INTELLECTUAL PROPERTY RIGHTS AND THE COMPETITION LAW AND POLICY
Author: Mayank Vats
Co-Author: Leepakshi Rajpal
Symbiosis Law School, Hyderabad
“The entity that focuses on the factors of growth, grow the most”. This serves as the main objective of the IPR’s and the Competition law and policy. The primary focus of this paper is to highlight the relationship that the later shares with each other in the functioning of the market. When it comes to the domestic market and international market, competition law and the IPR’s are escalating their way through the market. They bring together certain challenges that the world faces which needs continuous examination and research and development in the field. Problems along with their solutions have been discussed in this paper with respect to patent pooling, IP licensing and cross border issues. The focus has also been given on the rising interest in the field of competition law and the IPR and various factors affecting them. The relationship of the competition law and the IPR’s has been discussed with respect to both the developed and the developing countries of the world.
Intellectual Property Rights and Competition Law are the two most emerging fields in the market today. This topic covers a vast number of subtopics as well. When we talk about a world that has been enhanced in the technological era and everything has become so advanced, IPR plays a significant role in establishing a position that an economic entity holds in the market. A consumer will buy a product that best suits its needs and comfort and will prefer to buy a more innovative and special product. There are many reasons as to the existence of the Intellectual Property Rights regime in the country. In the next coming decade maybe we witness a drastic increase in the enhanced demand for Intellectual Property Rights. anybody would be inquisitive as to why such a change suddenly and why did this not happen before? Why is India still in the process of the Intellectual Property Rights development whereas the other developed countries already have an edge over them?
The answers to these questions may be provided in few basic terminologies but they cannot exactly be jotted down for the reason that certain factors such as history play a major backing role in the development of such intricate concepts.
Innovation fosters a way for a better economic holding in the market. When there is an incentive to invent people use better their efficiencies to double their incentives. Intellectual Property Rights aim at bringing about the best innovation in the market and competition law, on the other hand, has been established to foster innovation and technology. Many argue that the competition law and IPR’s go against each other as the competition law aims at eliminating or reducing the anti-competitive practices or practices that deal with eliminating the competition in the market and IPR works as a motivator to establish the supremacy in the market.
The other side of the perspective says that IPR and Competition Law are complementary in nature and that both go hand in hand. Various Intellectual Property Rights have developed over a period of time so as to enhance the economic value of the entity. Competition Law aims at bringing equilibrium in the market and that the complementary nature of the subjects lies up to only that equilibrium. In other words, we mean that Competition Law encourages innovation and growth with respect to the healthy competition in the market. If an entity uses its IPR as against the market, competition law goes against that. This is the main reason why people have two opinions on the relationship between Competition Law and IPR’s.
When there is no acknowledgment of the intellect that you hold the interest to disclose the intellectual property goes away. Which in terms means that there needs to be an incentive for the individual to share the various intellectual property that he or she holds. When there is an absence of any kind of incentive by the State, the individual will keep the invention with himself as earlier stated. The incentive may be in any form or shape, i.e. the incentive may be in the form of the monopoly rights, which encourages the inventor to disclose the intellectual property that he or she holds with himself or herself. The most crucial role that the incentive as a form of encouragement offers is that the country progresses in its scientific as well as the other academic and practical spheres of the invention. In India, [patent is granted only when the inventor gives complete details about the invention to the patent office, which is put in the common pool after 20 years. Thus, this remains a multifarious advantage to all the people of the country as well as the State.
Firstly, it increases the ‘common knowledge pool’. Secondly, if the information about the intellectual property is useful in the ulterior development of the other assets currently existing, disclosure of such intellectual property increases the pace of the economic development by increasing the information available to the other investors. Thirdly, in case of patents specifically, the patent office publishes the specification and the claims of such patent in their official journal and if someone has an objection to it, then they have to reply within certain days of such publication to which clarification must be given by the holder of such intellectual property. After receiving the clarification if everyone is satisfied with it then the patent is granted and which also helps in the research and development even before the expiry of such a patent.
