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A CRITICAL ANALYSIS OF THE INTERFACE BETWEEN COMPETITION LAW AND IPR:A CRITICAL ANALYSIS WITH SPECIAL REFERENCE TO PATENT REGIME IN INDIA BY: RITIK MALIK & DR. SHEEBA AHAD
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A CRITICAL ANALYSIS OF THE
INTERFACE BETWEEN COMPETITION LAW AND IPR:A CRITICAL ANALYSIS WITH SPECIAL
REFERENCE TO PATENT REGIME IN INDIA
AUTHORED BY:
RITIK MALIK & DR. SHEEBA AHAD
Abstract
The relationship between competition
law and intellectual property rights (IPRs), particularly within India's patent
regime, is a subject of ongoing debate. While patents are intended to stimulate
innovation and provide incentives to inventors, they also confer monopolistic
power that can stifle competition and hinder access to essential goods and
services. Balancing the interests of inventors, consumers, and society presents
a significant challenge for policymakers and regulators, especially in the
context of globalization and diverse international approaches to competition
policies.
In India, this tension is especially
pronounced. The country's patent regime has seen significant reforms to align
with international standards while incorporating provisions to safeguard public
health and prevent the abuse of IPRs. However, challenges such as patent
thickets and ever greening persist, complicating the balance between innovation
and affordability. This paper critically analyzes the legal frameworks, case
studies, and empirical evidence to offer insights into the complex interface
between competition law and IPRs, aiming to inform policy discussions and
contribute to ongoing debates on achieving a balance that benefits society as a
whole.
Introduction
The key purpose of all competition
policies are to make sure that there is legal entry/ exit of firms and smooth
functioning of companies without the exercise of any malpractices. Some
prominent anti competitive practices are collusive bidding, abuse of dominant
position, refusals to give goods, exacting excessive prices for products etc.
which negatively influence the competition in specific markets. There is a very
close connection among IPRs and the competition law or policies of a land.
Where on one hand, IPRs execute the competition policies by protecting the
privileges of the inventors in the marketplace from exploitation by other
competitors; the competition policies stop any abuses of privileges of the IP
owners.
IPRs create temporary rights to favor
the IPR holder to exclude others from using that IPR. The period of exclusivity
allows the IPR holders to exploit the values that is assigned to the IPRs and
is seen as rewards for the attempt invested by the inventor in creating the
IPRs. Therefore, the IPRs essentially grants monopoly rights to the holders of
such IPRs for restricted periods of time.
Competition laws are considered with
preventing anti-competitive conducts, whether effectuated as a result of
coordinated or unilateral action. Inherent in this interface between IPRs and
competition law is the need to ensure that not only is the IPR not subject to
abuses but also to guarantee that the
antitrust regimes are not overbearing and keeps the incentives for prospective
inventor to innovate and make IP.
The association among competition
laws and IPRs are often viewed as adversarial. Competition laws strive to
maintain effectual competition as ways of achieving effective allocation of
resource and thereby contributing to client happiness. IP rights, on the other
hand, provide the IP holder with legal monopolies for restricted periods, which
protect the IP holders from competition.
IPR and Competition Law Interface
The simple hallmark of competition
law is the protection of those principles and practices which enable the
efficient functioning of markets. A natural concomitant to this objective is
making certain that incumbent enterprises do not engage in anticompetitive
practices to the detriment of the market. However, the application of
competition law standards-in terms of practices that should be banned outright,
viewed as potentially anticompetitive or should be investigated further-varies
widely across jurisdictions.
The interaction between intellectual
property rights (IPR) and competition law is predominantly created by the
non-rivalrous and non-excludable nature of intellectual property, which causes
the problem of "appropriable". The creation of this prima facie
"inherent tension" is due to IPR holders being granted statutory
rights to essentially control access to the intellectual property and charging
monopoly rents for the use of the IPRs-something apparently in conflict with
competition law, which attempts to curtail such market power.
Historically, this conflict has been
overplayed, right from the early days of the 20th century, when granting
patents in particular brought about paranoia regarding monopolies and patent
licensing was heavily regulated.
There has been a well-rounded concern
of competition law with IPR owing to two major developments -the expansion in
functional coverage of IPR protection and its vertical expansion to a new range
of products, especially knowledge-based products and the appreciable trend,
especially in IPR-driven markets such as the US, EU and Japan, of individual
market leadership reinforced by IPR-protected industrial standards.
