The interface between IPR and Competition Law
The notion of IPRs and competition law is presented in this paper. It illustrates major areas of dispute between the two laws and deals with the antitrust law of India as well.
Historically, antitrust law and intellectual property rights (IPR) have developed into two distinct law structures. The two law systems greatly overlap, aiming to foster innovation and economic development. Yet, due to the means used by each method to promote those aims, there are often possible disagreements.
In general, IP laws provide a right of exclusive use and misuse to provide the innovator with a benefit, provide other innovators with an opportunity and put creative knowledge into the public domain that would otherwise remain trade secrets. To ensure efficient competition in markets, competition authorities control near-monopolies, mergers and trade agreements. The notion of IPRs and competition law is presented in this paper. It illustrates major areas of dispute between the two laws and deals with the antitrust law of India as well.
I. Introduction
Competition law and intellectual property law can seem to be distinct in scope at first. However, it is proved otherwise by the growing number of lawsuits concerning antitrust law and intellectual property rights (IPR). In fact, the case law of the Competition Commission of India (CCI) demonstrates that, at times, the ranges of these two disciplines may overlap and that their priorities may clash.
Intellectual Property Rights (IPR) and Competition Law are also established to achieve economic growth, technological innovation, and consumer protection. The legal rights regulating the use of those goods are IPRs. This concept encompasses a package of rights with a particular intent and effect, such as patents, trademarks or copyrights, each with a different nature and length. Antitrust law aims to prohibit certain conduct that can limit competition to the disadvantage of public welfare.
IPR encourages creativity and innovative products on the market in the short term, while competition law supports consumer welfare in the long run by bringing new products to the market and preserving the consistency of products on the market. Both are also complementary ways of fostering creativity, technological development and economic prosperity for the good of customers and the economy.
IPRs and rivalry are generally perceived to be fields of opposing priorities. The explanation for this is that, by designating the limits beyond which rivals may practise their innovation monopolies, the IPRs tend to counter the fair market and level playing field values sought by competition rules, particularly by limiting horizontal and vertical constraints or by exploiting dominant positions.
In nature, IP rules are monopolistic. They guarantee an exclusive right to the creators and owners of work resulting from human intellectual creativity. Also, they prevent commercial exploitation of innovation by others. Even the economic use of creativity from others is prohibited. Depending on the absence of competitors in a particular market, this legal monopoly can give rise to market power and even to a monopoly as established by competition law. It is an advantage over the rest of the market or business given to the owner. It causes controversy between IPR and competition law when this superiority or dominant status is violated.
II. Conflict Between IPR & Competition Law
Intellectual property refers to the mind’s inventions: creations, works of literature and art, and symbols, names, images, and designs used in commerce. The Intellectual Property Right (IPR) is an intrinsic right to “protecting commercially valuable products of the human intellect”, which can include patents, copyrights, trademarks and related rights. The right to preclude others from using a non-corporeal commodity requires an IPR.
IP is classified into two categories: intellectual property, which includes patents for inventions, trademarks, industrial designs and geographical references; and copyright, which includes literary and creative creations, such as books, poetry and plays, animations, songs, sketches, paintings, photos and sculptures, and architectural designs. Copyright-related interests include those of musical artists in their works, phonograph makers in their recordings, and those of radio and television stations in their programmes.
Competition legislation requires the formulation of a series of laws that encourage market competition. These are targeted at avoiding unfair practises in the trade. It is often framed with the aim of curbing the dominant company’s misuse of hegemony in the industry. The primary goals of the Competition Act are consumer protection and fair competition in the industry. The terms of the 2002 Protection Act forbid the holders of IPRs from exercising anti-competitive arrangements because they are in conflict with competition policies. In addition, the Act authorises India’s Competition Commission to prosecute holders of IPRs who exploit their dominant position.
In addition, Section 45 of the Act also authorises the Commission to penalise an anti-competitive arrangement between the parties, which is contrary to Section 3 of the Act. The market influence that could derive from the award of such rights and the adverse consequences induced by the anticompetitive exercise of IP rights are the core considerations of competition law regarding intellectual property rights. At its simplest, by setting prices higher than those required to secure cost-effective supply, market control will harm customers.
In addition, the damage inflicted by market dominance can extend beyond that, provided that the security afforded to businesses helps them to delay or distort innovation. Market power would, under these conditions, restrict economic growth over time and minimise the potential for sustained improvements in living standards.
