Preliminary comments
There are 2 parts to this assessment (Parts I and II). You are to deal with both parts, i.e. there is no element of choice.
This advice will principally concern matters of EC and UK competition law. You are (obviously) not to advise on the laws of any other country, though if you wish to use, for example, material from the national competition law system of another EC country as persuasive authority, please feel free to do so.
You do not need to deal with any IP aspects of these questions, and will get no points for so doing.
Plainly you are expected to cite relevant authority. If you find that, having reached one part of your reasoning you would need further factual information from the companies to reach a conclusion, please state clearly what that is, and why you think it is relevant. Having done that, make the assumption that seems best to you, state the assumption, and proceed.
None of these situations is a true story.
A word limit of 4000 words, subject to the usual 20% tolerance, applies to this assessed essay.
Standard Law School rules governing assessed essays and on plagiarism and collusion are set out in the Undergraduate Student Handbooks (Sections 2.10 and 2.11 respectively). These appear on the Law School website, but a copy of the relevant extract is included at the end of this document. Please read these carefully and make sure you understand them fully.
You will probably find the following preliminary reading helpful.REFERENCES:
- “EUROP: The European Robotics Platform”, a booklet about the work of this grouping of the European Commission, national governments, the European Space Agency, the European Defence Agency and interested companies, at
www.roboticsplatform.com, then click “EUROP Glossy”
- speech by Commissioner Reding (member of the European Commission responsible for Information Society and Media) at the launch of EUROP, 7th October 2005, Commission Speech 05/583 (on the European Commission RAPID press release website (europa.eu.int/rapid)
- materials in “Spotlight on European robotics research” europa.eu.int/information_society/research/robotics/index_en.htm
- presentations at the Information Event organised by European Commission DG Information Society and Media in Brussels on 7th March 2006
cordis.europa.eu.int/ist/so/advanced-robotics/ie-so-march06.htm
NKK and Advanced Robotics, Inc.
NKK is a Japanese industrial conglomerate, with shares quoted on the Tokyo Stock Exchange. It is not controlled directly or indirectly by any third party. It has worldwide activities in the development, manufacture and sale of consumer electronic products, machine tools and industrial robots and provides services connected with industrial robots, and also manufactures and sells electronic components of many different sorts. Its worldwide turnover in all products in its last financial year was €30.6bn, of which €1.2bn arose within the EU (no more than €400m in any one EU country).
Advanced Robotics, Inc. (“ARI”) is a US privately-owned company involved in the development, manufacture and sale of industrial robots and provides services connected with industrial robots. Its worldwide turnover in its last financial year was €2.4bn, of which €800m arose within the EU (no more than €250m in any one EU country).
The main use of robots in the economy has so far been in the automation of mass production industries, where the same task has to be performed repeatedly in exactly the same way. Robots can do this, and with great accuracy and consistency. They can do this because the task they have to perform can be very accurately defined, and has to be carried out identically every time, with little need for feedback to control the exact process being performed. Such robots, which are here referred to, for convenience, as factory automation robots (“FARs”), can be made in a wide variety of different shapes and sizes and to perform a very wide range of manufacturing functions. They can be made capable of handling physically much larger/heavier tasks or, on the other hand, much more detailed/small-scale tasks than a human being could.
The industrial robots divisions of each party produce FARs for a very wide range of applications.
An important part of the customer base for each party is at present the motor industry. Each party currently supplies FARs direct to major motor manufacturers around the world, as well as to automotive production line suppliers. The latter contract with motor manufacturers to supply, on a bespoke basis (and sometimes also to maintain and support) all the plant and machinery that forms the production line for a finished vehicle or for some sub-assembled product to go into a vehicle (the engine, the gearbox, etc.). Production line suppliers often assemble the relevant plant and machinery by buying it in from a number of different manufacturers (who are sometimes nominated by the motor manufacturer, and sometimes left to the production line supplier’s free choice)[1]). Although neither party at present carries on any manufacturing within the EU, each party currently sells FARs to many EU-based motor industry production line suppliers and EU-based motor manufacturers. In each case, the parties’ sales have increased significantly since the early 1990s (when vehicle producers and assembly line suppliers tended to source most of their equipment (including FARs) within Europe).
