INTERFACE BETWEEN INTELLECTUAL PROPERTY RIGHTS AND COMPETITION LAW: INDIAN JURISPRUDENCE
Rishika Sugandh* & Siddhartha Srivastava**
Intellectual Property Law and Competition Law are normally regarded as areas at odds with each other. The reason behind this conflict is that on one hand Intellectual Property Law grants exclusive control right to the inventor resulting in market power, on the other hand Competition Law works against such market power.In other words, Intellectual Property Laws work towards creating monopolistic rights whereas Competition Law battles against it.
However, this approach has now been given up largely in favour of the view that both Intellectual Property Law and Competition Law have like purpose i.e. maximization of social welfare. Intellectual Property Law grants an exclusive right with hope to induce people to make investments in things which are needed in society. Competition law aims to provide the consumers highest quality of goods and services that too at the lowest possible price. Thus they both adopt different path to achieve the same goal of consumer welfare.
The paper aims to examine the relation between Intellectual Property Law and Competition Law and bring to light the outcome of the same.
Keywords- Intellectual Property Law, Competition Law, IPR, innovation, monopoly
Intellectual Property Law and Competition Law are normally regarded as areas at odds with each other. The creation of this conflict is due to IPR holders being granted statutory rights to essentially control access to the intellectual property and charging monopoly rents for the use of the IPRs—something apparently in conflict with competition law, which attempts to curtail such market power.In other words, on one hand, IP laws work towards creating monopolistic rights whereas competition law battles against it.
Intellectual Property Laws are monopolistic in nature. They guarantee an absolute right to the creators and owners of work which are a result of human artistry. Also they prevent commercial exploitation of the innovation by others. This legal monopoly sometimes lead to market power and even monopoly as defined under Competition Law. When this advantage or dominant position is abused, it creates a conflict between IPR and Competition Law.
The major concerns of Competition Law in regard to IPR are the market power that may result from granting such rights, and the detrimental effects caused by the anti-competitive exercise of IP rights. At its simplest, market power can harm consumers by setting prices higher than those needed to secure cost effective production. Moreover, the harm caused by market power may extend beyond this, when the protection granted to firms allow them to slow or distort innovation. Under these circumstances, market power will limit the growth of productivity over time, and reduce the scope for sustainable increases in living standards.
However, this approach has been given up largely in favour of the view that both IPRs and Competition Law have like purpose i.e. maximization of social welfare. IP protection provides incentives for innovation and technological diffusion, which in itself is an important source of competition in the marketplace and therefore supports competition. Similarly, competition stimulates innovation, thereby contributing to the development of intellectual property. Competition law protects incentives to innovate from anti-competitive conduct that would create, enhance or maintain market power or otherwise harm vigorous rivalry among firms.
There are two measures that are taken by Competition Law to combat against IPR monopolies. They are compulsory licensing and parallel imports. A compulsory license is where an IPR holder is authorized by the state to surrender his exclusive right over the intellectual property, under the provisions of TRIPS. A parallel import includes goods which are brought into the country without the authorization of the appropriate IP holder and are placed legitimately into a market.
Three theoretical bases have also been suggested for reconciliation between IPRs and competition law regimes:
(a) the view that competition law should only interfere with innovation/IPRs when social welfare is at risk;
(b) the view that concentration and monopoly markets have the edge over competitive markets in terms of innovation owing to greater capital and resources and
(c) the view that competition law only concerns itself with consumer welfare when the effects of a proposed action on production and innovation efficiency are neutral or indeterminate.
These theoretical underpinnings would suggest that a reasonability standard be applied, taking into account the facts and circumstances of the case in question.
INTELLECTUAL PROPERTY LAWS
Intellectual Property law deals with the rules for securing and enforcing legal rights to a person’s intellectual property. The word “Intellectual Property” means “an intangible right protecting a commercially valuable product.” It refers to ideas of creative nature including works such as designs, music, written works, inventions, formulations, symbols and phrases. Usually the creator is given an exclusive right over the use of his/her creation for a certain period of time. The main reason behind this is to give an incentive for innovation, research and investment. In the absence of IPR protection, other firms would be able to take a free ride on the R&D investment made by the inventor firm.
Intellectual Property is divided into two categories: Industrial property, which includes inventions patents, trademarks, industrial designs, and geographic indications of source; and Copyright, which includes literary and artistic works such as novels, poems and plays, films, musical works, artistic works such as drawings, paintings, photographs and sculptures, and architectural designs. Rights related to copyright include those of performing artists in their performances, producers of phonograms in their recordings, and those of broadcasters in their radio and television programs.
