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CONFLICT BETWEEN COMPETITION LAW AND INTELLECTUAL PROPERTY LAW- AN ANALYSIS BY: - MUSKAAN DALAL
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CONFLICT BETWEEN COMPETITION LAW AND
INTELLECTUAL PROPERTY LAW- AN ANALYSIS
SUBMITTED BY: - MUSKAAN DALAL
4TH YEAR LAW STUDENT
Abstract
Competition Law and Intellectual
Property Law are two important fields in the area of law that deal with the
promotion of competition in the Indian economy, however, the connotation of the
word 'competition' is quite contrary for both these laws. One of them promotes
competition by granting exclusive rights to the license holder and encouraging
other market players to come up with better technologies through innovative
measures whereas the other promotes competition by prohibiting anti-competitive
agreements and abuse of dominant position. Both of them are important for the
smooth functioning of competition, economic growth and consumer welfare.
However, it is peculiar that while both of them have same converging outcomes
and objectives, still there arises a conflict between them when it comes t the
monopoly in the market. One grants monopoly rights and position through
exclusive licensing, the other prohibits it. This paper discusses the same
conflict between these two important areas of law. Intellectual Property Law is
a developing field with increasing importance in the current economic scenario
owing to the increase in the research and development and the importance it
holds in the present time. In this context, it is imperative to understand the
effect this has on the competition in the market as both of these aspects have
different effects on the market. This paper analyses the two laws in this
context and their operation in India- Intellectual Property Law [Copyright Act,
1957, Patents Act, 1970, Trade Marks Act, 1999, Geographical Indications of
Goods (Registration and Protection) Act, 1999, Designs Act, 2000 and the
Semi-conductor Integrated Circuits Layout-Design Act, 2000 and the Competition
Law [Competition Act, 2002]. The paper establishes the relationship between
these two areas of law and also the situations in which the conflict arises
among them. With this respect, the objectives of the laws are discussed and how
the objectives appear to be different but when analysed properly, they are
converging in nature and both these laws aim to achieve the same objectives for
the Indian economy. Then, the paper
delves into the recent judgments with respect to the present position in law
with respect to the conflict between Competition Law and IPR laws and who has
the authority to deal with such cases and then finally a conclusion to
summarize all the aspects that the paper deals with.
Introduction
Competition Law and Intellectual
Property Law are the two main laws that operate in the market and protect the
rights of the participants of the market and hence it is of foremost importance
to understand the functioning of these laws in the market[1]. First, it is important to look into the interface
between both these areas of law to understand the relation between them.
Intellectual property law exercises the intent of granting monopoly rights over
the intellectual property whereas Competition Law aims at promoting competition
and restricting monopoly and abusive anti-competitive practices. IPR laws lead
to a balance of the owner’s rights and consumer welfare in addition to upholding
the underlying social interest. It ensures that the owner receives the
commercial benefits for his/her invention and thus promotes competition as when
exclusive rights are granted, the other players of the market want to come up
with better products to increase profitability, thus leading to increased
innovation and technological advancement, in addition to promoting competition
in the market, which is the ultimate goal of the Competition Act.
Section 3 of the Competition Act,
2002 prohibits anti-competitive agreements and states that any agreement
entered into between any person, association of persons, enterprises,
association of enterprises which causes or is likely to cause an appreciable
adverse effect in the market shall be void in nature. The section also provides
which type of agreements cause an appreciable adverse effect on competition and
it covers both horizontal and vertical agreements. However, it is pertinent to
note that IPR laws have been granted an exception from Section 3 under
sub-clause (5) of the same section which says that this section shall not affect
the rights granted to any person under the Copyright Act, Patents Act, Trade
and Merchandise Marks Act, Geographical Indications of Goods Act, Design Act
and Semi-Conductor Integrated Circuits Layout Design Act. Thus, all the IPR
laws have been granted an exception under Section 3(5). However, the same
exception has not been granted under Section 4, so if the owner of an exclusive
right abuses his dominant position, he would be still liable under Section 4.
Thus, we can see how these two areas of law are related to each other and in
many ways complement each other.
