Wednesday, March 18, 2015

Intellectual Property Laws v. Anti Trust Laws

("This paper was awarded first prize in the Sir Dinshah Mulla Legal Essay Writing Competition 2011 and thereafter published in the annual college magazine of Government Law College, Mumbai".)

“The aim and objectives of patent and antitrust law may seem, at first glance, wholly at odds. However, the two bodies of law are actually complementary, as both are aimed at encouraging innovation, industry and competition.”[1]

 In today's economy, companies must innovate if they wish to succeed and endure. The emerging scenario in India appears to be one of domination of industries such as information technology, communication and other knowledge based industries. Companies generate capital and employment by producing new ideas and incorporate them into products to give rise advanced products which the consumers have not only not seen but not even imagined. Consumers, in turn, benefit enormously from these innovations. Hence, it is of the utmost importance that our economic laws, including Anti Trust and Intellectual Property Laws, create a legal environment that fosters and does not suppress innovation.

Historical views
Earlier it was believed that increasing the incentive for innovation through strengthening of IPR demotes competitiveness.[2] In other words, the competition and intellectual property laws once were thought to represent opposing policies. This view was widely spread during the early 20th century due to a co-incidental depression in the market along with the enforcement of IPR in various countries[3]. The creation of this dichotomy is due to IPR holders being granted statutory rights to in essence control right to use the intellectual property and charging monopoly rents for the use of their patents - something which seems to clash with the competition regime, which attempts to restrain such market power.[4]
This prima facie “inherent tension” was promoted by the antitrust assumption that a patent conferred exclusive rights to one product or process, which also guaranteed unwarranted power in the market, despite of the other existing substitutes to it.[5]

Prize/Reward Theory
The old interpretation of the relation between IP law and competition law led to the ‘prize theory’/ ‘reward theory’ which was suggested by many scholars[6].  According to this theory an IP holder should receive a prize instead of patent, provided by the government or non-profit organization, rather than directly selling to the market. This would solve the problem of ‘monopoly power’ and would allow the society to access technologies, techniques, etc which would otherwise have remained unknown[7]However innovators would only accept the prize when it would be at least as much as how much they would earn had they directly sold to the market, which was impossible to decide.
When IP law focused on such a traditional relationship be­tween the inventor and the general public, the conflict between IP and competi­tion is much easier to explain. Here IP has no commonality with competition policy and the two pursue divergent goals. IP seeks to protect and reward the innovator by granting exclusivity and competition law seeks to protect the market by enhancing access, which necessarily goes against the exclusivity granted by IP.

Modern view
Competition laws never aimed to protect the interests of invidious competitors. The genuine goal of competition law is to increase efficiency through the safeguard of the competitive process itself, rather than the safeguard of any particular competitor’s interests. Simply put, anti-trust law seeks to protect primarily competition and secondarily competitors.[8] .  It is not the act of making the invention public that is being sought to be rewarded, but the necessity to promote innovation and creativity through the formation of incentives[9]. Continued advances in technology are crucial to the continued development of the economy. 

 Merging intellectual property and antitrust policy involves identifying that IP law is a form of antitrust policy. With this change in approach, IP law becomes less individual-centric. The result is a balance between individual interests of the right-holders and the general interests of society in encouraging further innovation.
Anti-trust should never question or interfere with the most important function of IP rights, i.e. protection of creative accomplishments and/or firms’ distinctiveness and status, which encourages innovation[10]. Modern day economists hold that there are exceptions to this rule as well and that legislations which are not properly drafted may in some cases lead to giving monopoly power to the IP holder. Although even competition law recognizes that an IP holder’s monopoly power can be essential to attain better gains for consumers[11].  Therefore, the modern view is that it is possible to use IPR to promote competition but IP laws may not always be pro-competitive. The origin of this view is not known but its traces can be found in the 17th century English statues regarding monopolies.