Industrial Revolution in 19th century gave impetus to invention. Similarly, creative genius of scientists, artists and literary writers resulted into need for protection of intellectual creativity. The need for comprehensive international agreements governing intellectual property was fervently realised. The first multilateral effort was made through Paris Convention for Protection of Industrial Property held on 20th March, 1883 in Paris. It was followed by Berne Convention for Protection of Literary and Artist Works in 1886 in Berne, Switzerland. Together, these two initial international efforts can be termed as the Magna Carta of IPRs. Since then IPR regime has made a long journey and with the establishment of WIPO and TRIPs the IPR jurisprudence has been firmly established at international as well as national level.
Intellectual Property Right (IPR) in India was imported from the west. The Indian Trade and Merchandise Marks Act 1884, was the first Indian Law regarding IPR. The first Indian Patent Law was enacted in 1856 followed by a series of Acts being passed. They are Indian Patents and Designs Act in 1911 and Indian Copyright Act in 1914. Indian Trade and Merchandise Marks Act and Indian Copyright Act have been replaced by Trade and Merchandise Marks Act 1958 and Copyright Act 1957 respectively.
Competition law is law that promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies. The aims of competition laws are to ensure that consumers pay the lowest possible price coupled with the highest quality of the goods and services which they consume.It involves formulating a set of policies which promote competition in the market. A dynamic competitive environment supported by effective competition policy and law is considered to be one of the essential elements of a successful market economy. The benefit of having competition in the market are lower price, better products, wider choice and greater efficiency than those existing under monopoly. Competition law is the tool through which the Government controls and regulates the producers/players in the market. So, the competition law relates to matter of competition and competitiveness so that goods and services are sold at competitive prices and the consumers have a choice as to the products they wish. In addition, competition law prevents artificial entry barriers, facilitates market access and compliments other competition-promoting activities.
The history of competition law is usually traced back to the enactment of Sherman Act in 1890 in the US. This act was directed against the power and predations of the large trusts formed in the wake of the Industrial Revolution where a small control group acquired and held the stock of competitors, usually in asset, and controlled their business. Gradually, competition law came to be recognized as one of the key pillars of a market economy. This recognition led to enactment of competition law in many countries, including developing countries, and the number now stands at around
The roots of Indian law on competition can be traced back to Articles 38 and 39 of the Constitution which lay down the duty of the State to promote the welfare of the people by securing and protecting a social order in which social, political and economic justice is prevalent and its further duty to distribute the ownership and control of material resources of the community in a way so as to best sub-serve the common good, in addition to ensuring that the economic system does not result in the concentration of wealth. It is from these duties that the MRTP Act, 1969, also influenced by US, UK and Canadian legislations, came about.
In 1991, the MRTP Act, 1969 was amended to cope up with the new reforms of liberalisation, privatisation and globalisation. However, the act despite of several amendments unable to adequately deal with anti-competitive practices like cartels, boycotts and refusal to deal, predatory pricing, bid rigging and abuse of dominance. Thus, the MRTP Act became obsolete in the light of international economic developments relating more particularly to competition laws. Under these circumstances the Competition Act, 2002 came into light.
INTERFACE BETWEEN INTELLECTUAL PROPERTY LAW AND COMPETITION LAW IN INDIA
Competition law may be applied when particular IPRs have not been obtained in the proper manner or are not deserved, for instance, when patents have been obtained by deceiving the patent office. However it may also be applied, in certain cases, when IPRs have been granted.
There are two opposing views on the interface between a Competition Law and Intellectual Property Law. The first contents that there is a tension between competition and intellectual property, arguing that competition law seeks to eliminate monopolies and encourage competition, while IPR laws reward creators and inventors with a limited monopoly. According to the proponents of this view, the main function of IPR laws is to properly assign and defend property rights on assets that have economic value. On the other hand, the main goal of competition law should be to minimise the adverse consequences of monopoly power arising from IPRs. However this approach has become out-dated and not followed in modern times.
The second view contends that competition law continues to be a vital means of ensuring continued innovation and economic growth. The aims and objectives of IPRs and competition laws are complementary, as both aims to encourage innovation, competition and enhance consumer welfare. It is vitally important to preserve competition in innovation because competition ensures the best outcome for consumers.
