IP RIGHTS AND COMPETITION LAW

INTERNAL UNILEVER USE ONLY

November 2014

• Manufacturers such as Unilever regularly seek to innovate and improve products and product design, for instance in relation to machines such as ice cream cabinets, soft ice processors, etc.

• Intellectual Property (“IP”) rights can protect innovation and grant certain exclusive rights to their owners

• Beyond the protection given by IP rights, or where there is no IP protection, exclusivity can be granted contractually (provided this is in compliance with applicable laws).

• This document gives guidance on key specific scenarios where IP rights or contractual exclusivity can legitimately protect innovation

INTRODUCTION

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1. Unilever’s objective must always be pro-competitive:

In markets where we are strong, the objective must not be to exclude/foreclose competing products from the market

From the very early design stage we must never conduct or speak in a way that might be viewed as seeking to anti-competitively exclude/foreclose competitors from the market (e.g. we must not use language such as “lock-in”)

2. IP rights can protect from copycatting, but do not always protect from alternative products and solutions

3. Additional contractual protection can help but must be legally compliant See guidance below

THE GOLDEN RULES

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Scenario: - Company A manufactures an (ice cream) machine made to dispense Company A’s ancillary product (“bottled” soft ice mix)

- Competing Company B develops alternative “bottles” with its mix that fit in Company A’s machines

Question: Can Company A legitimately prevent Company B’s “bottles” from being used in its machines?

Answer:It depends, such prevention can legitimately occur when: • Ancillary product protected by IP rights (usually patents but sometimes design rights) (sub-scenario 1(A));• Contractual protection is in place (sub-scenario 1(B)) OR• The machine/dispenser is branded (sub-scenario 1(C))

SCENARIO 1: “TECHNOLOGICAL TIE” BETWEEN A MACHINE AND ITS ANCILLARY PRODUCTS

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It is legitimate to protect innovations through patents or other intellectual property rights (such as design rights)

The IP owner has the exclusive right to make its ancillary products The IP owner can legitimately impose that only these products are used in its machines On the example in the slide above : Company A could legitimately prevent Company B’s products from being used in its machines

It may be possible to take action against the manufacturer of the infringing products and/or the user (i.e. via the use of injunctions and/or claims for damages)

SUB-SCENARIO 1(A): THE ANCILLARY PRODUCT IS PROTECTED BY IP RIGHTS

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The product/technology may not be capable of IP rights protection (for example, because it is not a genuine innovation, or because the IP rights may have expired). In this case:  Protection could be imposed contractually, provided that Company A is not dominant in the relevant market for machines. In the event Company A is / may be seen as dominant in the machines market, Legal must be consulted (to ensure bundling machine and compatible ancillary products could not be considered illegal abusive conduct)

Case-by-case legal analysis is required (Legal to be consulted) to review relevant market definition and market share thresholds, which vary in the different countries e.g. :

- Europe: as a rule of thumb, dominance would be unlikely if the market share is below 40% (although caution should be exercised if market share is between 30 and 40% and it should be noted that different European states may have different thresholds)- Brazil: 20% - China: 50% for one single company (two companies may be dominant if they have two thirds of the market, and three companies if they have three-quarters of the market)

Note: A more complex situation arises if the machine as well as the method of using the machine in combination with the ancillary product are protected by IP rights (but the ancillary product is not) Advice under local rules required

SUB-SCENARIO 1(B) : THE ANCILLARY PRODUCT IS NOT PROTECTED BY IP RIGHTS

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Example: Unilever sells Slush (Calippo) ice cream machines to customer and stipulates that the customer must use only Slush syrups in Slush-branded machines. The objectives include (i) brand protection and (ii) ensuring that consumers get a real Calippo as 'advertised' on the machine.   The Protection of the brand IP rights (such as trademarks) and the consumer may justify the restriction of the usage of the ancillary product (national consumer protection rules may also apply) - even if Unilever was deemed to be dominant in the relevant market Note - This would not apply to scenarios where the machine is sold to the end consumer for home use as the consumer’s right to use ancillary products/ inputs/ refills cannot be restricted (case by case analysis required)

SUB-SCENARIO 1(C): BRANDED MACHINES

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Scenario: Company A develops a higher-temperature cabinet where only its ice cream can be stored and at the same time maintain the same product quality

Question: Is this de facto exclusivity legitimate under competition rules?

Answer:• Must be clear that there is a pro-competitive objective (= not to exclude competing ice cream products. Generally pro-competitive means that ultimately promotes consumer welfare e.g. saving energy)• The effects on the market then need to be assessed on a case-by-case basis, with Legal, to determine whether this may lead to anti-competitive foreclosure from the market. The conclusion would depend on (i) the company’s market position, (ii) the role of the technology in the market and (iii) on whether/how easily alternative competing technologies can be developed, etc.

SCENARIO 2: NEW TECHNOLOGY THAT COULD POTENTIALLY BE SEEN AS FORECLOSING COMPETING END PRODUCTS

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Scenario: - Company A provides ice cream cabinets and boxes to store ice cream in these cabinets

Question: Can Company A prevent its customer from storing other competing boxes and/or ice cream products?

• Boxes: It depends on Company A’s IP rights see Scenario 1 above

• Ice cream, end products: It depends on potential foreclosure effects see Scenario 2 above

SCENARIO 3: ANCILLARY PRODUCT THAT COULD POTENTIALLY BE SEEN AS FORECLOSING COMPETING END PRODUCTS