TRIPS Agreements
Even the TRIPS Agreements are based on the Modern View. Articles 6, 7[12], 8.2[13], 31 and 40[14] of TRIPS deal with treatment of anti-competitive practices. The Agreement recognizes that some licensing practices or conditions pertaining to intellectual property rights which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology.[15] Despite the evident restriction of Article 40 to licensing, the term “practices or conditions” seems to suggest that Article 40.1 applies not only to clauses in a contract but to the circumstances surrounding the conclusion or not of a licensing agreement, including situations of refusal and discriminatory conduct by IPR holders.[16]

Anti-competitive conditions
Anti-competitive conditions may include but are not limited to- patent pooling[17], limiting the maximum amount of use of the invention, coercing licensee to take licenses in IP even if it is against his/her will, territorial and customer restriction, tie-in arrangements[18], restricting sale of product to those other, fixing prices for the licensee to sell royalty payment after expiry of patent, prohibit licensee to use rival technology, prohibit licensee from challenging validity of IPR,

Antitrust and IP laws in India
Before the year 2002, the Monopolies and Restrictive Trade Practices Act (“MRTP”) was in force since 1969. The MRTP Act was influenced by US, UK and Canadian legislations, [19]Section 15 of the MRTP Act excluded patents from its application. MRTP commission in Vallal Peruman and Dileep Singh Bhuria Vs. Godfrey Phillips (India) Ltd[20] and Manju Bhardwaj v. Zee Telefilms Ltd[21]  ruled that manipulation, distortion, contrivances and embellishments etc by way of misuse of trade mark invite the application of the MRTP act. Section 39 of MRTP Act declared resale price maintenance to be void, does not affect the validity of a license granted by the proprietor of a patent or trade-mark, so far as it regulates the price at which articles produced by the licensee may be sold by him[22]. The MRTP Commission, under the MRTP Act, had jurisdiction to hear IPR related complaints.[23]
An Expert Group, in its report to the Ministry of Commerce sent in January 1999, recommended a new competition policy. In October 1999, the government appointed a High Level Committee on Competition Policy and Competition Law to draft the new competition legislation, which was submitted in November 2000[24]. In December 2002, the Competition Act was enacted and it replaced the Monopolies and Restrictive Trade Practices Act. Due to global developments such as TRIPS provisions and also due to the amendments made to the IP laws in India, India had to ensure the ability of the competition laws in India to be able to deal with market power created by IP. Although special mention of IPRs have been made in only two provisions, the Competition Act’s several provisions are related to it.
Section 3 and 5 of the competition Act mention exclusion from its scope, of rights conferred by the Copyright Act of 1957, the Patents Act of 1970, the Trade and Merchandise Marks Act of 1958 or the Trade Marks Act of 1999, the Geographical Indications of Goods (Registration and Protection) Act of 1999, the Designs Act of 2000, the Semi-conductor Integrated Circuits Layout-Design Act of 2000.[25] It is believed that merging entities may have to divest some of their IPRs if the combined IP wealth is likely to undermine the market.[26]
Such exceptions have not been made to Section 4, which prohibits abuse of dominant position by any enterprise, for mainly three reasons. Firstly, as mentioned earlier, the legal monopoly created by IPRs may not necessarily lead to an economic monopoly and it is only with economic monopoly that the competi­tion law is concerned with. Secondly, mere existence of market power is not prohibited under Section 4; even if the IPR grants dominant position, it needs to amount to an abuse of dominant position. Section 4 does not make exceptions for rights conferred for IPR so that competition law can interfere when such abuse of dominance takes place.
Section 3 of the Act is in accordance to Article 81 of the European Commission (EC) Treaty which also prohibits anti-competitive agreement[27]whereas Sec 4 of the Act is in accordance with Article 82 of EC Treaty which prohibits the abuse of a dominant position.[28] The resemblances between the provisions of antitrust laws of the Europeans and Indians is no coincidence; India has depended a lot on European Antitrust laws because they known to have the most well drafted antitrust laws in the world. For this reason, it is essential that we study the stand of European countries in the balance of IPR and Antitrust laws.

Landmark Cases
In the process of formulation of Modern Competition Policy, the precedent Judgments that were contrary to the old view were taken in to account and studied. In a way these judgments paved way for the acceptance of the convergent view by legal experts.
1)Consten and Grundig v Commission[29]In this case The ECJ drew a distinction between the existence of intellectual property rights, which could not be challenged, and their improper exercise.
2)Parke Davis v Probel & Centrafarm[30]: The ECJ held that the existence of intellectual property rights did not in itself mean that a firm was dominant, although it was relevant to any assessment of dominance; the ECJ also held that a dominant firm with intellectual property rights might be guilty of abusing its dominant position, for example by charging excessive prices.
3) SCM Corp. v. Xerox Corp.[31]The court held that the conflict between the antitrust and IPR laws arises in the methods they embrace that were designed to achieve reciprocal goals. While the antitrust laws prescribe unreasonably restraints of competition, the IPR laws reward the inventor with a temporary monopoly that insulates him from competitive exploitation of his/her protected art.