However, it is now usually accepted
that the two regimes are not so much at loggerheads as they pursue the goals of
consumer welfare and encouraging innovation through different means. It is thus
implicitly understood that the real issue that competition law has is not with
the existence but with the exercise of IPR. Striking this balance involves
walking the tightrope between over- and under-protection of innovators'
efforts.
Three theoretical bases have been
suggested for this reconciliation between IPR and competition law regimes:
- the view that competition law
should only interfere with innovation/IPR when social welfare is at risk;
- the view that concentration and
monopoly markets have the edge over competitive markets in terms of
innovation owing to greater capital and resources and
- the view that competition law
only concerns itself with consumer welfare when the effects of a proposed
action on production and innovation efficiency are neutral or
indeterminate.
These theoretical underpinnings would
suggest that a reasonability standard be applied, taking into account the facts
and circumstances of the case in question.
Two main concerns dominate this
IPR/competition law interface. The first of these is the potential abuse of
monopoly pricing, especially in developing countries where effective
substitutes to IPR-protected products may not be readily available. Second,
competition law seeks to draw a line between permissible business strategies
and abuse of IPR, a line which is often blurred by horizontal agreements,
exclusionary licensing restrictions, tie-in agreements, excessive exploitation
of IPR and other selling practices
However, at a conceptual level, the
lines are clear. The limited monopolies granted by IPR are not per se
anticompetitive or excessively exploitative-they only become anticompetitive
when the IPR holder looks to extend those rights beyond their intended and
proper scope.
Types of Restraints
This interface between IPR and
competition law has evolved several types of restraints on competition. While
no one has sought to contend that licensing agreements are per se anticompetitive,
the focus of these restraints is typically a licensing agreement which could
adversely affect competition by artificially dividing markets among enterprises
and possibly impeding the development of new goods and services.
More specifically, the phenomenon of
exclusive licensing, manifested through several unilateral market tactics by
enterprises such as tie-in arrangements, exclusive dealing, licensing
restrictions as well horizontal agreements, have attracted the attention of
competition regulation authorities across the world.
Domestic Scenario
The process of initiating a new
competition law in India was started by an Expert Group set up to study trade
and competition policy. Noting that
competition policy is a prerequisite to economic liberalization, the Expert
Group, in its report submitted to the Ministry of Commerce in January 1999
recommended that a fresh competition law be drawn up. In October 1999, the
government appointed a High Level Committee on Competition Policy and
Competition Law to draft the new competition law, which was submitted in
November 2000. The resultant Competition Act, 2002 coming into force mere
months before the expiry of the TRIPS compliance period for India can therefore
be seen as India's fulfillment of its TRIPS obligations.
Under Section 3, the
Competition Commission is required to look into agreements which are anti
competitive in nature and those found to be anticompetitive are declared void.
The Competition Act incorporates a
blanket exception for IPR under Section 3(5) based on the rationale that
IPR deserve to be cocooned since a failure to do so would disturb the
all-important incentive for innovation, which, itself, would have knock-on
effects in terms of a lack of technological innovation and reflect a lack of
quality in goods and services produced. However, equally, it does draw the line
inasmuch as it does not permit unreasonable conditions to be passed off under
the guise of protecting IPR. Thus, in
principle, IPR licensing arrangements which interfere with competitive pricing,
quantities or qualities of products would fall foul of competition law in
India.
However, this manifestation of
Section 3(5) is far removed from the original recognition given by the High
Level Committee to the fact that all forms of IPR have the potential to raise
competition policy problems, in effect recognizing the existence/exercise
distinction.
Section 3 also remains puzzling,
inasmuch as it goes against MRTP Commission precedent under the old Act which
held that the Commission (and, by extension, the Competition Commission of
today) had complete and unfettered jurisdiction to entertain a complaint
regarding IPR. Indeed, Manju Bhardwaj v.
Zee Telefilms Ltd and Dr Vala Peruman v. Godfrey Phillips (India)
Ltd stand as authority for the view
that unfair trade practices [as understood under Section 36-A(1) of the
old Act] could be triggered by the misuse, manipulation, distortion,
contrivance or embellishment of ideas generated by the complainant.