Objectives
For the purpose of understanding the
relationship between IPR and Competition Law, it is important to know about the
objectives that these laws sought to achieve. Intellectual Property Law grants
exclusive legal rights to its owners and thus promotes technological
advancements. Whereas, competition law, on the other hand promotes competition
in the market and restricts the abuse of dominant position. So, we can see the
differing objectives of these two areas of law, one grants monopoly to the
owner of the intellectual property, the other one says that there shall be no
monopoly and there shall be competition in the market.
Licences are granted under the
Intellectual Property Law so that the other innovators are motivated to perform
better and come up with new ways of innovation. Thus, competition is promoted
and at the same time, by granting exclusive rights through license, competition
is also hindered. However, it should be noted that the rights are in public
domain after a specified period of time. The ultimate goal is to promote
innovation so that it is sustained and continued and at the same time, the
people who are granted the license can exercise an exclusive right for a
specified period of time along with increased investments for further research
and development.
Competition Law seeks to promote
competition and restrict any anti-competitive practices prevailing in the
market so that there is fair trade and no abuse of dominant position. This is
done so that there are no unfair trade practices prevailing in the market and
the customers receive products and services at a fair price. Thus, the ultimate
goal of the Competition Act is economic growth as well as consumer welfare.
To summarize the objectives, IPR
looks at individual rights and the Competition Act on the other hand looks at
the market as a whole with the ultimate objective of economic growth whereas
IPR laws lead to technological development. The word ‘Competition’ has been
used in a different sense for both these laws. Competition is encouraged when
IPR rights are granted and it is promoted when abusive practices are restricted
in the market.
Relationship Between IPR and
Competition Law
The relationship between these two
areas of laws was said to be like that of fire and water[2],
however, this perception has significantly changed over time and it has been
opined that these laws complement and supplement each other in more ways that
one and also have similar underlying objectives.
The provisions in the Competition
Act, 2002 are in consonance with the TRIPS (Trade Related Intellectual Property
Rights) agreement[3]. As we
have seen how all the IPR laws have been specifically given an exception under
Section 3(5)[4] of the
Competition Act, 2002 and how this exception has not been extended to Section
4. So, if an exclusive right is granted and the owner becomes the exclusive
owner of the intellectual property and obtains a monopoly status, he still
cannot abuse his dominant position as this would be a violation of Section 4[5] of
the act. Thus, both these laws operate in the same domain i.e., the promotion
of competition and restricting abuse of dominant position. Thus, there can be a
dominant position by virtue of holding the exclusive right, however, the same
position cannot be abused by the owner of this right. These laws are
complementary to each other and ensure economic growth, consumer welfare and
technological advancement.
When we first see the objectives of
these laws, they are contradictory in the sense that one grants monopoly and
the other restricts it, however, when the substance is looked at, it is clear
that they are aimed at doing the same thing and i.e., promotion of competition
in the market. With the grant of the license, the owner improves his ways and
means to ensure his right whereas the other market competitors come up with new
ways and means to increase competitiveness. In this way, it is ensured that the
owner reaps the commercial benefits for his research and development and also
that this research and development is sustained in the longer run with
increased innovation in the same field by the owner as well as his competitors.
Hence, both competition law and IP Law facilitate competition in the commercial
business environments, with a balancing of interest between both the inventors
and creators as well as the competitors.
Conflict of Law and Differences
The main point of conflict that
exists between Intellectual Property Law and Competition Law is that while one
grants monopoly, the other restricts it which can be interpreted as a deadlock[6]. There
are various means through which the objectives of these both areas of laws are
achieved and that is what brings in the interface between them. The intellectual
property laws ensure that the owner of these rights gets an exclusive right to
restrict others to use his products and processes over which a license has been
granted to him. Thus, a temporary monopoly is created so as to enable the owner
to recover the costs incurred by him during the innovation of that product or
process, thereby enabling the owner of these rights to earn just and reasonable
profits for that period. Also, the competitors work towards coming up with
better technology, thus ensuring competition to prevail in the market,
ultimately leading to consumer welfare. Thus, these laws lead to the promotion
of innovation and consumer welfare[7].
As far as competition law is
concerned, it aims at restricting anti-competitive practices, preventing abuse
of dominant position in the market, consumer benefits owing to good quality
goods and services at fair and reasonable prices. In relation to IPR, there
shall be no abuse of dominant position that has been established due to the
grant of exclusive licensee rights. This has been done as the consequence of
granting exclusive rights can be very harmful for the economy of a country. It
leads to the detriment of consumer interest as the prices could be higher that
what is considered to be fair, keeping on mind the market forces. This is one
of the negative effects of market control that comes in the hands of the license
holder under the IPR laws. This in turn, can harm long-term economic growth of
a country.