Conclusions and Recommendations
Although it is clear IPR and Antitrust law are not opposing policies, it must be kept in mind that many times conflict of goals may occur between them. Poor IP law quality may have anticompetitive effects such as monopoly of market power and excessive increases in costs.
The Indian Competition Act as well as all the statues related to IPs rightly give the individual or firm the freedom and incentive to innovate and prevent abuse of their IP related rights. However, it is not the law that seems to be a problem in comparison to its execution. The IP authorities and competition authorities must keep in mind that the former deals with only legal monopoly and the latter economic monopolies. Due to the abstractness of what amounts as an abuse, IPR is many a times given preference over antitrust, in India. In such cases, reliance should not be put completely on precedents but the changing economic atmosphere must also be taken into consideration. Finding the balance between IPR and Antitrust is a continuous effort as it completely depends on the market status.
Competition agencies should consider publishing a set of guidelines describing how they will analyze licensing agreements and other IP related conduct.
In light of all the aforementioned reasons it is highly recommended that the following set of rules should guide competition commission’s policy towards intellectual property:
R1: The misconception that an intellectual property right always creates market power should be removed.
R2: Antitrust laws should acknowledge the basic rights granted under intellectual property law.
R3: A restriction to licensing should be permitted if it is not anticompetitive relative to the outcome that would result if that license was allowed;[32] 