Other grounds for critique of Section
3 in particular include the almost exclusive focus on protecting the IPR
holder, no adequate consideration of public interest and the absence of any
power to restrict an IPR holder from imposing reasonable conditions on
licensees for protecting such IPR.
While the Act does create categories
of per se illegality such as price fixing, geographical divisions and market
divisions, the standardized treatment extended to these categories as well as
to tying arrangements, refusals to deal, resale price maintenance and
exclusivity agreements suggests that the standard of if "they cause an
appreciable adverse effect on competition”
would have to be very sound indeed.
Critical analysis of the relationship between Patent
and Competition Law
On the face of it, the two arms of
law that are closely related to forces in the market, patents and competition
laws, seem to be in conflict with each other. It appears that one arm of law
creates and protects monopoly power, while the other seeks to proscribe
it. However, this discernible conflict
has been invalidated over the years as the sole purpose of both these systems
of law is to promote innovation, industry and competition in a market for
customer welfare.
Though Patents are necessary for
furthering efficiency and development in a market, it also has great potential
of having a negative effect on the competition and consumers in certain
circumstances. A Patent holder who
exercises significant power in a market can tend to misuse it's position and
fortify it further in order to expand and conquer the entire market place,
thus, affecting the free and fair competition in the market in an unpropitious
way. Such a malevolent conduct can take the form of vexatious litigation,
tie-in arrangements, restraints on challenging the validity of patent and
vertical restrictions that adversely affect competition. As a result, a patent
holder becomes like any other abusive firm in the market, engaging in
anti-competitive practices, except that such a holder has an exclusive right
over its invention which it can use to thwart competition in the market in contrast
to the other companies which do not possess such a right. Several scholars have
highlighted problems in the patent system itself, the primary problem being
overprotection that may interfere with innovation rather than promoting it.
Patents and antitrust law are two
bodies of law that closely relate to the working of competitive forces in the
market. At first glance, they appear to be in apparent conflict: because
antitrust law is concerned with promoting competition while patent law grants
inventors a limited period of exclusivity in exchange for disclosing their
invention. It may appear that one body of law creates and protects monopoly
power, while the other seeks to proscribe it.
But this apparent conflict has been
debunked over the years. Firms that engage in innovation compete against each
other to develop new products and new processes to manufacture existing
products to secure the reward of exclusivity that is the essence of a patent.
Both systems are intended to act complementarily, as both are aimed at
encouraging innovation, industry, and competition.
In the European Union, this
understanding is adopted by the European Commission in its Guidelines of the
application of Article 101 of the Treaty of the Functioning of the European
Union to technology transfer agreements.
In the USA, the Department of Justice
and the Federal Trade Commission share a similar outlook that is reflected in a
document titled Antitrust Enforcement and Intellectual Property Rights:
Promoting Innovation and Competition.
Competition law may intervene when
patent holders abuse their rights to stifle competition, such as through
anti-competitive licensing practices or patent misuse.
Competition law considerations arise
in cases involving patent pools and SEPs, particularly concerning FRAND
licensing terms. Competition law evaluates the impact of mergers and
acquisitions on market competition, including transactions involving companies
with significant patent portfolios. Reverse Patent Settlements (Pay-for-Delay):
Competition law scrutinizes agreements between patent holders and generic
manufacturers that delay the entry of generic products into the market,
potentially harming competition. Balancing patent rights with competition
concerns is essential for fostering innovation while ensuring market
competition remains robust and dynamic.
In India, the only comparable
document is the Advocacy Booklet on IPRs published by the CCI. However, rather
than elaborating the CCI’s approach to different types of agreements and forms
of conduct, the Booklet only illustrates different licensing terms that are
restrictive or likely to be anticompetitive. The CCI also commissions market
research and sectorial studies, but they do not provide authoritative guidance
on the approach of the Commission.
For example, a study on IP laws and
competition law policy was commissioned to IIT Kharagpur in 2015, and the
objective of the study was to study jurisprudence in the field of IP and
competition law in the pharmaceutical and chemical industries in India. But the
stated summary results of this unpublished study are only that:
There is likely to be a trend to
restrict production by exclusive license since the number of exclusive licenses
granted by the patent holders has increased in the course of the last two
years. This also has an adverse impact on the price and ‘affordability’. It is
suggested that a comprehensive policy on ‘compulsory license’ may be framed
taking in view the gross abuse of dominant position by the ‘patent holder’ and
‘the licensee’.