The Raghavan Committee in its report mentioned about the conflict of IPR with Competition Law. Clause 5.1.7 of Raghavan Committee Report stated that “All forms of Intellectual Property have the potential to raise Competition Policy/Law problems. Intellectual Property provides exclusive rights to the holders to perform a productive or commercial activity, but this does not include the right to exert restrictive or monopoly power in a market or society. Undoubtedly, it is desirable that in the interest of human creativity, which needs to be encouraged and rewarded, Intellectual Property Right needs to be provided. This right enables the holder (creator) to prevent others from using his/her inventions, designs or other creations. But at the same time, there is a need to curb and prevent anti-competition behaviour that may surface in the exercise of the Intellectual Property Rights.” To deal such kind of problems provision has been laid down in Section 3 and 4 of the Competition Act, 2002.
Under Section 3 of the Competition Act, 2002, the Competition Commission is required to look into agreements which are anti-competitive in nature and those found to be anti-competitive are declared void. The Competition Act incorporates a blanket exception for IPRs under Section 3(5). It preserves the rights of the IPR holder to prevent infringement and protect these rights, as long as the restrictions imposed by the agreement are reasonable, ensuring that competition policy does not interfere with the reasonable use of IPRs. However this protection is not absolute. If the restrictions imposed are unreasonable the same can be tried under Competition law. Section 3(5) reads as:
(5) Nothing contained in this section shall restrict-
(i) the right of any person to restrain any infringement of, or to impose reasonable conditions, as may be necessary for protecting any of his rights which have been or may be conferred upon him under-
(a) the Copyright Act, 1957 (14 of 1957);
(b) the Patents Act, 1970 (39 of 1970) ;
(c) the Trade and Merchandise Marks Act, 1958 (43 of 1958) or the Trade Marks Act, 1999 (47
(d) the Geographical Indications of Goods (Registration and Protection) Act, 1999 (48 of 1999);
(e) the Designs Act, 2000 (16 of 2000);
(f) the Semi- conductor Integrated Circuits Layout- Design Act, 2000 (37 of 2000);
(ii) the right of any person to export goods from India to the extent to which the agreement
relates exclusively to the production, supply, distribution or control of goods or provision of
services for such export
The wording of the section itself suggests that the section only protects reasonable conditions imposed by the IPR holder and any unreasonable condition imposed can be dealt under Competition Law. Hence, the exception is only allowed for the purpose of protection of the rights to the extent granted by the IP law; the requirement of reasonableness. The same has been held in various cases.
In FICCI Multiplex Association of India v United Producers/Distributors Forum the CCI rightly observed that intellectual property laws do not have any absolute overriding effect on competition law. The extent of the non obstante clause in Section 3(5) of the Act is not absolute as is clear from the language used therein and it exempts the right holder from the rigours of competition law only to protect his rights from infringement. In Aamir Khan Productions v.The Director General the Bombay High Court held that the CCI has the jurisdiction to deal with competition cases involving IPR. Further in Kingfisher v Competition Commission of India, it was again made clear that all the issues that rose before the Copyright Board could also be considered before the CCI.
Section 4 of the Competition Act, 2002 deals with abuse of dominant position. The section prohibits the abuse of dominant position and not its mere existence. It further explains what is meant by abuse of dominant position and enumerates the practices which are to be considered abusive. What is noteworthy and relevant to the current discussion, is that no exception has been created for IPRs under Section 4. Such an exception has not been carved in Section 4 for a number of reasons. Firstly, IPRs may not confer a dominant position in the market; the legal monopoly conferred by IPRs may not necessarily lead to an economic monopoly and it is the latter that the competition law is concerned with. Secondly, even if IPRs do grant a dominant position, mere existence of market power is not prohibited under Section 4; it needs to amount to an abuse of dominant position. The same was concluded by Competition Commission in Singhania & Partners LLP v Microsoft Corporation (I) Pvt Ltd & Others.The CCI considered the question of anti-competitive behaviour and abuse of dominant position in the selling of Windows and Office 2007 software by Microsoft which had control over 80 per cent of the market. Still, the CCI could not find any violation of competition provisions. The Commission observed that charging different prices for the same product under different kinds of licences are justified and common in the market. According to the Commission, there was no clear evidence to suggest that due to Microsoft’s dominant position, any competitor was driven out of the market. Hence, it was held that there was no violation of any competition provisions by Microsoft.
Thus, the Competition policy willingly accepts the dominance, if any, that may result from the exercise of IPRs by the holder; only when this amounts to abuse does competition law interfere. In the event of such abuse, the fact that the source of market dominance is IPRs is of no relevance. Therefore Section 4 makes no exception for IPR-sourced market power.
