Intellectual Property Rights and Competition Law: A Constant Conflict and an Evolving Interface
By Panchami Pranesh, 3rd prize, CONFLUX
This article won the 3rd prize 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, Panchami, a fifth year student at University Law College, Bangalore University, discusses the treatment of competition law disputes that specifically concern IPR matters, and the conflicts arising as a result. For this, she analyses the varying efforts taken by Courts to reconcile and comment on the two fields.
Intellectual Property Rights and Competition law are two areas of law which are continuously evolving and often find each other constantly in conflict.
Intellectual Property Rights (IPR) is the rights given to persons over the creation of their minds.[1] IP comprises of legal rights granted to a person or a business for an invention, brand, design or other kind of creation.[2] The common types of IP include copyright, patents, designs and trademarks.
The competition laws in India are governed by the Competition Act which was enacted in 2002. The object of the Act is to prevent practices having adverse effect on competition so as to promote competition in markets, thereby protecting the interests of consumers and ensuring freedom of trade carried on by other participants in the relevant markets.[3]
Abuse of Dominance:
While competition law on one hand aims to prevent anti-competitive practices[4], IPR on the other hand aims to incentivize the inventors and innovators by granting them the exclusive right to commercially exploit the works over which IPR exists to earn reasonable profits for a limited period of time.[5] A dominant position is created in the market which can be termed as ‘monopoly’. This dominant position, when abused creates a major concern relating to competition law.[6] However, it is to be noted that a dominant position in the market is created when there is lack of availability of alternate technologies.[7] Thus holding a dominant position is not anti-competitive per se, but abuse of such a dominant position would amount to anti-competitive practices.
Section 3 and 4 of Competition Act, 2002:
Section 3 prohibits anti-competitive agreements that are likely to cause an adverse effect on the competition within India, but also provides an exception to protect the rights of the IP right holders. Although the section does not infringe the rights of IPR holders, an interface is created between Section 3 and 4 in such a way that, if IPRs are used to abuse the dominant position in the market, then by virtue of Section 4[8] such abuse is prohibited. Hence, Section 3(5) only provides for limited immunity but does not transcend to conduct that is exploitive in nature.[9]
Anti-competitive agreements involves collusive behavior among association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit or attempt to control the production, distribution, sale or price of goods or provision of services.[10] There is a need to distinguish the existence of a right and the act through which it is exercised. During the exercise of a right, if any anti-competitive trade practice or conduct is visible, which may be detrimental to the consumers, then such conduct is ought to be addressed under the competition law.[11]
Grant of License by the IP Right holders:
The IP right holders have been granted the right to exclude others from making use of the IPR in accordance with the various statutes enacted as a part of Indian Intellectual Property Laws.[12] The IP right holders also have the right to grant licenses[13] on the basis of a consideration which maybe in the form of royalties or payment of fees.[14] But under certain circumstances, refusal to grant license may be construed as anti competitive practices when it acts as a tool to prevent the invention of new products in order to curb competition. This abusive conduct may be in the form of fixing high prices in the market or refusal to grant licenses for the manufacture of the patented product. An IPR owner can refuse to grant licenses either by directly saying ‘no’ to any third party who wishes to work the IPR commercially, or by asking for extremely high royalties or by imposing such other unreasonable conditions. Such refusal to grant licenses, when causes prejudice to the development of industrial activities leads to abuse of IPR.
Grant of Licenses in relation to Patents and associated compliances:
The industries generally create technologies that comply with certain standards[15] and obtain Standard Essential Patents[16] for such technologies. A patent that protects technology that is essential to comply with a standard is called SEP.[17] No person can use the patent of another without authority or consent of the patent holder.[18] The patent holder may grant licenses by charging royalty rates[19] on the patented technology to third party who wishes to make use of such technology. Hence, the Patent holder is in a position of dominance and possesses significant bargaining power in relation to other implementers of the same technology. The Patent holders have the potential to behave in a competitive way by demanding excessive royalty fee.[20] In order to create a balance between the bargaining power of the licensor and the licensee, the Standard Setting Organizations[21] have established the process by which the owner of the SEP is obligated to comply with the FRAND terms, by which the SEP holder is required to license technologies on fair, reasonable and non-discriminatory. By this process, it can be ensured that while the patent owner benefits from his patent, the remaining stakeholders are protected from paying exorbitant royalty rates.
