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A CRITICAL ANALYSIS OF THE RELATIONSHIP BETWEEN COMPETITION LAW AND INTELLECTUAL PROPERTY RIGHTS IN INDIA

Introduction

Any discussion of the relationship between competition laws and Intellectual Property Rights must begin by an elucidation of what is meant by these two terms. Intellectual Property Rights are designed to incentivize creativity in inventors by granting to them certain rights over their inventions which protects their interests thereof.  These rights are exclusionary, wherein the inventors are granted temporary rights in their favor to exclude others from using their IPR. Competition law exists, on the other hand, to promote economic growth by constraining rights arising out of private property to prevent anti-competitive conduct.

Competition law seeks to preserve the competitive nature of markets as competition between market forces is a crucial element in protecting consumers from abuse. In India, dominance itself is not a problem with respect to Competition law, but the abuse of that dominance is. Post liberalization and privatization, India has moved towards more open market policies, which foster more innovation and rapid economic growth. It is in this context that the Indian Competition Act was enacted, to preserve competition in the market, for the welfare of the consumers.

The interface between Competition law and IPR

It is obvious that, at first blush, the goals of IPR and competition law appear to be at loggerheads with each other. It seems as though they are irreconcilable and that conflict and friction are inevitable. Whereas friction may indeed be a part of the overlap between IPR and competition law where they may clash in any instance, the truth is that they operate complementarily as well. Their purposes find agreement in their eventual ends: that of the welfare of the consumers in the society by facilitating innovation in the market. They achieve this end by differing ends. Whereas IPRs grant innovators and producers monopoly rights to be adequately reimbursed for their research and development costs, competition law serves the rights of the overall community by limiting private rights, including those granted by IPRs, to ensure the market is free from anti-competitive conduct, which also ensures more innovation and better products for the consumer. In this manner, IPRs and competition law ultimately serve to enhance consumer welfare through enabling innovation.

This goal of enabling innovation requires a balancing act of the competition law ensuring that the IPRs are not taken advantage of and abused, and yet, still allowing enough room and incentives for there to be a vibrant market for innovation and creativity

Comparative analysis of IPR and competition law

For IPRs to come under the ambit of the scrutiny of the Indian Competition Act, 2002, what is taken into account by the CCI is whether there is an appreciable adverse effect on competition[1]. If that is found, there is a provision in the act for bringing an action. The Competition Act, however, also provides an exemption for IPRs, so as not to unduly restrict their operation. This exemption clause is present in Section 3(5) of the Indian Competition Act, 2002[2], and provides for reasonable restrictions for agreements falling under Sections 3(3) and 3(4) of the Act, which is made to protect IPRs under various statutes. These statutes are:

(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 of 1999);
(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);

The exemption itself isn’t absolute. This is clear from the wording of Section 3(5) itself, which allows IPR holders to impose only “reasonable conditions” and such “as may be necessary” to protect their rights as against statutes mentioned in the same section, and mentioned above. This demonstrates that the rights of IPR holders are limited and demarcated by the Indian Competition Act, and they can’t engage in any restrictive practice as they wish. Such restrictive practices concerning IPRs must find agreement with the limitations imposed on them by the Competition Act, and this is seen also in Section 4 of the Act[3], which deals with the abuse of the dominant position. According to Section 4, no enterprise shall abuse its dominant position and impose unfair or discriminatory practices in conditions in the purchase or sale of goods or services, or prices in the purchase or sale of goods or services. In the case of FICCI – Multiplex Association of India vs. United Producers/Distributors Forum (UPDF) [4], it was clarified by the CCI that IPRs do not have an absolute exemption from the anti-competitive provisions of competition law enshrined in Section 3 of the Indian Competition Act, 2002. The CCI noted:

23.30 It may be mentioned that the intellectual property laws do not have any absolute overriding effect on the 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
.”

IPRs are subject to competition law

IPR’s are subject to the jurisdiction of the Competition Commission of India and are subject to competition law. This has been seen in many cases. In Aamir Khan Productions Pvt Ltd v Union of India[5],  it was declared by the Bombay High Court that the CCI had jurisdiction over IPR and competition law matters, especially when the former stood in contravention of the latter. Further, the same was reaffirmed in the case of copyrights in the case of Kingfisher v CCI[6], wherein it was decided that the CCI could deal with cases that came up before the copyright board.

In the case of FICCI – Multiplex Association of India v. United Producers/Distributors Forum (UPDF)[7], it was again seen that the CCI can deal with cases related to anti-competitive practices related to IPRs. It was held that IPRs do not have any absolute overriding effect on the competition law and if any IP holder acted in ways that constituted prohibited trade practices, or proved to be deleterious for the welfare of the consumer and the market, the non-obstante clause in Section 3(5) will not be applicable. Another important judgment in the case of Telefonaktiebolaget LM Ericsson v. Competition Commission of India[8]  confirmed that there was nothing mutually exclusive in the remedies provided by the Indian Patents Act 1970, and the Indian Competition Act, 2002, and thus, the jurisdiction of the CCI will be valid in cases involving patents as well. In this case, Ericsson had argued that the CCI lacked the jurisdiction to pass orders in cases involving patents. The Delhi High Court had observed that there were no unsolvable differences between the two acts, and thus the remedies provided by the Acts would not cause the exclusion of the other under some incompatibility.

Conclusion

Competition Law and Intellectual Property Rights necessarily have a nexus that demands a balanced understanding to appreciate the true scope of their complex and multi-faceted interactions in the dynamic markets of modern India. It cannot be denied that in their overlap exists some necessary tension and friction, where competition law seeks to prevent the abuses that may become manifest as a result of monopolistic power; Intellectual Property Rights seek, in many situations, to grant exactly such monopolistic powers to incentivize the innovators to innovate. It is in the interest of the Indian Society to have the balanced operation of the two regimes, such that there exists widespread competition, and at the same time, enough protection for the inventors to recoup their investments in research and development. These two ends point towards a singular aim:  the benefit of the consumer through the facilitation of a robust environment for innovation. The competition allows for greater innovation by way of organizations competing with each other to produce better and more affordable products and services, whereas IPRs allow for greater innovation by providing greater incentives to innovators to be able to benefit from their innovations.

In matters of jurisdiction, India would stand to gain greatly from more maturity in the legislative framework concerning the extent and scope of the jurisdiction of the CCI. Competition Law should balance the IPR regime by imposing curbs wherever the exercise of IPRs exceeds “reasonable conditions” as delineated in Section 3(5) of the Indian Competition Act, 2002, and at the same time, such curbs should not go beyond the degree to which the exercise of the IPRs is causing an appreciable adverse effect on competition.

Author(s) Name: Sudhanshu Sorout (Campus Law Center, Delhi University)

References:

[1] Indian Competition Act 2002, Section 19(3)

[2] Indian Competition Act 2002, Section  3(5)

[3] Indian Competition Act 2002, Section 4

[4] Case No. 1 of 2009, CCI Order Dated 25 May 2011

[5] Aamir Khan Productions Pvt. Ltd. and Aamir Hussain Khan v. Union of India 2010 102 SCL 457 (Bom)

[6] Writ Petition No. 1785 of 2012.

[7] FICCI Multiplex Association of India v. United Producers Distribution Forum (UPDF), 2011 CompLR0079
(CCI).

[8] Ericsson v. Competition Commission of India, W.P.(C) 464/2014 and other connected matters (arising from
Micromax Informatics Limited v Telefonaktiebolaget LM Ericsson (Case No. 50 of 2013) and Intex v
Telefonaktiebolaget LM EricssonLimited (76 of 2013).

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