempted to deal with the various kinds of tension that may arise between trade and environmental protection through a process of selective invalidation of state environmental measures restricting trade. In order to bridge the two central parts of this study, the objective of this chapter is to discuss to what extent judicial intervention can be complemented by centralized legislative action taking the form of harmonization of state environmental standards.

Of all areas of environmental regulation, it is perhaps in the area of process standards that there is the most obvious need for the adoption of positive rules of harmonization. As we have seen, variations in the level of stringency of state environmental process standards may create distortions of competition between states. However, the traditional free-movement-of-goods case law of the Court of Justice and the Supreme Court appears to offer little protection to states whose industrial competitiveness is harmed by other states' lax process standards. Although the adoption by one state of lax process standards may generate distortions of competition, lax process standards do not in themselves generate the kind of barriers to trade susceptible of falling within the scope of Article 30 of the Treaty or of the dormant Commerce Clause doctrine.