As the rightful owner of the patent, FRAND is a voluntary licensing commitment that is primarily used for the adoption of an existing patented technology to be used by other manufactures and producers. Any agreements between manufactures or producers, who are essentially competitors which are non-complaint with FRAND terms, resulting in them becoming anti-competitive in nature, may be challenged before the Competition Commission of India.
Relevant Judicial Decisions:
Below are a few judicial decisions that reflect on the conflict and interface between IPR and Competition law:
In Aamir Khan Productions Pvt.Ltd. v Union of India, it was alleged that three Associations/Enterprises were perpetrating cartel like activity that was in violation of Section 3(3) of the Competition Act, and the jurisdiction of the Competition Commission to decide such cases was questioned. The Bombay High Court held that the Competition Commission has the jurisdiction to determine all matters concerning IPR and competition law, irrespective of clause (5)(i)(a) of section 3 that allows a copyright holder to impose any reasonable conditions as maybe necessary for protecting his rights conferred to him under the Copyrights Act, 1957.[22]
Another case in which the interface between the two regulatory systems was discussed is Telefonaktiebolaget LM Ericsson (PUBL) v Competition Commission[23] of India before the Delhi High Court. In this case, the jurisdiction of Competition Commission to commence any proceeding in relation to claim of royalty by a proprietor by a proprietor of a patent was questioned. It was contended that any claim for royalty or any other issue of abuse of dominance in relation to a patent by a patentee would fall within the scope of Patents Act, 1970 and cannot be a subject matter of examination under the Competition Act. It was observed by the Court that although the remedies provided under the Patents Act[24] for practices that construe as abuse of dominance or anti-competitive in nature, is materially different from the remedy provided under the Competition Act.[25] But the Court observed that it was never the intention of the Parliament to repeal other statutes that present any inconsistency, by enacting Competition Act. The court further observed that in the event of abuse of patent rights, if there is any irreconcilable conflict between the Patents Act and the Competition Act, the provisions of the Patents Act, which is a special and a self-sustained code shall prevail notwithstanding the provisions of the Competition Act.[26] However, in this particular case, the court found that since there was no conflict between the two legislations, the jurisdiction of the CCI to entertain complaints for abuse of dominance in respect to patent rights cannot be ousted.[27]
In the same case, it was also noted by the CCI that the appellant was a member of the European Telecommunications Standards Institute (ETSI) and was required to give an irrevocable undertaking that it would grant irrevocable license on FRAND[28] terms. It was alleged that Ericsson, despite being a member of the ETSI, violated the FRAND terms by demanding excessive royalties resulting in abuse of dominant position by Ericsson. The Competition Commission of India passed an order holding that the practices adopt by Ericsson were anti-competitive and contrary to FRAND terms. The Delhi High Court upheld this order confirming the jurisdiction of the CCI to pass such orders.
A case in which the interface between Section 3(5) and Section 4 of the competition Act was discussed is FICCI-Multiplex Association of India v. United Producers/Distributors Forum (UPDF)[29]. In this case it was alleged that the members of the UPDF were jointly controlling almost 100% market share of production and distribution of Hindi motion pictures exhibited in the multiplexes and were involved in a cartel-like activity. It was contended that the case fell under the blanket immunity provided by section 3(5) which allows the right holder to impose conditions as maybe necessary for protecting rights granted to them under the Copyright Act, 1957. However, the court found that the case was a clear violation of Section 3(3)(a)[30] and any plea based on copyright is wholly misplaced and hence rejected the plea taken by UPDF. Additionally, the Court also made an observation that the intellectual property laws do not have any absolute overriding effect on the competition law.[31]
Conclusion
The purpose of enacting IPR laws are not merely to enable the IPR holders to enjoy a monopoly for their invention or creation, but also to ensure that the protection and enforcement of such rights contribute to the technological innovation and in such a manner that is conducive to social and economic welfare without causing adverse effects on the competition in the relevant market. When it is found that the rights granted under the IPR laws are being abused resulting in the disruption of the competition in the relevant market, the competition law enacted in India ensure that such abuse is prevented. The legislation vests certain discretion with the Competition Commission in India in order to assess whether a particular act or conduct is anti-competitive in nature. Thus, a balance is created between the two areas of law ensuring fair competition in the market.