Furthermore, the lack of guidance is
reflected in the CCI’s tendency to intervene without any consistent basis or
method, highlighting a number of key issues that need to be addressed in light
of the teachings of innovation economics prevailing today. Any inconsistencies
in the CCI’s approach can have major ramifications on the Indian economy. The
CCI must recognize the fact that firms making investment decisions seek clear,
predictable rules as to how the intellectual property and competition regimes
will operate in tandem. To minimize
friction between competition law and patent rights, the contours of legitimate
exercise of patent rights must be clear. This is necessary to ensure the
promotion of progress, by enabling efficient investment in innovation.
The Antitrust authorities are not
concerned with the existence of patent rights per se, but only when the
exercise of patent rights causes harm to competition. The Competition Commission of India (CCI) was
established in 2003 to 'eliminate practices having adverse effect on
competition, promote and sustain competition, protect the interests of
consumers and ensure freedom of trade carried on by other participants, in markets
in India'. . It was in the case of Aamir Khan v. The Director General that the jurisdiction of the Competition
Commission of India (CCI) to deal with cases pertaining to competition law and
intellectual property rights was firmly established.
It is only when a patent protection
results in more than what is required to safeguard the invention, does it
oppose the competition policy. This phenomenon is most common in the software
industry, especially the standard essential patents (SEPs) which have emerged
as a war zone between protection granted by patents and the competition law. A
landmark case in this regard was Micromax Informatics Limited v
Telefonakteibolaget LM Ericsson (Publ)
in which the relationship between the Patents Act and the Competition
Act was discussed extensively. In this pertinent case, Ericsson claimed 1
billion from Micromax claiming infringement of
SEPs due to the refusal of Micromax to accept the fair, reasonable and
non-discriminatory (FRAND) terms of the former's technology usage. The parties
entered into an interim arrangement, under which, Micromax paid royalties to
the Applicant till the patent infringement suit was finally decided. In the mean time, Micromax filed a complaint
with the CCI alleging that Ericsson is abusing its dominant position by
charging exorbitant rates of royalties from the former and by failing to
provide its industry essential patents to handset makers under the FRAND terms.
On investigation, CCI found Ericsson guilty of violation of section 4 of the
Act against which, the defendant filed a writ petition in the Delhi HC. On 30th
March 2016, the High Court of Delhi8 concluded that in case of an
irreconcilable conflict between the Competition Act and the Patents Act, the
jurisdiction of CCI to entertain complaints for abuse of dominance in respect
of patent rights cannot be ousted. It further rejected the contention of the
petitioner that the dispute being the subject matter of a civil suit cannot be
tried by the CCI.
The Patent Act itself contains provisions
to ensure that the competition in the market is not disrupted. It has been
drafted in a way to encourage innovations while simultaneously complying with
the market rules for upholding competition. For instance, in order to ensure
that the patentee does not misuse its right by refusing to grant licenses on
reasonable terms, Section 84 of the Act, providing for "Compulsory
licenses", was created.
The interplay of patent rights and
competition policies differ from country to country. In the USA, the patent
holder's right to exploit its patent to the fullest is recognized, constrained
only by market demand. In contrast to
this, the competition authorities in the EU have a mandate to intervene when a
firm abuses its dominance by engaging in excessive pricing in relation to its
patent right.
Need
There are several aspects pertaining
to the connection between patents and competition that require clarity. The
first and foremost in this regard is the jurisdictional issue. In matters
involving issues pertaining to both the Patents Act and Competition Act and
where there is an overlap for such a matter to be decided by a civil court and
CCI, it has to be ascertained whether the CCI should hear the case first or the
civil court, in order to avoid multiplicity of proceedings. Further, the extent
to which the CCI can intrude in the matters concerning patent rights also has
to be fixed. The intervention has to be
based on the understanding of the intricacies of innovation, patents and
competition and not merely on market effects and economic theory. This is necessary to avoid unreasonable
restrictions on the rights of a patentee, defeating the entire purpose of
granting an intellectual property right, in the first place. In addition to
this, as in section 3(5) of the Competition Act, an exception for IPR in
section 4 also needs to be formulated to deter courts from drawing baseless
conclusions that any company in possession of a patent is bound to abuse its
privileged position. Apart from these, need of the hour is to strike a proper
balance between the contracts concerning patents and their impact on
competition. The large number of patent holders might result in the tragedy of
anti-commons, chronic under-use of patented resources and in the creation of a
monopoly. It may also hinder innovation
and the resultant benefits to consumers. Patent rights and Competition policies
are not inherently in contradiction to each other instead they complement each
other and all that is required is,the right amount of balance to be struck
between the two.