Intellectual Property Rights develop only when there is the capacity to develop them or that it is inherent or several other factors influencing Intellectual Property. It cannot be developed in the absence of certain factors. It is only when an entity is economically strong that intellectual property can be earned or when there are inherent factors supporting intellectual property. The entities having an established identity in the market have the resources for research and development of the various Intellectual Properties. Competition Law aims at maintaining healthy competition in the market and that in a monopolistic market like India, power lies only in the hands of few. When entities already established in the market go for innovation and IP’s, the question that arises is where does the competition lie?
Where the economic power, knowledge, or resources lie only in the hands of few, how can competition be equal for the small players who lack in any of the factors influencing IP’s? Competition can be equal only for the equals and not for the unequal. In order to consider whether there lies competition in the market is to ensure that there lies complete knowledge of the market and factors influencing IPR to each and every player in the market. The determination of whether competition exists in the very first place then becomes difficult.
The problem that the current world faces with respect to the competition law and the IPR’s are many. This may be with respect to the IP licensing and the Standard Essential Patents, the role of CCI becomes even more important with respect to maintaining an equilibrium in the market. The world today is facing these crises especially when we belong to the third world countries, the developed countries take advantage of their research and development cells and incessantly go onto license IP not necessarily belonging to them which means that because the third world countries are not so advanced with their research and development, IP licensing becomes a major issue of concern and it can be of sheer disadvantage.
RELATIONSHIP BETWEEN INTELLECTUAL PROPERTY RIGHTS AND COMPETITION LAW
The relationship between intellectual property rights and competition law can be seen from various points of view. As discussed in the introductory chapter that the debates about the relationship between the two subjects can range from having a complementary relationship to having a contradictory relationship. According to what we say is that there are different factors affecting their relationship but their relationship is like friendship with disagreements and compromises. If we use this in the legal terminology then their relationship is like working in tandem.
Proper disclosure of the basic nature of the intellectual property rights and the competition law needs to be given and it reveals that the aim of both of them is producing efficiency in the market. In the long run, both aim at consumer welfare and they complement each other. As discussed above when both of them aim at the same thing, it does not necessarily mean that their ways of attaining the goal or the aim are the same. It is well established through the different cases over the period of time that their paths are different but their destination is the same. In the case of the intellectual property goods, the marginal cost of production is very less. The cost incurred on the research and development and the cost of inventing new technologies along with the ancillary expenditure incurred in bringing up that product in the market is the challenge. Absence of any monopoly right will discourage or disallow the inventor to recover the cost of research, invention and whatever cost has been incurred on bringing that product in the market. The disclosure requirements that are given under the compliance sections of the intellectual property rights provide a pathway for the investors to have a market for themselves and exercise their rights over the intellectual property they hold along with the various advantages that they offer to the society at large. Therefore, if we see that the rules of the intellectual property rights provides for the disclosure of the information regarding their intellectual property rights, which in turn increases the competition in the market and therefore, the intellectual property rights serve as the pro-competitive feature of the market. They allow the competition to prevail in the market and in fact foster competition. From the perspective of an economist, the intellectual property law is primarily concerned with the provision of ex-ante incentive and increasing competition in the innovation markets, while competition law is primarily concerned with the ex-post incentives and increasing competition in the product markets. In conformity to our view, as the Valentine said, both are divergent paths to the same goal.
Competition Law is a tool for promoting social welfare by deterring the prices of the product in the market and the transactions that tend to increase market power. What happens in the market especially the market type that prevails in the country is that there are many players in the market but only a few of them hold the dominant position in the market. It is to prevent the abuse of the dominant power that the Competition Law with respect to the Competition Commission of India plays a vital role. Competition law aims at maintaining the allocative as well as the production efficiency in the market i.e. combining both we get the static efficiency.
It should be well understood that the Intellectual Property regime in India and the competition law complement each other only at the equilibrium i.e. the intellectual property right holder can hold the dominant position in the market and the Competition Commission of India would have no problem with that but the problem would arise when the intellectual property right holder starts to abuse its position, it is only till the point that the Intellectual property right holder does not abuse that the Competition Commission of India would not intervene. As soon as the dominance gets abused the Competition Law will play its role through the Competition Commission of India. The state can comfortably reward innovation through patents and copyrights so long as the compensation is not significantly in excess of that necessary to encourage investment in innovation, and the market power that results is not used to distort competition in the market.