[1] Judgement given in  Atari Games Corp. v. Nintendo of America, 897 F.2d 1572, 1576 Fed. Cir.1990
[2] Antitrust Enforcement And Intellectual Property Rights : Promoting Innovation And Competition (Report)”, U.S. Department Of Justice & Federal Trade Commission, April 2007.
[3] Jacqueline FarrellThe Great Depression, Lucent Books (1996)
[4]Angie Ng, Ding Liang and Peter Waters, Intersect Between Intellectual Property Law And Competition Law,  (March 7, 2010).
[5] Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405 (1908)
[6] Paul Torreman’s, Holyoak & Torreman, Intellectual Property Law, Oxford Press, (2008).
[7] Meir Perez Pugatch, Introduction: Debating IPRs, in The Intellectual Property Debate: Perspectives From Law, Economics and Political Economy, 4 (Meir Perez Pugatch ed., 2006).
[8] Allen Kazsbom and Alan Goldman, No Short Cut to Antitrust Analysis: The Twisted Journey of the Essential Facilities Doctrine’, Columbus. Law Review, (1996)
[9] Gupta, Anurag and Mazumdar, Satyajeet (2011) "Competition Law and Intellectual Property Rights: Whether Conflicting or Complementing Each Other to Serve a Common Purpose?," Asian Journal of Law and Economics: Vol. 2: Iss. 2,
[10] Gustavo Ghidini,  Intellectual Property And Competition Law:  The Innovation Nexus, Edward Elgar Publishing Inc. (2006)
[11] University of California, Berkeley School of Law, Berkeley Technology  Law Journal , University of California Press (2004)
[12] TRIPS Agreements, Article 7: “The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations.”
[13] TRIPS Agreements, Article 8.2: “Appropriate measures, provided they are consistent with the provisions of the Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology.”
[14] “1. Members agree that some licensing practices or conditions pertaining to intellectual property rights which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology.
2. Nothing in this Agreement shall prevent Members from specifying in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market. As provided above, a Member may adopt, consistently with the other provisions of this Agreement, appropriate measures to prevent or control such practices, which may include for example exclusive grant-back conditions, conditions preventing challenges to validity and coercive package licensing, in the light of the relevant laws and regulations of that Member.
3. Each Member shall enter, upon request, into consultations with any other Member which has cause to believe that an intellectual property right owner that is a national or domiciliary of the Member to which the request for consultations has been addressed is undertaking practices in violation of the requesting Member's laws and regulations on the subject matter of this Section, and which wishes to secure compliance with such legislation, without prejudice to any action under the law and to the full freedom of an ultimate decision of either Member. The Member addressed shall accord full and sympathetic consideration to, and shall afford adequate opportunity for, consultations with the requesting Member, and shall cooperate through supply of publicly available non-confidential
information of relevance to the matter in question and of other information available to the Member, subject to domestic law and to the conclusion of mutually satisfactory agreements concerning the safeguarding of its confidentiality by the requesting Member.
4. A Member whose nationals or domiciliaries are subject to proceedings in another Member concerning alleged violation of that other Member's laws and regulations on the subject matter of this Section shall, upon request, be granted an opportunity for consultations by the other Member under the same conditions as those foreseen in paragraph 3”
[15] Article 50 para (1), TRIPS Agreement
[16] C.M. Correa, ‘Trade Related Aspects Of Intellectual Property Rights: A Commentary On The Trips Agreement’ (2007), at 399.
[17] When at least two companies agreeing to cross-license patents relating to a particular technology
[18] acquire particular goods solely from patentee
[19] Sherman Act, Clayton Act, the US Federal Trade Commission Act, 1914 (as amended in 1938) in the US, the Monopolies and Restrictive Practices (Inquiry and Control) Act, 1948, the Resale Prices Act, 1964 and Restrictive Trade Practices Act, 1964 of the UK and the Combined Investigation Act, 1910 of Canada.
[20]  Vallal Peruman And Dileep Singh Bhuria Vs. Godfrey Phillips (India) Ltd- Ia 91/92 In Utpe 180/92 –Mrtp Commission, New Delhi, 24 May 1994; or (1995) 16 CLA 201.
[21] Manju Bhardwaj Vs. Zee Telefilms Ltd. And Others- Utpe 148/95, Mrtp Commission, New Delhi Dated 2 Jan. 1996; or  20 CLA 229
[22]MRTP Act,Sec 39: Special conditions for avoiding conditions for maintaining resale prices:-
(1) Without prejudice to the provisions of this Act with respect to registration and to any of the powers of the Commission or of the Central Government under this Act, any term or condition of a contract for the sale of goods by a person to a wholesaler or retailer or any agreement between a person and a wholesaler or retailer relating to such sale shall be void insofar as it purports to establish or provide for the establishment of minimum prices to be charged on the resale of goods in India.
(2) After the commencement of this Act, no supplier of goods whether directly or through any person or association of persons acting on his behalf shall notify to dealers or otherwise publish on or in relation to any goods, a price stated or calculated to be understood as the minimum price which may be charged on the resale of the goods in India.
(3) This section shall apply to patented articles (including articles made by a patented process and articles made under any trade mark) as it applies to other goods and notice of any term or condition which is void by virtue of this section or which would be so void if included in a contract of sale or agreement relating to the sale of such article shall be of no effect for the purpose of limiting the right of a dealer to dispose of that article without infringement of the patent or trade mark, as the case may be :
Provided that nothing in this section shall affect the validity as between the parties and their successors, of any term or condition of a licence granted by the proprietor of a patent or trade mark or by a licensee of patent or trade mark or of any assignment of a patent or trade mark, so far as it regulates the prices at which articles produced or processed by the licensee or the assignee may be sold by him.

[23]  S.M. Dugar, Commentary On The MRTP Law, Competition Law & Consumer Protection  Law—Law, Practices And Procedures, Volume 1 (2006), at 757
[24] The Institute of Chartered Accountants of India, Competition Laws And Policies (2004), 128-129
[25] Section 3 (5), Competition Act, 2002
[26] Vinod Dhall, quoted in Shamnad Basheer, Competition Bill in India: The Nexus with IP, September 22, 2007, available at (Last visited on December 23, 2011); See also Rahul Singh, Notification of Merger Review Provisions under Competition Law, March 8, 2011, available at (Last visited on December 24, 2011).
[27]EC Treaty, Article 81(1) The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which:
(a) directly or indirectly fix purchase or selling prices or any other trading conditions;
(b) limit or control production, markets, technical development, or investment;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts
[28] EC Treaty, Article 82:Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States.
Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
(b) limiting production, markets or technical development to the prejudice of consumers;
(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such ontract
[29] [1966] CMLR 418.
[30] [1968] CMLR, 47, Decision on February 29, 1968
[31] SCM Corp. v. Xerox Corp. , 645 F. 2d 1159.1203 (2d Cir. 1981)
[32] Generally see, OECD, Competition Policy and Intellectual Property, Paris, 198

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