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Competition Law and IPR- Friends or Foes?

An intellectual property right holder is granted legal rights to protect his intellectual property- here is where competition law plays a huge role by ensuring that such power and monopoly is restricted in the market.

Both intellectual property rights and competition law have co-existed separately and peacefully since a number of years. It was later understood that competition law can provide a boost to IPR since the market would be unpredictable, less complacent, more innovative and grow faster due to the impact of competition law. A plethora of cases as held by the ECJ elaborated on the fact that the real concern that competition law has with IPR is not with the existence of IPR but with its exercise.

There are theories that imply usage of competition laws in IPR issues.

(i) Potential abuse of monopoly with respect to pricing, especially in developing countries where effective substitutes to IPR protected products may not be readily available.

(ii) With regard to business strategies and dominant abuse of IPRs, competition law provides a cushion in the form of anti competitive agreements. Section 3 of the Competition Act, 2002 deals with anti competitive agreements like horizontal agreements (agreements to limit production/supply, fix prices, bid rigging, allocate specific markets) vertical agreements (tie-in arrangements, exclusive supply/distribution arrangement, resale price maintenance, refusal to deal). Cartels are further restricted under the domain of anti competitive agreements. Cartels are agreements between enterprises, persons, a government department and association of persons not to compete on price, product, services or customers.

Further, abuse of dominant position is dealt under Section 4 of the said Act. Such abuse is prominent by predatory pricing, limiting production of the goods, creating barriers to entry of such goods, denying market access, gaining advantage in another market by using dominant position in the present market.

It is pertinent to note that the Competition Act 2002 incorporates a blanket exception for IPRs under Section 3(5) based on the principle that IPRs deserve to be isolated and protected the essential element is innovation. If the Act interferes in technological or artistic or intellectual innovation, the resultant product would not reflect the novelty that it intends to provide. Hence, the Act merely does not permit unreasonable actions or methods from taking place under the pretext of protecting one’s IPR. To conclude, the Competition Act guards those IPR licensing, or other supply/distribution agreements which is governed by or for IPR products or services.

What is appalling is that the Act does not mention exhaustion, compulsory licensing or parallel importation. Also, an IPR holder would definitely resort to a complaint under Section 4 since his rights are curtailed under Section 3. Abuse of dominant position would albeit provide a much narrower scope as compared to proving an anti competitive arrangement, but nevertheless, all IPRs have the potential of raising an issue in competition policy perspective. Hence, this bar in fact, gives more power to the IPR holder and there is no consideration of public interest or licensees or assignees.

In the case of Dr. Vallal Peruman v. Godfrey Phillips (India) Ltd. (MRTP Commission 1994) and Manju Bharadwaj v. Zee Telefilms Ltd. (MRTP Commission 1996) it was held that the view that unfair trade practices could be triggered by the misuse, manipulation, distortion, contrivance or embellishment of ideas, it would amount to trade mark misuse and the IPR holder would expose himself to an action.

In another interesting case, US v. S C Johnson & Sons (c iv. No. 4089 – 59 fed. reg. 43, 859, 25th August, 1994) Bayer AG was a major global supplier of insecticides except in USA. It developed a new unique and potent active ingredient for insecticides for household use and secured a patent for the technology. It licensed the new technology to S C Johnson & Sons, which was a dominant market leader in pesticides market, the market share being 50-60%. The Antitrust Division of the US challenged in the US Court, this licensing arrangement which reduced incentives of Bayer to compete with Johnson in manufacture and sale of household insecticides and which further helped Johnson to increase its dominance in the US market. The Court decided that Bayer should offer the patented ingredient to other pesticide manufacturers on reasonable terms. Further, Johnson’s competitors were allowed access to active ingredients that Bayer may introduce later. Through this decision, the court sought the maintenance of competitive markets while protecting the IPR.

Balance between Competition Law and IPR in India

In India, the IPR laws like the Patent Act or Copyright Act or Trade Marks Act have over riding powers over the Competition Act in matters related to any abuse of IPR. If an anti-competitive result arises from the exercise of the rights by the patent holder, the Patent Amendment Act (2005) provides for issue of licenses to stop such anti-competitive activity. It is abysmal that the role of Competition Commission of India is nil in this respect. Instead, an amalgamation of the two Acts can be made, where tie-in arrangements, prohibiting or revoking license in case of any infringed competing technology, patent pooling, royalty payment, measures to be taken after the patent has expired, and so on. Competition Law needs to override the IPR Acts when it comes to handling any market abuse of the later.

As mentioned earlier, the Competition Act exempts mergers and dominant abuse in the market. Such exemptions should be made with leniency and not arbitrary.

Despite the fact that IPR and Competition Law are seen as overlapping fields of law with conflicting purposes, it is prominent for them to work in tandem to maintain balance in the market. IPR, on one hand, allows IPR holders to exercise exclusivity over their work, whereas Competition Law on the other hand, restricts any kind of monopoly in the market by holding restrains as earlier mentioned. Thus, in a way, it can be said IPR holders abuse their position by creating dominance in the market.

Leaving aside conflicting interests, there are other ways where IPR and Competition Law are in sync with each other. By creating and protecting an “idea” or “expression”, IPR has carved a niche in the market by introducing diverse products and services, which only enhances competition. This competition would involve creating the best product in the market in terms of innovation, price, consumer growth, to name a few.

Friends or foes, we cannot say. A dichotomy between IPR and Competition Law cannot be changed, but ensuring their co-existence is the only way forward.

[1] Consten & Grundig v. Commission [1966] CMLR 418 ; Deutsche Grammophon Gesellschaft v. Metro-SBGroβmarkte GmbH [1971] CMLR 631; Keurkoop v. Nancy Kean Gifts [1983] 2 CMLR 47 and RTE & ITP v. Commission [1995] 4 CMLR 718, at para 49.

About the Author: Ms. Madhuri Iyer, Trade Mark Attorney at Khurana & Khurana and can be reached at: [email protected]

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