("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]
Introduction
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.
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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]
[2] “Antitrust
Enforcement And Intellectual Property Rights : Promoting Innovation And
Competition (Report)”, U.S. Department Of Justice
& Federal Trade Commission, April 2007.
[4]Angie Ng, Ding Liang and Peter Waters, Intersect
Between Intellectual Property Law And Competition Law, (March 7,
2010).
[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”
[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
[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
(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
[26] Vinod Dhall, quoted in Shamnad Basheer, Competition
Bill in India: The Nexus with IP, September 22, 2007, available at http://spicyipindia.blogspot.com/2007/09/competition-bill-in-india-nexus-with-ip.html
(Last visited on December 23, 2011); See also Rahul Singh, Notification
of Merger Review Provisions under Competition Law, March 8, 2011, available
at http://indiacorplaw.blogspot.com/2011_03_01_archive.html (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
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