INEXTRICABLE LINK BETWEEN INTELLECTUAL PROPERTY RIGHTS AND COMPETITION LAW: EVOLVING JURISPRUDENCE AND LESSONS FOR INDIA
by Ashin Babu & Abhishek Dhakad, Special Mention, CONFLUX
This article won a special mention 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, Abhishek and Ashin, first-year students at National Law University, Delhi, engage with the concept of refusal to license under patent law and its interaction with the Relevant Market Concept and the Indispensability Factor under competition law. They also suggest interpretative amendments to the same for the benefit of consumers.
Abuse of Patent rights is a recurring problem in any society trying to strike a balance between constant innovation and growing consumer welfare. The Indian Patent Act is designed to protect the innovators' legal rights to solely confine the benefits of their invention to themselves. Compulsory licensing is a government-imposed non-consensual licensing which allows a third party to utilize a patentee's exclusive patent. It will be given when denial of access to vital IPRs to rivals and non-competitors transmutes into abuse of dominance. As per the Patent Act 1970, refusal to license is legally construed as the primordial qualification subsequent to an application for an approval to license a patent. The legal stipulations for compulsory licensing are described in Section 84 (1)[i] of the Patent Act as, when the reasonable requirements of the public proceed unsatisfied without objective justifications, it would advance to an anti-competitive practice under specific qualifications, which in turn leads to compulsory grant of access.
This essay is devoted to elucidate and thoroughly examine the legal scope of refusal to license in section 84 (7) a (i)-(iv) and argues that the convergence of Patent law and Competition law in western jurisdictions should be evaluated and juxtaposed with contradictory and opposing judgments in the Indian jurisdiction in order to bridge the legal lacunae in the latter. The quintessential principles considered in refusal to deal are the Relevant Market Concept and the Indispensability Factor. So a reinterpretation of section 84 on light of these elements will prove a substantial improvement to the welfare of Indian consumers.
Relevant Market Concept
A relevant market is one in which products and services are actually competing. The relevant market concept is devised to determine an enterprise's abuse of dominance in a geographical market. Precisely defining relevant market is a sine qua non for determining the appreciable effect that the alleged anti-competition has over the market. However, the conceptual concoction displayed and deployed by the Indian courts obscured the conceptual complexities, necessitating the use of relevant judgments from other countries.
In India, the relevant market concept was expounded in the MCV vs NSE case[ii], where the court bifurcated the relevant market into product market and commodity market, but hesitatingly constructed a nebulous spatial by withholding itself from clarifying the correspondence of the dissection to the upstream-downstream cleavage in the western jurisdictions. In the respective case, the commission had the commodity market in issue, however the product market was considered as the whole secondary security market which includes various types of equity, debt and hybrid instruments. Through critical analysis, it can be concluded that the product-commodity market derivation conforms to the parameters of western jurisdiction but falls short of demarcating the ability to sustain claims of abuse of dominance in the upstream market.
The IMS Health case[iii] exemplified the traditional quagmire that occurs when a competitor tries to directly penetrate the dominant firm's upstream market. The IP legislation is designed to safeguard invention by granting innovators exclusive rights to use their products in the upstream market. However, the court extended the application of the downstream market to the upstream market, reasoning that in cases where a monopolist firm establishes an unassailable hegemony in the upstream market, competitors are compelled to rely on the irreproducible IPR asset, and thus non-discriminatory access was required to protect future market innovations. This was the basis for the court's extension of the principle to the upstream market, and the same rule can be applied in India to protect the consumer welfare.
Indispensability Factor
At the incipience, a plaintiff should establish that the ‘essential’ or ‘indispensable’ product is unambiguously unavoidable to compete in the relevant market. The court stated in the Magill case[iv] that refusing to licence to exclude competitors is not anti-competitive, if the product is inessential and non-indispensable in a certain market, trade, or industry. According to the Indian courts, an 'essential' commodity is one that, if denied entry, hinders the market from being competitive. In various scenarios, the key ingredient to be established in a compulsory licencing action, namely the indispensable product itself, was broadly and vaguely defined by the Indian courts. The French court in Voyage sncf case, attempted to define the scope of indispensability in order to achieve more clarity. The product should be owned by a monopolist and the enterprise should be a dominant entity, where the economic strength enables it to hinder the maintenance of effective competition in the relevant market by allowing it to advance business independently or at the expense of other competitors. The ‘essentiality’ of the respective product should be assessed by its unavoidability in the upstream, downstream, or related market and the economic unviability should make it unreasonable to duplicate the product infrastructure. The denial to licence should be objectively unjustifiable with respect to a technically feasible product. The rival should suffer considerable hardship as a result of the restriction of access, and the hardship should be more than inconvenience or financial loss. The combined interpretation of these variables skillfully relegates the ambiguity assigned to the term 'indispensability,' resulting in an objective indispensability criterion that could be applied in Indian law.
The second question was whether economic indispensability might be added to objective indispensability. In reality, broadening the definition of objective indispensability match Indian consumer welfare ideals. As per the Microsoft case[v], the court rightly notified that the technical feasibility of a product should not be the sole criteria because a firm may be equally affected if it is economically blockaded as in the Microsoft case where the firms were denied the inter-operability information. In this respect, the Court held that although the access to the market might have been technically possible, Microsoft's refusal to license the inter-operability information eliminated the economic viability of such entry. The court added in this context that the test for indispensability will be satisfied when competition is eliminated gradually, rather than immediately.
Conclusion
Intellectual Property Rights are inevitable for a society for developing sustainable innovation. The contemporary Patent law and Competition law are envisaged and constructed from a utilitarian point of view, where the social desirability of a product is balanced with the innovative effectiveness of the product. However, it is clear from the past experience that unbridled IPR power will likely lead to abuse and thereby harm consumer and competitor interests.
An IP holder is under the liberty to exclude competition when the IP product is deemed to be not exclusively exceptional to the market. But the exceptional circumstances should be read in the conjunction with the Relevant Market concept and the Indispensability Factor and they could be concisely defined as:
A refusal to license, deal or supply would objectively, technically, and economically concern an indispensable product in the market, trade, or industry.
A refusal to license, deal, or supply prevents the appearance or innovation of a novel product for which there was potential consumer demand.
A refusal to license, deal or supply is highly likely to exclude all or in part, the competition in the upstream and downstream market.
A refusal to license, deal, or supply is not justified by objective considerations.
The essay is mainly concerned with the inconsistencies, deficiencies, and vagueness that constrains the Indian Patent Act and it tries to synchronize the jurisdictional variations through comparative analysis to construct an ensemble. We argue that there should be a re-analysis of section 84 (7) (a) (i-iv) according to the novel doctrine to balance the constitutional socialism and the capitalist innovation in our country.
[i] The Indian Patent Act, 1970, §84
[ii]MCX Stock Exchange Ltd. v. National Stock Exchange of India Ltd, (2011) CompLR0129(CCI)
[iii]IMS Health Inc. v. Commission, (2001) Case T-184/01 R
[iv]Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v Commission of the European Communities, (1995) C-241 & C-242/91 P E.C.R. 1-743
[v]Microsoft Corp. v Comm'n, (2007) E.C.R. 11-3601
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