Within the field of FARs for the motor industry, there is very limited user substitutability between FARs for different functions. A FAR for spray-painting bodyshells, for example, cannot be used for welding sub-frames or tightening wheelnuts. On the other hand, depending on its dimensions and the degree of adjustability built into the FAR, a FAR for spray-painting body shells can be used for painting different sizes and shapes of bodyshell (i.e. for different models of car) and can generally deal with different types of paint (primer, topcoat etc.). A FAR for assembling gearboxes, for example, could not generally be used for assembling engines, though a FAR for welding could generally be used (subject to size and shape) for welding different parts of the car together. Without access to the relevant technology (some of which is different depending on the task the FAR has to perform), it would not be feasible for an FAR manufacturer to switch from making, say, FARs for final vehicle assembly to making FARs for welding, and not all producers of FARs for the motor industry produce FARs for all motor vehicle building-related tasks.
In each of these activities, as well as in their other FAR manufacturing businesses, NKK and ARI have several competitors, from Japan and Korea, the USA and the EU. Within the EU, the market is considered to be EU-wide (if not world-wide). The EU market shares of NKK and ARI are, in the following segments of FARs, as follows:
NKK ARI
FARs for car final assembly 27% 20%
FARs for engine sub-assembly 41% 36%
FARs for gearbox sub-assembly 33% 42%
FARs for welding 15% 7%
FARs for painting 16% 9%
In each case there are many competitors, none of the competitors having a market share in any segment of FARs in excess of 10%. Furthermore, none of the competitors has anywhere near as wide a range of FARs for different functions (either for use within the motor industry or in other manufacturing industries) as NKK or ARI.
These market shares have evolved over a period. Though new manufacturers have entered the market, credibility with assembly line suppliers and the motor manufacturers is crucial, and this, together with high levels of successful research and development and innovation, has enabled NKK and ARI to become extremely successful businesses in this sector.
Neither NKK nor ARI carries on business as an assembly line supplier (for the motor industry nor for any other manufacturing sector) anywhere in the world. Whilst they each to some extent sell to nearly all automotive assembly line suppliers who sell within the EU, they each have long-standing close relationships with certain EU-based automotive assembly line suppliers (in the case of NKK, a UK-based one and a German one, in the case of ARI a UK one and a French one), who tend to prefer their FARs over those of other suppliers. There are neither exclusive purchasing nor exclusive supply obligations in place between NKK and ARI on the one hand and any of these assembly line suppliers on the other hand, as the choice of robot supplier is generally led by the motor manufacturer customer. That said, once a motor manufacturer (or, for that matter, any other manufacturer using an assembly line containing FARs) is using a particular manufacturer’s FARs in its production lines, there tends to be considerable brand loyalty. After-sales service and technical support are very important to motor manufacturers, and this applies both to the latter’s relationships with assembly line suppliers and to those with the suppliers of the FARs included within assembly lines.
The robotics sector is, as appears from the materials referred to above, one of rapid innovation at present.
In the field of FARs (i.e. those for use in assembly line manufacturing), current trends are for
- the extension of use of FARs into sectors where they have been little used before (e.g. food manufacture, and also sectors where manufacturing processes involve dangerous or unhealthy working conditions for human beings); and
- FARs to be made capable of co-operating more readily with other FARs; and
- the development of much more sophisticated robots than existed in the past, with facilities for feedback and internal sensors so that the robot can sense its own actions and adjust its behaviour accordingly. These will be able automatically to adapt to changed situations or requirements in the manufacturing process, etc. The development of this new generation of FAR (referred to here for convenience as “reactive FARs”) is seen, both by the robotics industry and by potential users of such machines, as being of absolutely fundamental importance and a major innovation, both in terms of the breakthrough in robotics technology involved and in terms of the potential uses for such robots. These will make possible changes in manufacturing processes which have only been dreamt-of up till now. There will still be a role, once reactive FARs have become commonplace, for “old-fashioned”, i.e. non-reactive FARs, and (initially at least) it is thought that reactive FARs will be considerably more expensive than non-reactive FARs. Nevertheless, it is considered, both by the robotics industry and by users, that, once reactive FARs are in use, “old-fashioned” non-reactive FARs would not be an acceptable alternative to reactive FARs for most applications of the latter.
One benefit of the development of reactive FARs is that this should facilitate the trend towards “mass customisation” in manufacturing[2], whereby it becomes possible to use reactive FARs to produce very small batches of products to a particular specification (as small as individually specified items one by one), but using mass production techniques. (The textbook example of a business which does this already is Dell Computer Corporation, which manufactures PCs to individual customers’ choice of options taken from a menu, i.e. manufactures to individual order rather than manufacturing standard specification products to hold to stock[3]).This fits well with other trends in manufacturing and distribution such as “just-in-time” manufacturing and supply techniques[4].
