The interface between intellectual property law and competition law is complex and intricate with various unsettled issues lying at the crossroads. With its newly established competition regime, India has also started facing some of these complex issues. Keeping in view the recent developments, which will be discussed below, the conclusion can be drawn that there are no easy solutions for these complex issues in wake of vague legal and institutional structure to deal with them.
There have been numerous ways in which the complex and amorphous interface between IP law and competition law has been defined and analysed by various researchers. Traditionally, these branches of law have been seen to be in conflict with each other. It has now been recognised that this traditional view of the interface between these two branches of law is however overly simplistic and short sighted. Competition rules are not designed to curb the functioning of the IP, but rather to safeguard the proper operation of IPRs. Defining the right balance between competition law and IP law is an objective to be achieved. The objective is to endorse the realisation that both IP and competition laws are necessary tools to promote innovation in the economy.
Even though about 130 countries have competition law regimes, yet there is no international agreement on Competition Law. In case of IP law, there is an international agreement called The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). TRIPS administered by the World Trade Organization (WTO) sets down minimum standards for many forms of intellectual property (IP) regulation as applied to nationals of other WTO Members. TRIPS give flexibilities to the member nations to incorporate competition clauses to check the anti-competitive abuse of IP. Specifically Article 8.2 of TRIPS in a generic language provides that appropriate measures may be needed to prevent the abuse of intellectual property rights by rights holders. Such measures to check the anti-competitive abuses can be taken by incorporating provisions in the Competition law also.
It has now been firmly established, from the trends world over, that Competition law acts as a second tier of regulation for the IP laws and that both set of laws have common goals of promoting innovation and consumer welfare. Respective authorities in different countries have issued guidelines regarding the application of competition law to IP. These countries include US, EU, Japan, and more recently China where the guidelines will come into effect in August, 2015.
Although, the legal framework in developed jurisdictions like EU and US treats intellectual property akin to normal property for antitrust analysis, yet it cannot be ruled out that IP has some peculiar characteristics and thus it differs from the other tangible property. These differences largely stem from the unique legal exclusivity enjoyed by IP, the role of intellectual property in stimulating innovation, the uncertain scope of intellectual property rights, the potential for strategic conduct in the exercise of intellectual property rights and the availability of contractual means to protect and extend intellectual property. Further in case of IP licensing, to make problems more complex, there are varied legal perspectives including patent law, contract law and competition law.
In India, the Competition Act recognizes the importance of IP. Section 3 of the Competition Act prohibits anti-competitive agreements including cartels. Section 3(5) lays down that this prohibition shall not restrict “the right of any person to restrain any infringement of or to impose reasonable conditions, as may be necessary for protecting any of his rights” enjoyed under the statutes related to patents, Copyrights, trademarks, geographical indications, industrial designs and integrated circuit designs. Hence, this clearly implies that unreasonable conditions imposed by an IP holder while licensing his IP would be prohibited under the Competition Act. There is no further guidance in the Act on this. In the wake of overlapping jurisdictions between the Courts and the CCI, the matters have become more complex. Further, an overview of some of the emerging issues is provided.
A standard may be defined as a set of technical specifications that seek to provide a common design for a product or a process. For instance in the field of telecommunications, there are second generation or ‘2G’ (GSM/GPRS), third generation or “3G” (UMTS), and fourth generation or “4G” (LTE) standards which help in interoperability. Generally, standard-setting is a form of collaborative venture where multiple private groups with diverse organizational structures and rules operate worldwide on a regular basis in different fields of technology. A patent that protects technology essential to a standard is called a standard-essential patent (SEP). It is impossible to manufacture standard-compliant products such as smartphones or tablets without using technologies covered by one or more SEPs.
The market power conveyed by patents is “considerably higher” after the standardization, especially in a network based market. This high market power can be cause of concern for the competition authorities. Sometimes, it has been seen that patent holders engage in ‘hold-ups’ or are able to extract ‘unfair’/‘unreasonable’ licensing terms from different market players. The standard setting organisations rely on voluntary licensing commitments by their participants, including commitments to license the patents they own that are essential to the standard on FRAND (Fair, Reasonable and Non- Discriminatory) terms.
FRAND commitments are designed to do two things: (i) ensure that the technology incorporated in a standard is accessible to the manufacturers of standard-compliant products, and (ii) reward SEPs holders financially. There are various complex issues related with FRAND. These issues include calculating FRAND royalty, subject matter of FRAND, rights and obligations of FRAND committers and injunctive relief in case of FRAND commitments. As is evident from the emerging cases in India, the SEPs have raised complex issues which the courts and the competition authority are finding it difficult to comprehend. Although CCI has given directions in three cases for detailed investigation by DG CCI, only time will tell how effectively the Courts and CCI will be dealing with these issues.
Arrangements such as pay for delay or reverse payment deals in the pharmaceutical sector can also raise competition concerns. Pharmaceutical companies who are patent holders use a number of strategies to lessen competition of the generic drugs. The aim is to extend the exclusivity period of their patented drug in order to prevent market entry of generic drug suppliers on or before the expiry of their patents. One strategy is paying the generic companies so that for delaying entry of the generic drug and thereby buying time of exclusive supply for the patented drug. As reported ending last year, CCI is looking into reverse payment settlements for their anticompetitive effects in India.
As per WIPO, vexatious or sham litigation is predatory or fraudulent litigation with anticompetitive effect, i.e., the improper use of the courts and other government adjudicative or granting processes against rivals to achieve anticompetitive ends. A recent Indian case related to manufacture of construction equipment by Bull Machines, but before it could formally launch, it was served with an ex parte interim injunction order granted by the Delhi High Court. CCI ordered a detailed probe into the matter after finding primafacie evidence that JCB India and its subsidiary, had abused their dominant position in market for construction equipment. In its order CCI directing investigation by the Director General observed that the predation through abuse of judicial processes presents an increasingly threat to competition, particularly due to its relatively low antitrust visibility.
How to maintain the right dose of IP which promotes innovation? There are no easy answers to this question. Until and unless there is an established framework to deal with these issues, it will be difficult to promote efficient use of IP. Broadly from Indian perspective, there are different reasons for no easy answers for these issues in sight. Seemingly, there are jurisdictional overlaps between courts, regulators and competition authorities. Further, most of the issues relate to technology sector which is dynamic and fast changing, thus raises complexities in arriving at right solutions. Even some mature and experienced jurisdictions are grappling with some of the above discussed issues.
In the current situation, where there are turf wars, non-specialised IP courts, isolation of relevant authorities and shallow understanding of these intricate issues, it seems wary that solutions to these issues are in sight. Specifically, in Indian context, the problem becomes acute because of the reason that Courts are not specialised and the authorities are working in isolation. Current situation of jurisdictional conundrum can give rise to wrong precedents and turf wars.
Of course, it will take time for jurisprudence to evolve and settle down. But a more cooperative, reasonable and proactive approach could give effective solutions, thereby helping in absorption of technology in an efficient way, saving time and litigation costs. Though intellectual property rights are important for innovation and growth, they should not be abused to the detriment of competition and ultimately consumers. Efficient and effective use of intellectual property for the benefit of all is pivotal for the growth of India and this can be done by imbibing a culture of competition in India.
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