The United States court summarized the disagreement point between competition law and intellectual property rights as follows:
“ The Conflict between the antitrust and the patent laws arises in the methods they embrace that were designed to achieve the reciprocal goals. While the antitrust laws prescribe the unreasonable restraints of competition, the patent laws reward the inventor with a temporary monopoly that insulates him from the competitive exploitation of his patented article. When the patented product, as it is often the case, represents merely one of the many products that effectively compete in a given product market, few antitrust problems arise. When, however, the patented product is so successful that it evolves into its own economic market or succeeds in engulfing a large section of the preexisting market, the patent and the antitrust laws necessarily clash. In such cases, the primary function of the antitrust laws is to preserve the competition in the market can be frustrated, albeit temporarily, by a holder’s exercise of the patent’s inherent exclusionary power during its term”.
Therefore, it can be said that the relationship between the competition law and the intellectual property rights is that of the friends in disagreement as though they both have the same goal i.e. the public welfare but have different means to achieve it. They both play a complementary relationship till the point of equilibrium and after the intersection point they both part ways for achieving the same goal.
DIFFERENT APPROACHES OF THE DEVELOPED AND THE DEVELOPING COUNTRIES WITH REGARD TO THE INTERFACE OF INTELLECTUAL PROPERTY RIGHTS AND THE COMPETITION LAW
Various countries have various approaches and now through various judgments from all over the world let us try and analyze the position on the interface of the competition law and the intellectual property rights and analyze how the law is made to the convenience of the developed countries rather than the developing countries or the underdeveloped countries.
THE UNITED STATES APPROACH
There is no particular Competition Act of the United States. The Antitrust laws in general and the Sherman Act, in particular, are the main sources of the competition law in the United States. They are vital to understanding the preservation of the economic system as their main motto is to protect the fundamental rights of the individuals. The main point to be noted here is that their law is focussing on the protection of the rights of the individuals while not commenting on the position of the market or the role that the Act would play in preventing the abuse of the dominant position or so. The terminology used in the United States for the competition is antitrust. Therefore, all around the world and even in India instead of using competition law as the main terminology people use the United States terminology i.e. the antitrust. That is the effect that the developed world has over the developing or underdeveloped countries. The Antitrust laws were created to curb the monopolistic activities of the enterprises or trusts to carry out various trade practices. Every practice that dealt with abusing the dominant position, or having trade contracts that resulted in the monopolization of the market was dealt under this code or act.
An important provision of the Sherman Act that needs to be discussed is Section 2 of the Act. It prohibited every other contract or conspiracy in restraint of the trade between the stated or with foreign countries and treated it as a felony or cheating and punished the defaulters. This provision was not always read alone. It was read in conjunction with Section 7 of the Clayton Act which prohibited the amalgamations or mergers affecting the market bringing the level of the competition to a lower level.
In a famous case of the Standard Oil Co., the court observed that the merely generic enumeration which the statute makes of the acts to reach it refers and the absence of any definition of restraint of trade as used in the statute leaves room for but one conclusion, which is, that it was expressly designed not to duly limit the application of the act but the precise application of the definition, but while clearly fixing this standard, that is by definition the ulterior boundaries which could not be transgressed with impunity, to leave it to be determined by the light of the reason, gated by the principle of law and the duty to apply and enforce the public policy embodied in the statute, every given case whether any particular act of contract was between the contemplation of the statute. In this case, the US Supreme Court found that the Standard Oil Company was guilty of monopolizing the petroleum industry through a series of anti-competitive and abusive actions.
Therefore, from the above, we can infer that even though the terminology of anti-competitive or abuse of dominance was nowhere used in practice, but it meant the same when they used the term restraint of trade. There can be different inferences drawn from the approach but the United States did have an optimistic eye for the competition laws in the time the Sherman Act was enacted.
THE EUROPEAN UNION APPROACH
The Competition law in the European Union commenced from the Rome Treaty which in turn established the European Economic Community (EEC and presently the group of EU countries) is basically meant for more competition in the market. Competition is being regarded as a means of keeping costs and prices down and also to have more quality products in the market which stimulate innovation and more technological advancements. Article 81 and Article 82 are the competition provisions in the Treaty that governs the potential use and abuse of intellectual property rights. The articles provide for the provision that even though you have a dominant position in the market you cannot abuse it with reference to the intellectual property rights that you possess. Although dominance per se is not prohibited under the Treaty, abuse of the market dominance is prohibited. Both these provisions facilitate the free movement of goods and services throughout the European Union member states.
