The Bottom Line
- Walled Gardens Get a Green Light: Companies can use technology, like firmware updates, to control the market for their product’s consumables (the “aftermarket”). This opinion suggests such “lock-in” strategies are defensible if they serve a legitimate purpose, such as combating counterfeits.
- The Burden on Challengers is High: Competitors alleging abuse of dominance face a steep climb. They must provide sophisticated economic analysis to prove the “relevant market.” Simply arguing that a company has a monopoly on its own branded spare parts is not enough.
- Focus on the “System,” Not Just the “Aftermarket”: Courts are likely to view the primary product and its consumables as a single “system market.” For printers, this means competition is assessed at the level of HP vs. Canon vs. Epson, not just in the isolated market for HP-compatible ink cartridges.
The Details
The dispute centers on HP’s “Dynamic Security” feature, a firmware update that blocks non-HP ink cartridges from working in its printers. Digital Revolution, a major seller of third-party “house brand” cartridges, sued HP, arguing this practice is an illegal abuse of a dominant market position under EU competition law (Article 102 TFEU). HP defended the practice as a necessary measure to protect its intellectual property and ensure quality by weeding out counterfeit cartridges. An advisory opinion to the Dutch Supreme Court has now recommended rejecting the competitor’s claims, offering significant insights for businesses operating in markets with primary products and secondary consumables.
The core of the legal reasoning rests on the crucial first step in any competition case: defining the “relevant market.” Digital Revolution argued that the market should be narrowly defined as the market for cartridges compatible with each specific model of HP printer. In such a narrow market, HP would by definition be a monopolist. However, the Advocate General supported the lower court’s view that Digital Revolution failed to provide the necessary economic evidence for this narrow definition. Instead, the court favored viewing the landscape as a broader “system market” for printing, where HP competes fiercely with other major brands. In this wider arena, HP does not hold a dominant position that it could abuse.
Furthermore, the opinion validates using technical protection measures as a legitimate business justification. The court accepted HP’s argument that Dynamic Security is a tool to combat illegal counterfeit cartridges. The fact that this tool also blocks legitimate, non-infringing competitors like Digital Revolution was seen as an acceptable side effect, not evidence of unlawful intent to crush competition. While the lower court’s technical application of certain legal tests (like the EFIM test for aftermarkets) was found to be flawed, the Advocate General concluded these errors were not decisive. The case ultimately failed because the challenger could not overcome the initial—and highest—hurdle of proving market dominance.
Source
Office of the Advocate General at the Supreme Court of the Netherlands