Thus, the conflict between these two
areas of law comes into place when the grant of exclusive rights leads to an
abuse of the dominant position, thereby leading to anti-competitive effects in
the market. These are the various ways in which the abovesaid conflict arises:
-
Ø Abuse of Dominant Position: - As already stated, the abuse of
its dominant position by the owner of the IPR leads to a conflict between the
IPR laws and Competition Laws, as the exclusive right as granted by the IPR
laws is being abused by the license holder and hence, he would be liable under
Section 4 of the Competition Act. The position of monopoly achieved through IPR
is violating the provisions of the Competition Act. This is the conflict which
arises when there is an abuse of dominant position by the license holder. In
India, there was also an issue as to who would be the competent authority to
deal with such cases that involve both the questions of IPR laws and well as
Competition Laws. According to the current position, after the case of Aamir
Khan Productions Pvt. Ltd. V. Union of India[8],
the CCI (Competition Commission of India) is the competent authority to deal
with these cases as they involve a major question of competition and also the
provisions of the Competition Act have been violated under Section 4, hence,
CCI should have the authority to decide these cases.
Ø Overriding effect: - It is nowhere stated specifically
nor has this been decided as of now as to what law would prevail over what law
when it comes to the conflict between IPR law and Competition law. However, it
was stated by the CCI that the IPR laws cannot have an overriding effect over
the Competition law in any way. Thus, there is no absolute overriding effect,
whatsoever.
Ø Tying Agreements: - Tying agreements basically means
selling a product with huge demand on the condition that the consumer has to
also buys a second product, which usually has a low demand This is a type of
vertical agreement and is prohibited under Section 3(4) of the Competition Act.
Ø Patent Thickets: - When a large number of
patents are granted in the same field or industry, suppose relating to a
particular technology, this situation can lead to ‘patent thickets ‘which in
turn causes barriers to entry as the new entrants would have to take licences
from multiple patent holders. This situation can lead to a disruption in the
competition and anti-competitive practices. In addition to this, the innovation
in the market can also face a downfall as the competition is reduced and hence,
the imitative practices would not be practiced as much as there is no need to
counter the competition. With the decreased innovation, the consumers would get
the products at higher prices which is not beneficial for the consumers and the
social interest as a whole would be hampered.
Ø Refusal to License: -Refusal to License is entirely
based on the complementary aspects of the IPR laws and Competition Laws. The
owner has the right to restrict others to use his patented product and process
for a limited period of time, however he cannot restrict the research and
development on that product or process in any manner, only the use can be
restricted and that too for a limited period of time. Some aspects of this
matter were discussed in the case of Entertainment Network (India) Limited
v. Super Cassette Industries Ltd[9],
in which it was clearly stated that yes, monopoly rights are granted to the
owner of the IPR however, the same right can lead to refusal to license, if the
owner abuses this right.
Ø Patent Trolls: -Licensing fee is extracted by patent trolls from
other companies without being involved in any productive or innovative
activity. This can have a major impact on competition and can disrupt the
competition in the market. When we look at the compulsory licensing provisions
under the Patents Act, 1970, it says that the compulsory license can be granted
to the competitors of the license holder when the need arises due to public
health and certain other conditions. The interests of all the stakeholders
should be balanced so as to avail the maximum benefit of these provisions. This
is when the conflict arises as when the patent trolls operate or when
compulsory license is granted, it reduces the competition and hence there is an
interplay between the competition laws and the IPR laws of the country.
Ø Excessive Pricing: - Excessive Pricing is very common
when someone has been granted an exclusive right over a product or process,
however, this has not been specifically stated in the Competition Act that it
is violative of a specific provision, however, this can be brought under the
purview of Section 4 as abuse of dominant position. Predatory pricing on the
other hand, has been specifically prohibited under Section 4(2)(a)(ii) as abuse
of dominant position.