In the AKZO Chemie BV v. Commission Of the European Communities, it was observed that “the concept of abuse is an objective concept relating to the behaviour of an undertaking in a dominant position which is such as to influence the structure of a market where, as a result of the very presence of the undertaking in question, the degree of competition is weakened and which, by recourse to methods different from those which condition normal competition in products or services on the basis of the transactions of commercial operators, has the effect of hindering the maintenance of the degree of competition still existing in the market or the growth of that competition”.
As we can clearly observe that the approach of the European Union is more toward the innovation and new technology that leads to growth and development in society. This is clear that they are more advancement focussed but on the very same side, we should not forget the individual rights that were being focussed by the United States. In the various cases of the European Union, it may be a biased position in the favor of the enterprises charging more money or very less money which may be useful or harmful for the consumers but that is not their concern. They are mainly concerned with the development and where the intellectual property is involved they will allow the dominance of the intellectual property rights over the competition practice because of their inclination towards development. The chances of the biasness prevail in the circumstances where the infringement as to the abuse of dominance is meager but when it comes to the enforceability of the law we all know how strict the rules are in the European Union. Therefore, according to what we think, it is the neutral cum development centric approach that they follow when it comes to the interface of intellectual property rights and the competition law.
THE INDIAN APPROACH
The Indian Competition Act, 2002 as often thought of is not the first-ever enactment of competition law in India. It was prior to even the independence of the country from the colonial rulers that the discussion of having legislation similar to that of the Sherman Act of the US commences. It was post-independence that the policymakers decided to have industrialization and them also in addition to whatever was going on envisaged in the Indian Constitution the Directive Principles of the State Policy. The next thing that the Indian government did was to establish a committee known as the Mahalanobis Committee to investigate into the extent and effect of the concentration of the power in the private sector and its consequences on the society, and to suggest necessary legislative and other measures in accordance with the findings. The committee came up with the result that there is an extreme level of economic concentration of the private players in the Indian industry. However, no legislation was passed and then again a committee was established to look into the licensing regime for the country and. This committee was of the same opinion as that of the Mahalanobis committee and found out that even though there is a licensing system despite that there is a disproportionate concentration of wealth in the business houses of India. Ye again a committee was appointed by the Government in 1967 which looked into the license raj and financing in the country. The committee was of the same opinion and suggested legislation of the Monopolies and Restrictive Trade Practices which provided for the constitution of the MRTP commission to check the problem. The legislation remained for almost three decades and more. It was only after that the Competition Act, 2002 was brought into the picture of the Indian Economy. Post Liberalization many laws became infunctional and inappropriate and therefore, this law was brought into the force.
While the Patent Act was also amended in 2005 to include product patent system in India which paved the way for the greater protection for patents in the country in accordance with the TRIPs mandate. The conflict only arose when the Patent created competition. It provides for the protection of the patent for a limited period of 20 years. For these years the individual can use it to the benefit of research and development and other exceptional purposes mentioned in the act. A compulsory license can be issued without the consent of the patent owner on the grounds such as nonsatisfaction of the requirement of the public, nonworking of the patent in India and refusal to license for a reasonable royalty.
As so far we can see, that the Indian approach is still developing over the period of time. It was post-colonization that the realization for the competition legislation began but it was only in 2002 that the legislation met with the requirements of the time. The competition law in India has a progressive approach and it has over the period of time exercised a neutral approach in the sense that exercised strictness with reference to the provisions and also leniency when it comes to the mergers and acquisitions and its approval. Therefore, it is completely on the circumstances as to how the regulator CCI looks into the matter and what is in compliance with the regulatory authority.
INTELLECTUAL PROPERTY LICENSING AND COMPETITION LAW
The main problem that arises as between the competition law and intellectual property rights is the problem of licensing. There is a lot of involvement of the exclusive licensing in the Intellectual Property Rights involve the grant of exclusive rights which in turn gives the monopoly rights to the intellectual property right holder. Now, it is upon the holder of that IP right to abuse it, exploit it as a result of their inventions for a limited period of time. Our Competition law deals with this situation too and exempts the reasonable use of such innovations and inventions from the purview of the competition law. It is also at the same time that the Competition Act provides for another provision that says that the actions by the enterprises that shall be treated as an abuse be applicable to the Intellectual Property Rights as well.