There is also a trend, far wider than the context of FARs, for robots to be developed which, through feedback capabilities, can move effectively and can cope with unpredictable situations (e.g. cleaning up toxic waste after environmental disasters, bomb disposal work, in the construction industry, in healthcare applications (e.g. minor surgical processes), etc.) and which can sense and interact with people in different ways. Some of the uses and possible uses for such advanced robots appear from the materials listed above.
Part 1
The development of reactive FARs for use in “mass customisation” manufacturing techniques
In relation to the development by NKK and ARI of reactive FARs for use, inter alia, in “mass customisation” manufacturing techniques, a number of things have happened.
(1) ARI has been succeeding in its efforts to develop reactive FARs for final assembly of motor vehicles, and has built a prototype which has been thoroughly tested and is ready to go into commercial production. From the current stage to launching the product on the market is likely to take a maximum of 6 months only. NKK is at the same stage with a similar FAR, but is not convinced that it can manufacture it at prices which customers (even loyal customers) would be willing to pay.
(2) NKK has been doing well in its independent efforts to develop reactive FARs for engine and gearbox sub-assemblies, and has a prototype almost ready to go into commercial production. ARI is a little way behind NKK with the development of such products. It considers it may take it up to a year to launch these on the market, though it is confident that it could overcome the technical problems it is currently experiencing. Its greater problem at present is that it is in very severe financial difficulties, and may not be able to afford to proceed with these projects (unless the current owners of ARI sell the business to an investor willing to make the necessary investments, and the current owners do not want to sell).
(3) NKK has been developing FARs for micromechanical[5] manufacturing uses, a field in which neither party had previously been involved. R&D work continues. It is some way off being able to launch any such product on the market. It is aware that ARI would like to expand into this field of robotics and that ARI has been carrying on some research and development activity in this field, but that ARI has been finding this very difficult and that, given ARI’s current financial difficulties, is almost certain to abandon its efforts, at least for the foreseeable future.
No other manufacturer of FARs is (so far as NKK and ARI are aware) at as advanced a stage with the development of reactive FARs for these applications as they are. Several of their competitors are, however, understood to be working on the development of such products, but are thought to be, in the main, 2 years or more behind NKK and ARI (though it is possible that they could make much more rapid progress soon).
Accordingly, discussions between the two companies have taken place and have resulted in agreement in principle on the following co-operation between them. The proposals are currently subject to legal advice as to their enforceability, to final approval from the boards of each holding company and (in the case of NKK) to obtaining consent from shareholders:
1. NKK will not seek to manufacture reactive FARs for final assembly of motor vehicles. NKK will buy all its requirements of reactive FARs for final assembly of motor vehicles from ARI and from no-one else. For its part, ARI will undertake to manufacture such FARs of that type as NKK may order from it (undertaking such individual design work to meet individual users’ requirements as NKK may wish), subject to a minimum purchasing obligation, and for prices to be calculated according to a pre-agreed formula for valuation of the work. NKK and ARI will sell reactive FARs for final vehicle assembly independently of each other. The FARs will in each case be branded separately (so that it will not be apparent from visual inspection that a FAR badged NKK was not manufactured by NKK). There will be no restrictions as to price on resale nor as to where or to whom either party may sell them, except that (1) they have each agreed to “price competitively”, (2) ARI will not manufacture final vehicle assembly FARs for any other FAR producers, and (3) ARI will terminate entirely its relationship with its long-established production line supplier customer in France (which, because of the latter’s deteriorating performance over the last few years, it was minded to do anyway). This proposal is commercially highly attractive to ARI, as it believes that the sales it expects to make to NKK will give it the means of overcoming its financial difficulties, though perhaps not immediately. A 7-year duration has been agreed in the first instance for this co-operation, but with provision for earlier termination if the parties “fundamentally disagree” as to this or any other co-operation between them, or if there are major technological changes in the product.
2. ARI will abandon its efforts to develop or manufacture reactive FARs for producing engine and gearbox sub-assemblies. It will form a 50:50 joint venture with NKK to build such products (pooling their technologies and expertise). Each party will then buy all its respective requirements of such FARs from the joint venture, for resale by each party separately at “competitive prices”. The FARs to be made by the JV will be badged separately so as to look as if they were made by NKK or ARI. ARI will not be free to sell this type of FAR to a number customers in the EU on a reserved list produced by NKK, to whom sales may only be made by NKK. This joint venture will be free (but not obliged) to source raw materials and other inputs from either of its parents if it thinks this would be advantageous for it. No time limit has been placed on the duration of this joint venture, though again it is terminable by either party in the event of “fundamental disagreement” between them in this or any other co-operation.