//about
[1] What are Intellectual Property Rights? https://www.wto.org/english/tratop_e/trips_e/intel1_e.htm
[2] Intellectual Property rights in India; Intellectual property office
[3] Competition Act, 2002
[4] Competition Act, 2002,Section 4
[5] Bayer Corporation v. Union of India, Writ Petition No.1323 of 2013 (Bombay High Court)
[6]Aravind Prasanna, Intellectual Property Rights and Competition law: A satisfactory compromise in India
[7] Alice Pham, Competition Law and Intellectual Property Rights: Controlling Abuse or Abusing Control?[CUTS INTERNATIONAL, Jaipur, India] p.1, pp. 4-5 (2008)
[8] Section 4 of the Competition Act, 2002 prohibits all kinds of abuse of dominant position
[9] Shashank Jain and Sunitha Tripathy, Intellectual Property and Competition Laws: Jural Correlatives, [JOURNAL OF INTELLECTUAL PROPERTY RIGHTS (2007) p. 224 at p. 229]
[10] Section 2(c), definition of ‘Cartel’; Competition Act, 2002
[11] Para 5.1.8. of the report by the Raghavan Committee constituted by the Government for recommending the legal framework for competition law.
[12] The Patent Act, 1970, The Trade Mark Act, 1999, The Copyright Act, 1957, The Design Act, 2000.
[13] Section 30, Copyrights Act, 1957 (permits owners of copyrights in existing work to grant license); Section 49, The Trade Marks Act, 1999 (provides for the use of the mark by the registered user who is the licensee); The Indian Patents Act, 1970 (empowers the grantee of the license to issue licenses in relation to the patents).
[14] Yumiko Hamano, Introduction to License
[15] Standard may be defined as a document approved by a recognized body, that provides for common and repeated use, rules, guidelines or characteristics for products or related processes and production methods with which compliance is not mandatory.
[16] An invention which is to comply with a standard is known as a Standard Essential Patent
[17] Department of Industrial Policy and Promotion; Ministry of Commerce, Discussion Paper on Standard Essential Patents and their Availability on FRAND Terms.
[18] Shippey Karla C, A short course in International Intellectual Property Rights
[19] Yumiko Hamano, Introduction to License (Patent royalties are payments made by the licensee to the licensor for the use of the patent)
[20] Digvijay Singh and Rajnish Kumar Singh, Licensing of Standard Essential Patents on FRAND Terms in India
[21] Standard Setting Organizations(SSOs) such as European Telecommunications Standards Institute (ETSI), the International Telecommmunication Union(ITU), Institute of Electrical and Electronics Engineers (IEEE), etc.
[22] Aamir Khan Productions Pvt. Ltd. V Union of India; Writ Petition No.358 of 2010
[23] Telefonaktiebolaget LM Ericsson (PUBL) v Competition Commission
[24] Section 84, Patents Act, 1970
[25] Section 27 of Competition Act, 2002
[26] Telefonaktiebolaget LM Ericsson (PUBL) v Competition Commission, Para 157
[27] Telefonaktiebolaget LM Ericsson (PUBL) v Competition Commission, Para 180
[28] Fair, Reasonable and Non-Discriminatory Terms
[29] Competition Commission of India, (2009), FICCI-Multiplex Association of India v. United Producers/Distributors Forum (UPDF) Case No.01/2009
[30] Any agreement entered into between enterprises or associations of enterprises or persons or associations of persons or between any person and enterprise or practice carried on, or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which directly or indirectly determines purchase or sale prices;
[31] Competition Commission of India, FICCI-Multiplex Association of India v. United Producers/Distributors Forum (UPDF) Case No.01/2009; Para 23.30
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