The Act prohibits the anti-competitive practices but this prohibition does not restrict “the rights of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights” which have been conferred under the Intellectual Property Rights like the Copyright Act, 1957, Patents Act, 1970,the Geographical Indications of Goods (Registration and Protection) Act, 1999 and the Semiconductor Integrated Circuits Layout Design Act, 2000. It also means that the holder of the intellectual property right cannot put any unreasonable conditions while licensing the intellectual property which if he does will be considered as a violation of the Competition Act, 2002.
The main problem arises with this regard as the general problem connotes different anti-competitive practices by the intellectual property rights holder. While going for licensing of his Intellectual property, the holder often does lay down conditions that are anti-competitive and abusing the position that he holds in the market. The several restrictions as to what you can put for licensing and what you cannot include any restrictions between the licensor and the licensee that restrict the production, distribution, exclusivity conditions, restricting quantities and prices, patent pooling and tie in arrangements. In such cases, the competition commission of India plays its role and comes into the picture. The competition commission of India in the various pronouncements has established over the period of time that the anti-competitive practices cannot be practiced while in certain cases it has shown leniency in the regime too. The orders of the Competition Commission of India depends upon the case to case basis and the changes to licensing agreements as it deems fit.
Before discussing anything further let us know what the various abuses are discussed under the act. Abuses are explained in section 4 of the Act and are as follows:
- The imposition of unfair or discriminatory conditions on price
- Limiting or restricting the production of goods or services or market
- Concluding of contracts subject to acceptance by other parties of supplementary obligations which have no use or no connection with such contracts
- Denying market access in any manner
- Using a dominant position to protect or enter into another market
The merger or combination or in other words forming consortiums for Research and Development may also affect effective competition. The exclusive licensing may give rise to the competition issues in the case of the grant back clause and market dominance. Patent pooling can be another restrictive practice which may be used to facilitate the price collaboration.
In the case of Vellal Peruman and Others v. Godfrey Phillips India Limited, the Competition Commission of India observed the following:
“Trademark owner has the right to use the trademark reasonably. This right is subject to the terms and conditions imposed at the time of grant of the trademark but it does not allow using the mark in any unreasonable way. In case, the trademark owner abuses the trademark by manipulation, distortion, contrivances, etc., it will attract the action of the unfair trade practices.” While presenting the goods and merchandise for sale in the market or for the promotion thereof, the holder of the trademark certificate misuses the same by manipulation, distortion, contrivances and embellishments etc. so as to mislead or confuse the consumers, he would be exposing himself to an action of indulging in unfair trade practices. Licensing arrangements likely affect adversely the prices, quantities, quality or varieties of goods and services will fall within the contours of competition law as long as they are not in reasonable juxtaposition with the bundle of rights that go with IPRs.
The Competition Policy of India is of the view that all forms of Intellectual Property have the potential to violate the competition. The intellectual property is just like another tangible property in the eyes of the Competition Commission and therefore, it has the authority to adjudicate the matters relating to the Intellectual Property Rights. The Commission can decide the legality, constitutionality and even jurisdictional issues except for the validity of the statute under which the tribunal is established.
In the case of Amir Khan Productions Limited v. Union of India, the court rules that the CCI has the power to deal with intellectual property cases. What can be contested before the Copyright board can also be contested before the Competition Commission of India under the Competition Act, 2002? The Act also has an overriding effect over the other legislations for the time being in force.
Another area of conflict with the competition law with respect to intellectual property rights is the area of Patent Pooling. A patent pool is an agreement between two or more patent owners to license one or more of their patents to one another or to license them as a package to third parties. It is like combining or keeping all the patents of two or more such patent holders and then making a product together. So, it is basically the pooling of the patent for the production of a product. In this kind of agreement, there is a cooperative arrangement between the patent owners for the business conducted after the patents are pooled. The nature of the business may be of any kind but their main purpose is the profit generation of the dominant position they hold. It is a kind of abuse of the dominant position they hold in the market.