Ø Standard Essential Patents (SEPs): - Standard Essential Patents are
another aspect that can lead to a conflict between the IPR and the Competition
laws. This kind of patent is granted to a license holder when there is an
essential patent is required to implement a particular kind of industry
standard. It mainly covers the patents over technology. Now, the conflict will
arise, if suppose the holder of a SEP does not grant the license to the other
competitors on fair and reasonable terms, normally known as FRAND (Fair,
reasonable and non-discriminatory) terms, then this would disrupt the
competition as the competitors would be restricted from entering the market as
without the technology, it is impossible to operate in the industry, thus, yet
again an intellectual property right would lead to the disruption of the
competitive forces operating in the market.
Judicial Precedents
As far as the judicial precedents are
concerned, there is not much jurisprudence available in the Indian law in
respect of the intersection between Competition Law and Intellectual Property
Law. It is still a developing field with a very a smaller number of cases that
have come before the courts[10].
However, the European Union and the United States Courts have dealt with such
cases in the past and there is jurisprudence available on this issue for the
courts to pass judgments.
Before the Competition Commission of
India (CCI), the jurisdiction over such matters involving a question of IPR
rights was resolved by the Monopolistic and Restrictive Trade Practices
Commission (MRTP Commission) however, after the CCI was established in 2003, it
is the competent authority to deal with competition law cases. In the case of Aamir
Khan Productions vs. the Director-General[11],
it was held by the Bombay High Court that the CCI has the authority to deal
with competition law and IPR cases. The
case of Ericsson v CCI [12]dealt
with the Patents Act, 1970 and it was held by the Delhi High Court that the CCI
has the authority to deal with such cases and nothing in the Patents Act can
vitiate this authority of the CCI either directly or indirectly.
Then, in the judgment of Shamsher
Kataria v Honda Siel Cars Ltd[13]
(Automobile spare parts case), Section 3(5) of the Competition Act, 2002
was discussed by the CCI. This case comprised of an agreement entered into
between the original equipotent suppliers and manufacturers that the spare
parts of the automobiles would only be acquired by them and there was a
prohibition on trading outside the market and all the technical specifications,
components were manufactured by the original suppliers only. It was argued by
the manufacturers that this agreement falls under the exception granted by
Section 3 (5). However, it was held by the CCI that for taking the benefit of
the exception, it is mandatory that the right exercised has been granted by any
of the IPR statutes. In this case, the manufacturers were unable to prove that
the right is covered under any IPR statute and hence the agreement was held to
be anti-competitive under Section 3 of the act.
The case of Kingfisher Airlines v
Competition Commission of India[14]again
discussed the scope of Section 3(5). It was observed by the court that the said
section does not put a bar on the right of an IPR holder to sue for its
infringement, it only bars the applicability of the Competition act for the
purpose of Section 3. The right to sue for infringement is protected under the
respective IPR laws itself.
In the case of Entertainment
Network (India) Pvt. Ltd. vs. Super Cassette Industries Ltd[15],
the issue of the interface between competition law and IPR came before the
Supreme Court and it was observed by the SC that when monopoly comes in the
hands of the owner of an IPR and it in any way disrupts the competition in the
market, then the owner can be held liable under the Competition Act for abuse
of dominant position, hence licenses can be granted by the owners, however this
right is not absolute in nature.
Further, in the case of Vellu
Peruman and Ors. v Godfrey Philips India Ltd[16].,
the court observed that all sorts of IPR have the potential to distort the
competition in the market, hence, it is important that the rights granted under
the IPR laws are practiced within the domain of competition law.
In the case of FICCI Multiplex Association
of India v. United Producers Distribution Forum[17],
the nature of the right of a copyright holder was discussed and it was held
that it is a statutory right granted under the Copyright Act, 1957 which is not
absolute in nature and hence, the competition in the market does not have an
affect on the rights of the copyright holder under the act.
In the case of Union of India v.
