Correlation between Competition Law and Patents

Article by Jacob Michael & Shloka P. Rao from School of Law, CHRIST, Bengaluru, Top 1 Meritorious Contestant at IP Matters' National IP Essay Writing Competition, 2021

  • INTRODUCTION

The interplay between Competition Law and Patents is of contemporary relevance and is being extensively deliberated upon. On one hand, competition law serves as a mechanism to ensure the prohibition of anti-competitive practices and agreements, thereby preventing abuse of overriding dominant positions. On the other hand, patent laws seek to prevent unsanctioned and unlicensed production and sale of patented goods. At the first glimpse, the two may seem to be in a perceptible conflict but over the years, this has been disproved because the firms that are engrossed in innovation are the ones that contend against one another, thereby creating competition for innovation. Both systems are anticipated to act complementary to each other, as they intend to vitalize innovation, industry, and competition. In light of the same, this essay aims at depicting how patent laws complement the competition strategy in place that subscribes to fair market behavior. It also highlights the objective of competition laws with respect to patent laws.


  • PATENT LAW V. COMPETITION LAW - THE BASICS

Once a patent is granted, it becomes the absolute discretion of the holder on the question of how he decides to exploit it in a manner that seems to work effectively in his favour. This decision is mainly driven by commercial considerations. It is also based on the net surplus that the patent holder is expected to receive from the license. This, in turn, seems to restrict the scope of competition in the market in the sense that the patent holder holds monopoly power over his patent and as mentioned earlier, competition law seeks to prevent this kind of monopoly. However, both competition law, as well as patent law have been framed in such a way that there is a sense of balance between the two and both the laws have accepted the objectives borne by the other law. Thus, the Competition Act of 2002, does not disregard the dominance of the patent holder, but rather creates a harmonious construct between the two. Whenever there is an abuse of the said dominant position and non-adherence to the fair-market rules by the patent holder, the Act steps in. There is a discernible conflict between the two fields of law because one field seeks to protect monopoly, while the other advocates its avoidance. A key observation in this context is that the firms that engage in innovation are the ones that actually contend against other firms to evolve and advance new products or novel processes of manufacturing existing goods and then go on to secure and safeguard the exclusivity of the said innovation and this incentive is the very spirit of patents. In this regard, the aspects of Intellectual Property Rights can fall under the jurisdiction of the Competition Commission of India.


  • OVERLAP AND JUDICIAL PRECEDENTS

In understanding the interplay between the two fields, Section 3 and 4 of the Competition Act of 2002 becomes important because they are the primary provisions that illustrate the prohibition of agreements having detrimental effects on competition and the misuse of dominance respectively. Along with this, Section 19(4) of the Competition Act lists out the factors that the Competition Commission considers while ascertaining whether an enterprise or person enjoys a position of dominance under Section 4. Intellectual property rights are exempted from its operation from Section 3 of the Competition Act but the same is subjected to reasonable restrictions. Section 3(5) advocates that if the patent holder imposes any unreasonable condition on the patent which proves to be unfavourable to the competition and is in furtherance of abuse of his superior position, then he is not entitled to the exception benefit mentioned under the Section, i.e., the exception is only extended as long as it is reasonable. The Ericsson v. Intex Saga case remains a relevant judgment in the area of interplay between competition and patent law as the Court justified the jurisdiction of the Competition Commission of India in instances where the conduct of patent holders could lead to abuse of dominant position.


This balance of laws was interpreted in the case of FICCI -Multiplex Association of India vs. United Producers/Distributors Forum (UPDF), where the Competition Commission of India held that the intellectual property rights and laws don’t necessarily have an overriding effect on competition law. Furthermore, in the case of Aamir Khan Productions Pvt. Ltd. v. Union of India, the High Court of Bombay upheld that the Competition Commission of India has the jurisdiction to hear matters of both, Competition law as well as intellectual property laws. It also set a significant precedent and said that intellectual property and their related rights are just statutory rights and are in no way, sovereign or superior in nature. Thus, these judgements make it clear that intellectual property law and competition law work together and not against each other. The underlying principle behind establishment of theCompetition Commission in India is the-

  • Elimination of practices that had a detrimental effect on competition.

  • To safeguard the freedom of trade and the interests of consumers.

  • To promote and sustain competition.


Thus, it can be inferred that the Competition Commission of India will only interfere in matters of Intellectual property when it has a detrimental effect on competition. This question was also addressed in the case of Fx Enterprise Solutions India v. Hyundai Motor India Limited, CCI6, where the Competition Commission of India clarified that the crucial factor in assessing whether the exemption under Section 3(5) is available or not is to first ascertain whether the condition imposed by the IPR holder can be termed as and seen as a “reasonable” one that is inevitable for the protection of his right.