Although a large amount of jurisprudence, relating to IPR under Competition Law, developed in recent years but it is still evolving, however, there are number of judgments of U.S courts and of ECJ (European Court of Justice) wherein the issue of anticompetitive agreements and IPRs has been discussed:
(a) Illinois Tool Works Inc. v. Independent Ink, Inc. In this case the Hon’ble Supreme Court of United States ruled unanimously that there is not a presumption of market power under the Sherman Antitrust Act when the sale of a patented product is conditioned on the sale of a second product in a tying arrangement. A plaintiff alleging an antitrust violation must instead establish the defendant’s market power in the patented product through evidence.
(b) Windsurfing International v Commission in this case Windsurfing International had granted patent licences to several German partners for its “windsurfing” invention, where these licensing agreements contained several restrictions inter alia obliging the licensees to use and sell the rig and sailboard together. Windsurfing International argued that the limitations or “field of use” restrictions in the licensing arrangement were not to restrict
competition but merely to ensure that the sailboards were not of lower quality, that such quality controls were justified on the ground of product liability under Californian law and to prevent slavish imitations of the boards. ECJ was not impressed by the arguments put forward and held that the fact that Windsurfing had sufficient product differentiation between its licensed sailboards was merely to satisfy their own interest of having covered the widest possible field of market demand, hindering competition. The Court therefore held that the “field of use” restrictions imposed by the company upon its licensee’s hindered competition, going beyond the scope of the licensed technology as the restrictions made it possible for the company to amplify the utility and sales of the invention.
(c) Consten and Grundig v.Commission in this case Consten, which was exclusive distributor in France of Grundig products, agreed not to deliver products directly or indirectly outside France. Grundig also obliged all its distributors in Europe not to deliver products outside their respective territories. The object and effect was to protect its dealers from parallel imports. Grundig therefore conferred an absolute territorial protection on Consten so that customers in France could not obtain products from anyone other than Consten. ECJ held that the exclusive agreement as such was not prohibited under Article 81 EC Treaty, although the arrangement was to eliminate parallel imports.
(d) In Ansul Co v Uniroyal, it was held that a patent holder was not allowed to impose customer restrictions upon the purchasers of the patented product holding that such vertical
restrictions were illegal per se.
The Commission is empowered to inquire into any unreasonable conditions attached to the IPR agreements and can impose penalty upon each of such right holder or enterprises which are parties to such agreements or abuse, which shall be not more than ten per cent of the average turnover for the last three preceding financial years. In case an enterprise is a ‘company’ its directors/officials who are guilty are liable to be proceeded against and punished. In addition, the Commission has the power to pass inter alia any or all of the following orders
(i) direct the parties to discontinue and not to re-enter such agreement;
(ii) direct the enterprise concerned to modify the agreements;
(iii) direct the enterprises concerned to abide by such other orders as the Commission may pass and comply with the directions, including payment of costs, if any; and
(iv) pass such other order or issue such directions as it may
Further, in case of abuse of dominant position under section 4 by virtue of an IPR by an enterprise, in addition to the above penalties, the Commission has the power to order division of enterprise.
Thus, IPRs are not absolutely excluded from the precinct of Competition Law. Moreover Competition Law does not have anything against granting of IPRs, what it aims is that no unreasonable condition is imposed on the consumers in the garb of exercising IP rights.
The interaction between IPR and Competition Policy is neither conflicting nor they aim to replace each other; in fact they both complement each other. The common objective of both laws is to promote innovation. The advent of fresh innovations gives rise to healthy competition at macro as well as micro economic levels which further leads to more competition for innovation, which eventually results in economic development of the country. However this should not be to the detriment of the common public. For this the competition authorities need to ensure the co-existence of competition policy and IP laws since a balance between both laws would result in an economic as well as consumer welfare.
Further Competition law and IP law pursue the same aim of consumer welfare. The law of property grants an exclusive right in the hope to induce people to make investments in things which are needed in society. Competition law aims to provide the consumers highest quality of goods and services that too at the lowest possible price. They both adopt different path to achieve the same goal of consumer welfare.
Thus, when properly applied, the two bodies of law complement and reinforce each other’s purposes. Conversely, inappropriate application of either can undermine the purpose of both. If antitrust enforcement unnecessarily prevents intellectual property owners from profiting from invention, this interference also may compromise the goals of antitrust laws. And inappropriate or overbroad grants of intellectual property rights may interfere with the competition that often drives innovation.
In view of this, IP and Competition laws have to be applied in tandem so that interest of both innovators and consumers are protected.
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