Cyanamide India Limited &Another[18],
there was excessive pricing on the selling of drugs in the market that were
important for life and essential for the health of the people. The court held
that the CCI has the authority by virtue of the competition act to deal with
this particular matter as an IPR creates a monopoly in the market, however, it
should not be misused to the detriment of public health. This principle
regarding public health and the monopoly created by the IPR holders has been
dealt with in different jurisdictions across the world and the same has been
held by the courts that in case of scarce resources, an IPR holder leads to
having a monopoly status, this ultimately disrupts the economic efficiency of
the country.[19]
Conclusion
The Competition Law and the
Intellectual property Law face a major interface when it comes to the
intersection between these two areas of law. This interface occurs as one law
grants a monopoly status and exclusive rights while the other prohibits it as its
very objective. Section 3 (5) of the Competition Act has a major role to play
when it comes to the applicability of these two laws. It excludes the IPR laws
from the purview of Section 3 which deals with anti-competitive agreements,
however, the same has not been exempted under Section 4 of the Act. Hence, when
it comes to the abuse of the monopoly status granted by the IPR laws, the
Competition act would have an operation and the CCI has the requisite authority
to deal with such cases of the abuse of dominant position in the market by the
IPR holders. This is because the very objective of these laws is to promote
fair play and competition in the market, the only difference is that the word
‘competition’ has been used in a different sense under both laws. One promotes
competition by restricting anti-competitive agreements and abuse of dominant
position, the other encourages it by motivating other players in the market to
come up with better products and processes to keep up with the existing
competition in the market which ultimately leads to innovation and
technological development in the economy of the country. There arises a
conflict between these two areas of laws in many ways and in such cases, the
CCI has the jurisdiction to deal with the conflict and pass orders and it is
also pertinent to note that the rights under the IPR laws are independent of
Section 3 (5) as discussed by various judgments. The right to infringement of
the IPR holders is not affected in any way and is also subject to reasonable conditions
under the act.
These laws have similar underlying
objectives in the form of consumer benefit, promotion of competition, increased
innovation, better research and development, robust economic growth. It has
been observed by the Raghavan Committee report[20]
that innovation is a major catalyst in the economic growth of India as a
country at both micro and macroeconomic levels which also is a key factor for a
healthy competition to exist in the market. The IPR laws ensure that the
innovative factors are not exploited in any way and everyone receives a fair
chance at it to come up with newer ways to produce products and reap the
economic benefits out of the same and at the same time encourage the other
market players to come up with better ways at innovation hence promoting
healthy competition within the market. Thus, it is important that both the laws
relating to Competition and IPR in India are applied in a way so as to maximize
the benefits for all the stakeholders which include the general public, innovators,
companies, individuals, consumers and to promote and protect the economic
growth of the country as a whole.
[1] K.D. Raju, "The Inevitable
Connection between Intellectual Property and Competition Laws", Journal of
Intellectual Property Rights
[2] Jens Schovsbo, 'Fire and Water
Make Steam: Redefining the Role of Competition Law in TRIPS' [February 2009]
Centre for Information and Innovation Law 3
[3] The Institute of Chartered
Accountants of India, "Competition Laws and Policies" (2004), p. 129.
[4] R. Dutta, "Critical Analysis:
Reflection of IP in Competition Law of India", at:
http://www.indlawnews.com/display.aspx?4674 (Last accessed 14 April, 2019),
p.133.
[5] T Ramappa, Competition Law in
India: Policy, Issues and Developments, The University Press, New Delhi, 2011,
p.24.
[6] Supra note 1
[7] Atari Games Corp v. Nintendo of
Am Inc, 897 F.2d 1572, 1576 (Fed Cir 1990).
[8] (2010) Bom 112
[9] [2008] 37 PTC 353 SC 78-91 [71]
[10] Forrester Ian S. Competition Law
and IPR: Ten years on the debate still flourishes,
http://www.eui.eu/RSCAS/Research/Competition/2005/2005 pdf.
[11] Supra note 1
[12] W. O. (C) 464/2014 & CM No.
911/2014 & 915/2014
[13] (2019) PL (Comp. L) June 77, June
6, 2019
[14] (2010) 4 Comp. LJ 557 (Bom)
[15] 2008(5) OK 719
[16] 1986 AIR 806, 1985 SCR Supl. (3)
123
[17] Case No.01 of 2009, order dated 25th
May, 2011
[18] AIR 1987 SC 1802
[19] United States v. Microsoft,
38 1998 WL 614485 (DDC, 14 September 1998)
[20] Report of High-Level Committee on
Competition Policy and Law, S. V. S. Raghavan Committee
Article Information
CONFLICT BETWEEN COMPETITION LAW AND INTELLECTUAL PROPERTY LAW- AN ANALYSIS BY: - MUSKAAN DALAL
Authors: MUSKAAN DALAL
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/06/05
- Volume 2
- Issue 7
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International Journal for Legal Research and Analysis
- Abbreviation IJLRA
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