When the protection of the patent’s outcome is more than the protection that is actually needed to preserve the product, it is in contravention and violation of the Competition Act. This practice is by and large observed in Standard-Essential Patents, commonly known as SEPs, in which there is always a constant invariable clash between the Competition Act and Patents Act. That is why the provisions under the Patents Act are drafted in such a way that it promotes innovative practices and also ensures their co-existence with the Competition Act.


Compulsory licences are issued in cases where there is abusive denial to provide the product to the society, and thus, helps prevent anti-competitive practices to an extent. Although, under intellectual property rights, compulsory licensing is usually granted for the interests of the public,under the competition law, compulsory licensing is intended to reinstate competition.


As mentioned earlier, the Competition Act provides an exception to Intellectual Property Rights under Section 3(5). Such an exception should also be provided under Section 4 of the Act in order to ensure that the courts have no reason to bring up unwarranted and baseless conclusions pertaining to any individual or company who is in an advantaged position due to a patent protection. While Section 3 of the Competition Act doesn’t curb the patentee’s right to constrain infringement, it is imperative to note that this is not a blanket entitlement granted to the patent holder. Therefore, an IP owner would run into conflict with competition law if the use/non-use of a patent obstructs trade and commerce.


Moving on to patent laws, they have also been framed in a manner that the system not only stimulates innovation but also ensures that they remain in compliance with the fair market rules. In this regard, Section 140 of the Patents Act plays a role because this Section forbids the patent owner from entering into any agreement that would be seen as an abuse of his dominant position by virtue of the monopoly vested with him through the patent.

  • INTERNATIONAL PERSPECTIVE ON THE INTERPLAY

The two leading international agreements which form the basis for the patent legislation in almost all the countries are the Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement) and The Paris Convention for the Protection of Industrial Property. The said agreements also illustrate the interplay between competition and patents and go on to demonstrate how the interplay can be addressed. In the Paris Convention for the Protection of Industrial Property, Article 5(A)(2) in particular, elucidates the granting of compulsory license which ensures removal of any abuse due to the dominant monopolistic nature of patent rights. Under the TRIPS Agreement, Articles 8.2, 40 and 40.2 permit member-states t to establish and institute measures to avert any exploitation of intellectual property. The said measures should however not affect the transfer of technology internationally and should also not restrain trade unreasonably.

The aforementioned international agreements have recognized and acknowledged the necessity for a balance that should be present between competition and patent rights; but they have given the member countries complete responsibility and discretion to set up their own legislation. India has implemented the Competition Act and the Patents Act, thus sustaining and balancing monopolistic right and fair play.


  • CONCLUSION


Even though the correlation and interplay between competition and patent lawhas been deliberated extensively, there are no appropriate, ample policy guidelines or jurisprudence in this regard. This leads to an inconclusive situation whereby there is lack of clarity on the issue with respect to the determination or application of the criteria and also creates clash of jurisdiction, i.e., in instances of overlap of these laws, which authority is vested with the jurisdiction. Furthermore, another important loophole is that though Section 3(5) of the Competition Act mandates “reasonable” conditions, it does not make any attempt to define what exactly constitutes “reasonable”. Therefore, a policy framework is indispensable in order to successfully deal with these issues.


Thus, to conclude, at the face of it, it may appear that competition and patent laws are inherently contradictory but in reality, they are not. Both of them are seen to promote innovation, thereby stimulating dynamic competition in the market. It is undisputed that the patent holder will innately have a monopolistic dominant position and competition law does not disregard or prohibit this absolutely and only intervenes when it violates the antitrust laws. In short, competition law is not concerned with the dominant position but only intervenes in instances of abuse of such dominant position. Both these areas have a seemingly alike set of objectives to an extent, but what differs is the means by which they achieve these objectives.



SOURCES

  1. Competition and Patents, World Intellectual Property Organization website, https://www.wipo.int/patentlaw/en/developments/competition.html#:~:text=On%20the%20other%20hand%2C%20competition%20law%20has%20as%20its%20objective,set%20by%20the%20patent%20system

  2. Anwesha Singh, India: Patents And Competition Policies: What Is The Degree Of Compatibility?https://www.mondaq.com/india/patent/758870/patents-and-competition-policies-what-is-the-degree-of-compatibility

  3. The Ericsson v. Intex Saga case I.A. No. 6735/2014 in CS(OS) No.1045/ 2014.

  4. Case No. 1 of 2009. Available at https://www.cci.gov.in/sites/default/files/%20FICCIOrder260511_0.pdf

  5. Fx Enterprise Solutions India v. Hyundai Motor India Limited, CCI (2010) 112 Bom L R 3778.

  6. Mamta Rani Jha, The Interplay Between Patents and anti-Competitive Practices, https://www.iam media.com/law-policy/interplay-between-patents-and-anti-competitive-practices

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