Allowing for Software Patents and Regulating the Abuse of resultant Dominance: Fostering Innovation and Competition as well as preserving Consumer benefit.
By Manav Bhatt & Kapil Devnani, 2nd prize, CONFLUX
This article is the runners-up entry for CONFLUX, a blog writing competition on the Intersection of IP and Competition Laws hosted by IPTLS in collaboration with NUJS SITC to promote discourse in this area. In this post, Manav and Kapil, third-year students at HNLU Raipur, argue for software patents to be granted to startups and other smaller ventures to encourage competition in the market and prevent a monopoly of tech giants. They also highlight provisions under the current patent and competition law regimes to address any abuse of dominance and market power by the patented products.
Introduction:
Google Play store, the largest app store being home to over 3 million apps, the menace with regards to duplicate apps poorly built has never went unnoticed, further many of such malicious apps also exposing the users to fraud and cyber crime. While only 1.6% of these apps earn fairly, a majority of app businesses with revenue they earn, are not sustainable. Further, as per Business Software Alliance report only a third of the software sold in India is genuine and thus we understand the importance of patent protection against the weaker protection granted by the copyright regime.
Presently, as per S. 3 (k) of the Patents Act, 1970, “a mathematical or business method or a computer programme per se or algorithms” being not considered an invention are thus not patentable. The Section, its interpretation and policy changes on the position of software patentability has been too and fro as follows:
Act/Manual/Amendment | Position suggested |
Added the words “per se” after computer programmes in the exclusion list to not reject certain other things, ancillary and developed upon computer programmes. | |
2004 Patents (Amendment) Ordinance (Repealed on the grounds that it would lead to monopoly of multinationals) | Proposed dilution of the Section by splitting it into: “(k) a computer programme per se other than its technical application to industry or a combination with hardware; (ka) a mathematical method or a business method or algorithms;” |
2005 draft Manual on Patent Practice and Procedure (based on 2004 Ordinance) | Defining Computer programme product as that readable in computer medium or a computer-readable storage medium having a program recorded thereon, the claims were held to be treated as software per se. Further, method claims needed to have a technical effect i.e. it should solve a technical problem. |
The Manual distinguishing between “software per se” and “software having its technical application in the industry”, the latter were held to be patentable as part of a hardware while the former, a stand-alone software was not patentable. | |
Explained that the exclusion was broad in nature and the claims that are patentable are only with regards to non-computer programmes or those essential to the subject matter, the IPAB in Yahoo v. Controller also explained that if the subject matter of the claim is excluded under S. 3(k), then there being no need to examine novelty, non-obviousness and utility. | |
Reaffirming the original scope of the Section, laid that not all technical effects resulted in technical advancements and that if the hardware had a general purpose then software was not patentable, thus it need to be novel or new. | |
Removing the blanket exclusion for business and mathematical methods under the Section, the Delhi HC in Ericsson v. Intex also elaborated that any invention having technical contribution or effect is patentable. | |
A 3 layered test to determine patentability was laid:
| |
The CRI claim needs to be such a technological advancement as compared to existing knowledge or should have economic significance or both. | |
Refers to the 2017 Guidelines with regards to the Section |
The Jurisprudence over the issues find presence in Ericsson vs. Intex and Ericsson vs. Lava has hinted that just referring to a procedure, method or algorithm attached to a network or hardware to produce a technical effect, does not make it a computer programme per se or an algorithm as excluded under section 3(k), thus it not being applicable when algorithms employed on hardware components produced a technical function, which resulted in a technical advancement. The need of such patent protection in today’s digital world was emphasized in Ferid Allani v. UOI, further stressing that denying such protection on the face of it for all the innovations e.g. in artificial intelligence, blockchain technologies and other digital products that are almost all based on computer programmes would be retrograde. Thus, the technical effect aspect being well established by Jurisprudence aids here.
The ground reality – Disadvantage to Indian budding businesses and sole developers:
Fearing infringement suits from Tech giants
Despite the absolute exclusion of business methods from patentable scope, in 2017 around 4 patents have been granted for the same as the tech companies claimed to have a ‘novel hardware’, a term not defined under the CRI Guidelines and meant to rather qualify software programmes for patentability. These are:
Company and Applications granted | Details |
1. Facebook Application No. 830/CHENP/2009 February 2017 | Method “for generating dynamic relationship-based content, personalized for members of the web-based social network”. Section 3(k) was claimed to not be applicable as the invention implemented a technical process and had a technical effect. |
2. Facebook ApplicationNo. 6799/CHENP/2009 April 2017 | Method to share its user-profile data with third party applications on Facebook. Again, claimed that not a computer programme per se as it had hardware limitations and provided technical improvements like being able to check privacy setting of the user profile. |
3. Apple Application No. 461/KOLNP/2009 May 2017 | Method for browsing data items with respect to a display screen associated with a computing device and an electronic device. While being examined under the ambits of a novel hardware, Apple claimed the invention to introduce improved technical effect and thus be patentable. |
4. Google May 2017 | Phrase identification in an information retrieval system. Argued that it is not an algorithm or a computer program per se, it provided technical solution to a technical problem with regards to automatically finding phrases in a document collection. |
Thus, we see that despite the well-defined explicit exclusivity, out of the 1000 software patent claims filed every year in India, 100 of them, mostly those filed by MNCs are granted, thus being disastrous for small Indian developers and startups that may rather face claims of infringement from these big players.