There are a number of examples ranging from the the example of the Sewing machine combination formed one of the first patent pools in 1917 to the formation of the MPEG-2 compression technology. The examples can run into another thesis. If the poolers are downstream users of the patent and they refuse to license the technology to the third parties causes downward societal welfare which is per se anti-competitive in nature.
As held in the most famous case of Hartford-Empire Co. v. United States, any agreement between two firms to restrict the competition in the market in any form is prohibited by the competition laws of the countries. This simply meant that no matter what name you give it or by what terminology you call it, an anti-competitive practice will be an anti-competitive practice, There is no way you can prevent or rename an anticompetitive practice to be an agreement of various sorts.
Therefore, when it comes to the procedure of licensing and the Indian competition law, the holders of the intellectual property rights need to understand that it is anti-competitive to form agreements such as the patent pools and the validity of the commission having jurisdiction to adjudicate upon the intellectual property right matters cannot be challenged.
Indian regulators and law enforcers would have to find a way to reconcile the major conflicting point in both the fields is created as IPR restricts competition, while the competition law engenders it. As we have already seen in the project there are certain points where the intellectual property law and the competition law are at conflict but they are at parlance too. It is on the point of equilibrium that both of the fields are complementary to each other, whereas beyond the scope of the equilibrium they are at conflicting positions.
Competition Law frowns upon the unreasonable exercise of the market dominance and in other words it is also known as the abuse of the market position for one’s own favorable position obtained because of the possession of the intellectual property rights but if at all the holders of the intellectual property right abuse their position or unreasonable restrictive trade practices are resorted to then the relief is provided to the affected parties under the Competition Act, 2002.
The common aim of both fields is to promote competition in the market through innovation and invention. Innovations and the research and development always give rise to healthy competition in the market and are essential for the progressive development of the Indian economy but not at the cost of the public policy and the public interest. Intellectual Property Rights help in protecting these innovations from being exploited. As a result of this only both the fields coexist. The goal of both the policies is to promote innovation and invention and invention which would ultimately result in the economic development of the country and therefore, they should be at equilibrium for the economy to grow in compliance with the laws of natural justice.
 See Pattrick Rey, Presentation at FTC/DOJ Hearing on Competition and Intellectual Property Law and Policy in the knowledge based Economy (22nd May 2002); available at “http;//www.ftc.gov/opp/intellect/020522refdoc.pdf”
 See Dabra A. Valentine, Intellectual Property and Antitrust: Divergent Paths to the Same Goal, (5th March 1996); available at ‘http;//ftc.gov/speeches/other/speech35.htm”
 See John E. Lopatka & William H Page, Economic Authority and the Limits of Expertise in the Anti-Trust Cases, 90 Cornell L Rev 617, 633-34, 637-38 (2005).
 See Robert Pitofsky: Challenges of the New Economy: issues at the Intersection of Anti-Trust and the Intellectual Property, (15th June 2000) “http://www.ftc.gov/speeches/pitofsky/000615speech.htm”
 See SCM Corp v Xerox Corp 645 2d 1195 (1203) (2d Cir 1981)
 The monetary punishments are of a fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both the punishments mentioned.
 Standard Oil Company of New Jersey v. United States, 221 US 1 (1911)
 Rolland Mussard (1962) The Regulation of the Restrictive Business Practices under the Common Market Treaty in the Restrictive Practices, Patents, TradeMarks and Unfair Competition in the common market International and Comparative Law Quarterly Supplementary Publication 4:17.
 Mc Lachlan DL, Swan D (1963) Competition Policy in the Common Market. The Economic Journal 73: 54-79.
 Case C-62/86
 Article 39(c) of the Indian Constitution provides that the operation of the economic system does not result in the concentration of the wealth and means of production to the common detriment”.
 (1995) 16 CLA 201; the same principle was reiterated in Manju Bhardwaj v Zee Telefilms Ltd. (1996) 20 CLA 229
 CUTS, Why India Adopted Competition Laws, 2006
 It is based on the Raghavan Committee Report, the high level committee report on the Competition Law 2002
 Section 60 of the Competition Act, 2002
 Merges R. Institutions for Intellectual Property Transactions: The Case for patent pools.
 Department of Justice (Business Review)