Conclusion
In sum, experience shows that too
high or too low protection of both patents and competition may lead to trade
distortions. A balance has thus to be found between competition policy and
patent rights, and this balance must achieve the goal of preventing abuses of
patent rights, without annulling the reward provided for by the patent system
when appropriately used.
Competition law and IPR in India play
crucial roles in fostering innovation, protecting consumer interests, and
promoting fair competition in the marketplace. Both areas of law aim to strike
a balance between incentivizing innovation and preventing monopolistic
practices that stifle competition. While IPR grants exclusive rights to
innovators, competition law ensures that these rights are not abused to create
monopolies or hinder market competition. The CCI regulates mergers and
acquisitions to prevent anti-competitive outcomes and maintains a fair playing
field for all market participants.
Patents incentivize innovation by
granting inventors exclusive rights to their inventions for a limited period.
This encourages investment in research and development, leading to the creation
of new technologies, products, and processes that benefit society.
While patents grant monopolistic
rights to inventors, competition law ensures that these rights are not abused
to create monopolies or stifle competition. The CCI monitors patent-related
activities to prevent anti-competitive behavior, such as misuse of patents to
create barriers to entry or engage in unfair trade practices.
Competition law in India aims to
ensure that essential technologies remain accessible to all, even when
protected by patents. Measures such as compulsory licensing and FRAND terms
help balance the interests of patent holders with the need for widespread
access to critical innovations, particularly in sectors like healthcare and
telecommunications.
SEPs, which are patents covering
technologies essential to industry standards, present unique challenges at the
intersection of competition law and patents. India's competition authorities
closely monitor SEP licensing to prevent abuse, such as patent hold-up or
royalty stacking, which could harm competition and innovation. Competition law
enforcement agencies in India, such as the CCI, conduct antitrust
investigations into patent-related activities to ensure compliance with
competition norms. Cases involving allegations of patent abuse, including
anti-competitive agreements, abuse of dominance, and anti-competitive mergers
and acquisitions, are carefully scrutinized to maintain a competitive market
environment.
Indian courts play a significant role
in shaping the relationship between competition law and patents through
landmark judgments. Decisions interpreting the Competition Act and the Patents
Act establish legal precedents that influence future cases and provide guidance
on issues such as patent licensing, abuse of dominance, and anti-competitive
practices. Ensuring coherence between competition law and patent policy is
essential to strike the right balance between incentivizing innovation and
promoting competition. Policy interventions, such as guidelines on intellectual
property and competition law, help clarify legal standards and provide guidance
to businesses, innovators, and policymakers.
To conclude, the relationship between
competition law and patents in India is dynamic and multifaceted. By
maintaining a balance between incentivizing innovation and preventing
anti-competitive behavior, India can foster a competitive marketplace that
promotes innovation, protects consumer interests, and contributes to economic
growth and development.
References
- Abir Roy & Jayant Kumar,
Competition Law in India, Eastern Law House, New Delhi, 2018
- D. Evans and R. Schmalensee,
Some Economic Aspects Of Antitrust Analysis In
- Dynamically Competitive
Industries, http://www.nber.org/books/innovation2/eva ns5-1-01. pdf
- The Institute of Chartered
Accountants of India, COMPETITION LAWS AND POLICIES (2004)
- S. Jam and S. Tripathy,
Intellectual Property and Competition Laws: Jural Correlatives, 12 JOURNAL
OF INTELLECTUAL PROPERTY RIGHTS (2007)
- https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2831195/
- Harry First, 'Exploitative Abuses of IP Rights' (2016) New York University Law and Economics Working Papers, Paper 446
Article Information
A CRITICAL ANALYSIS OF THE INTERFACE BETWEEN COMPETITION LAW AND IPR:A CRITICAL ANALYSIS WITH SPECIAL REFERENCE TO PATENT REGIME IN INDIA BY: RITIK MALIK & DR. SHEEBA AHAD
Authors: RITIK MALIK, DR. SHEEBA AHAD
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/05/19
- Issue 7
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International Journal for Legal Research and Analysis
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