Previously, Amazon sued Barnesandnoble.com(an online book selling entity and the former’s largest competitor) for infringement of its “1 – click” patent for an online system which allowed a one-time fill in detail of credit card number and address information even for subsequent purchases that could then be made by just a mouse click by the latter’s “express lane” payment option that allowed pre-registered customers to bypass the process and book in a similar 1 click manner. While most of the latter’s customers ended up abandoning carts due to confusion in payment method after the Court asked Barnesandnoble.com to do away with their popular “ express lane” payment, the loss in revenue to the entity especially with the then Christmas season going could be estimated.
Importance of IP Strategy for market access
In 2018-19, MNCs made up 67% of the total patent applications filed, out of which 80% were granted, thus emphasizing on the need for an IP strategy, to compete with these MNC rivals who may have better distribution channels and resources. As we see, successful e- commerce models such as Yahoo!, google, etc. carved their way through innovative and unique business models and for small internet start-up companies, obtaining venture funding depends heavily on protection granted to their new technology. Further, patent once granted, by providing for the right to exclude for the next 20 years, it definitely play an integral role in the initial stages for a startup or small business, especially local ones to enter and get established in the market.
An argument maybe put forth that a patent may not be that efficient after all like Snapchat’s patent with regards to "ephemeral message galleries" (PCT/US2015/053811) not hindering Instagram from introducing the ‘stories feature’ in 2016 because the former just protected technical expression of a feature and did not prevent others from implementing it in a conceptually similar but technically different way. However, this gateway of entry into the market cannot be ignored when it comes to startups, small businesses and sole developers as the direct competitors are MNCs and having protections for their technological advancement becomes quintessential at this stage for their survival, the intellectual property also opening up avenues for collection of revenue in the long run e.g. through licensing or selling.
It does become a matter of survival at times
(Image sources: https://www.drift.com/blog/netflix-vs-blockbuster/)
Blockbuster established in 1985 and having a valuation of $8.4 billion in 1994 was undoubtedly one of the biggest players in video rentals. Netflix (founded in 1997) after the former also launching online DVD rental platform, sued it for alleged violations of two of its patents–
1. A method allowing users select and receive certain number of movie per time and their return for more titles
2. A method for subscription based online rental allowing subscribers to retain DVDs without late charges, get new DVDs without additional charge and reprioritize their queue
While this did end in an out of court settlement, ultimately Blockbuster was declared insolvent in 2010 having incurred $1 billion in losses, while Netflix being one of the greatest booming entities, enjoys a market cap of $83.44 Billion as of 2021. Had the patent protection not been granted, the former Giant would have swept off Netflix in its early stages itself.
Similarly, the Tinder- Bumble tussle over the former’s allegation of the latter infringing its swipe patent for a unique feature of matching process system and method, when Bumble Inc’s plea of dismissing Match groups patent infringement case was heard, it was held that the patents were valid as it the swipe right movement:
“has been a commercial success because it has increased 'the speed of a user's navigation through potential matches' which is apparently important to a substantial number of people who are interested in meeting other people via the internet,”
While Tinder remains to be the largest in terms of market share in the US, it having 2% of the monthly active users (MAUs) of most popular dating apps, Bumble remains to be one of the largest competitors having 13 % of Tinder’s MAUs. In such delicate cases, the advantage of such protection seems very crucial in case of any legal tussle and in order to bar the other entity.
Regulating restrictive practices after grant
Grant of patent being different from commercialization, the former does not directly make way for dominance in the market and the right does not confer market power and commercial success which is necessary for dominance. If dominance as usually subsequently established by a Patent exists and the same is abused, it needs to be regulated. The Patent Act itself manifesting this has laid rules to avoid restrictive practices under Section 140, though not exhaustive in nature.
However, another approach to the issue talks about the involvement of Competition Law. As per this whereby it needs to be read in harmony with the Patent Act, 1970 to resolve the issue. This view has been supported by the US Court of Appeals in Atari Games v Nintendo, in which it was held thatthe objectives of both these laws are complementary to each other, as both of them aim at encouraging innovation, industry and competition. Further, the Competition Law of the European Commission also creates a system where it can exercise its powers to influence the manner in which the IP Rights are exercised. India could borrow from these Jurisdiction, their model to create an environment in which the monopoly under IP law could be enjoyed with minimum anti-competitive behaviour.