3. ARI has agreed that it will cease its efforts to develop robots for micromechanical manufacturing uses.
Please advise NKK and ARI on the legality in competition law of this proposal.
Part 2
The urban search and rescue robots
NKK and ARI are each about to launch on the market an independently developed mobile urban search and rescue robot (cf. the presentation “Advanced robotics in the future IST programme: the SME perspective” by Mr. Pegman of RU Robots Ltd. at the DG Information Society and Media Information Event on 7th March 2006 in the materials referred to above). The two robots are functionally similar (although, by a quirk, NKK’s works rather better in dry conditions than in wet conditions, and ARI’s works rather better in the wet than in the dry). They each intend to market these independently of each other and to compete hard for sales.
The robots to be launched by NKK and ARI are each is a “building evaluation” robot (i.e. for building triage, i.e. evaluating the condition of damaged and destroyed buildings). They will be competing products, and there are at present no other competing products available on the market. A number of competitors are understood to be trying to develop similar products, and this is certainly a type of robot for which there would be very healthy demand around the world, but nothing has yet emerged. NKK and ARI (being extremely technically advanced in the development of robotics, and, in the case of NKK, well funded) each found it extremely difficult to development a robot of this new type.
Such a “building evaluation” robot would sensibly be accompanied in rescue operations by a robot to perform the different but complementary function of searching for buried survivors in the rubble(cf. again the RU Robots Ltd. presentation), here referred to as a “survivor search” robot.
NKK and ARI have each tried to develop a ”survivor search” robot, but have given up their research and development efforts, as they were proving unsuccessful and extremely expensive. These decisions have been taken independently by the two companies without discussion between their respective managements.
Other robotics companies are thought to be trying to develop a “survivor search” robot. Here, in contrast with the position on “building evaluation” robots, NKK and ARI consider that a few such products could emerge, at least as prototypes in the public domain, within the next 12 months.
Sensibly, as noted above, a “survivor search” robot of the type NKK and ARI tried to develop would, in rescue operations, accompany a “building evaluation” robot of the type which NKK and ARI have succeeded in developing. There would be a need for each such type of robot in use in a rescue operation to co-operate with a robot of the other type in a number of respects. To this end the respective robots would need to have design features built into their respective software to enable them to communicate with and co-operate with each other (“interface protocols”, to enable interoperability). The development of such interface protocols is a matter of considerable complexity.
NKK and ARI are each keen that their “building evaluation” robots should be capable of inter-operating with as many different types of “survivor search” robots as possible, and are keen to facilitate the development of the latter, being a field in which they have each decided to pursue their R&D efforts no further (nor do they wish to manufacture such robots using someone else’s technology).
With a view to facilitating interoperability between their respective “building evaluation” robots and as many different types of “survivor search” robot as possible from as many different producers as possible, NKK and ARI would like to develop a common interface protocol for their control software. That would have the effect that producers of “survivor search” robot would not need to adapt their machines depending upon with which manufacturer’s “building evaluation” robot the “survivor search” robot would be able to interoperate.
While the parties are in principle keen to encourage and co-operate with as many different developers of “survivor search” robots as possible, they consider that they may want to refuse to provide interface details to developers of “survivor search” robots of whom they do not approve or whom they think will be unable to produce a good quality product. They are not certain, however, assuming the co-operation between them to develop the common interface protocol is lawful, whether they could lawfully refuse.
Please advise the management of NKK as to the legality, in competition law, of this proposal.
[1] Cf. for general background on production line automation systems in the motor industry, see Commission merger decision IV/M/.409 ABB/Renault Automation, decision of 9th March 1993, CELEX document no. 394M0409
[2] See, for example, the website of the Oxford University Robotics Research Group (www.robots.ox.ac.uk )
[3] See its website at www.dell.com
[4] As to which, see the passage from the European Commission Green Paper Vertical restraints in competition policy, COM(96) 721 final, quoted at Jones & Sufrin, Text, cases and materials on EC Competition Law (2nd edn., 2004), pp. 599-600
[5] Cf. Wikipedia
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