In India, the legislative intent being clearly established in Section 60 that lays for overriding effect of the act, in cases of clash between the “act and such statues to effectuate the policy of the Act” the Competition act shall override as confirmed in Competition Commission of India v. M/s Fast Way Transmission Pvt. Ltd. and Others. Additionally, Section 62 also provides that “the Competition Act would be in addition to and not in derogation of the provisions of any other law for the time being in force”. Even the Indian Judiciary holds the similar view. In Aamir Khan Productions Pvt Ltd v UOI, the Bombay High Court observed that the CCI has the absolute jurisdiction to adjudicate the matters pertaining to IPR. Similarly, in Ericsson v CCI, the Delhi High Court held that the Indian Patents Act, 1970 contain no such provision which could oust the jurisdiction of the CCI. Talking about the Right of Patent Holder to enter in an agreement to restrain infringement, the same Court in Monsanto Holding Pvt. Ltd. v CCI held that this right is not unqualified and if such an agreement would include any condition which is unreasonable in nature, then the CCI will surely come into picture. Further, the Court clarified that CCI possess a power to examine any complaint regarding the abuse of dominance directly, without any prior determination by the Controller of Patents. As per the High-Level Committee Report on Competition Policy and Law, “all forms of Intellectual Property have the potential to raise Competition Policy/law problems. Intellectual Property provides exhaustive rights to the holders to perform a productive or commercial activity, but this does not include the right to exert restrictive or monopoly power.”
Possible restrictive practices and need to apply the Competition Act
Section 140 of the Patent Act deals with the avoidance of certain restrictive actions, but the ambit of this provision is not broad enough to single-handedly restrain the abuse of dominance of a Patent Holder. First of all, the provision only restrict the insertion of any condition in a contract of sale, lease, or license, which would result in the abuse of the dominance of the patent-holder and the same could be confirmed by a bare reading of the provision. Additionally, as per its sub-section 3, “in proceedings against any person for the infringement of a patent, it shall be a defence to prove that at the time of the infringement there was in force a contract relating to the patent and containing a condition declared unlawful by this section.” So, the provision works only where there in an involvement of a Contract, but what if the patent-holder without forming any such Contract indulge in a practice which would result in the abuse of its dominance.
OECD suggests a number of ways in which dominance in digital markets can be abused – refusal to deal, predatory pricing, margin squeeze, exclusive dealing and loyalty discounts, tying and bundling, exploitative abuses, etc. For dealing with such abusive cases, Section 4 of the Competition Act is rather more equipped eg. as per S. 4(2)(a)(ii), unfair and discriminatory pricing of the product would come under the abuse of dominance, however nothing regarding pricing is mentioned under the provisions of the Patents Act. So, if for example, if a particular software gets its patent protected and gets a domination in the a defined market, then it might try to charge unfair price for using its services as it would be the lone-survivor in the market, just like Grasim Industries, which was the sole producer of Viscope Staple Fibre (VSF) in the country. This act will definitely result in abuse of its dominance, but S. 140 of the Patent Act would not be in a position to restrict it and therefore, the need of S. 4(2)(a)(ii) of the Competition Act will arise.
Similarly, as per S. 4(2)(e), “if an enterprise uses its dominant position in one relevant market to enter into, or protect, other relevant market, then it would be an abuse of its dominant position.” The finest example of this scenario is the Byju’s – Akash Deal. As per one view, “Byju by using its heavy user base in the ed-tech market as an opportunity to enter into the conventional education market through the Aakash acquisition.” Although, there is no such investigation going on regarding the deal, but still if any of such situation arises in future, then the Patent Act would not be able to cope up with it as it lacks the above-mentioned clause. Similarly, if market access is denied to others, S. 4(2)(c) of the Competition Act can be relied on, on the other hand there would be no remedy available under the Patent Act.
Conclusion
In today’s digital world, it is high time that a way is made for software patents in India, especially in the light of inconsistently haphazard policy changes that have already upset the status quo with tech giants being granted patents and thus, smaller entities having to face the brunt of the restriction on patents. Further, such an act facilitating innovation by startups, small/ local businesses and sole developers, ensures proper competition and avoids abuse of dominance by tech giants. In case, if at all the granted authority in turn abuses his patent rights and the dominance created thereof, it falls under the scope of Section 140 of the Act as well as per the Competition Act and the Jurisprudence thereof, by the widely encompassing provisions of the Competition Act. This ensures a perfect environment balancing monopoly with abuse and facilitating competition as well as consumer benefit at the end.
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