Intellectual property rights and competition law have been identified as an unsuccessful marriage. The former can be seen as promoting monopolies, while the latter is meant to combat them. In other words, IP regulation, on the one hand, works to establish monopoly rights, while antitrust law contests it. In spite of this, the purposes of both laws appear to clash. Two main initiatives, such as parallel imports and compulsory licences, are also used in IPR anti-competition regulations to tackle monopolies.
A compulsory licence is when under the terms of TRIPS, the holder of an IPR is authorised by the State to forfeit its exclusive right to intellectual property. Parallel imports include goods which are imported into the country without the approval of the related holder of the IP and are lawfully put on the market. Innovation has always been a catalyst for further innovation in a rising market.
The introduction of new inventions produces healthy competition at both macro and micro-economic levels. IP regulations help prevent these inventions from being illegally abused. In spite of this in order to ensure that the interests of all parties, including the innovator and the customer or the public in general, are secured, IP and antitrust legislation must be enforced in tandem.
The common aim of both initiatives is to foster creativity that will potentially contribute to a nation’s economic growth, but this should not be to the detriment of the common public. To this end, the competition regulators ought to ensure the co-existence of competition policy and IP rules, because economic and consumer welfare will result in a compromise between both laws [1].
All aspects of intellectual property have the ability to improve competition policy/law issues, according to the High-Level Committee Study on Competition Policy and Law [2]. Intellectual Property provides holders with exhaustive freedom to undertake a profitable or economic activity, although this does not provide the right to exercise restrictive or exclusive power. Therefore, if the study understands the IPR’s valid purpose of prohibiting anyone from exploiting one’s innovation without the requisite “licence”, it also recognises the need to curtail the anti-competitive conduct that may occur in the IPR exercise [3].
For this cause, in many cases where a dispute occurred between IPR and competition law before national courts, the CCI, which often conducts jurisdictional roles in relation to competition problems, immediately advocated authority for itself. It was also generally given some authority by the national courts. The Bombay High Court ruled, in Aamir Khan Productions Pvt Ltd v. Union of India [4] that CCI has the requisite authority to deal with competition law and IPR cases.
Similarly, in Kingfisher v. CCI [5], the Bombay High Court ruled that the CCI is qualified to deal with all the problems before the Copyright Board of India. This was also the outcome of the FICCI Multiplex Association of India v. United Producers/Distributors Forum [6], which once again affirmed the CCI’s jurisdiction. Finally, the Delhi High Court held in Ericsson v. CCI [7] that there was nothing in the Indian Patents Act 1970 that could specifically or indirectly remove the authority of the CCI.
III. The Interface between IPR and Competition Law in India
According to the United Nations Conference on Trade and Development (UNCTAD) document on “Examining the interface between the objectives of competition policy and intellectual property”, the key goal of the IPR is to promote progress by offering the necessary incentives. This goal is accomplished by giving inventors exclusive control to their inventions in order to enable them, over a certain period of time, to recover their R&D investments [8].
Rather the aims of competition law are to encourage productivity and boost economic prosperity and consumer welfare. Competition law, to some degree, limits interests derived from private property [9] (e.g., by restricting the right to mergers between undertakings) for the benefit of society in order to obtain them. Since it facilitates creativity and increases productivity, competition is considered beneficial for the economy. The strategy most commonly agreed by regulatory agencies to restrict property rights on the basis of antitrust concerns is one of “workable competition” [10].
Discussed first by J. M. Clark [11] in 1940, recognised that there are aspects of monopoly in almost all markets and that the role of authorities is to ensure that adequate competition between undertakings is left to protect customers from market abuses. Clark stresses three main aspects of workable competition: (1) seller rivalry, (2) the “free choice” of buyers to purchase from alternative sellers, and (3) sellers’ attempts to match or surpass the attractiveness of deals from others.
Therefore, while IPR is about privacy freedom by providing protection of private invention rights, antitrust law defends the interests of the consumer and the wider society by regulating private rights that which affect the general well-being of the community. Ultimately, however, both competition law and IPR agree that consumer protection is promoted by the promotion of creativity [12].
IV. The Exception to IPR under Section 3(5) of the Indian Competition Act 2002
The Indian Competition Act 2002 is intended to avoid IPR interference. However, where the CCI considers that an Appreciable Adverse Effect on Competition (AAEC) is caused by IPRs, the Act provides for the prospect of taking action. More importantly, Section 3(5) of the Indian Competition Act 2002 includes an exemption provision relating to the use of IPRs, which permits the use of these exclusive invention rights in a fair manner. “Fair use” means that Section 3(5)[13] of the Act only requires IP holders to enforce “reasonable terms” on their IP security licences without having complications with competition law.
Indeed, unlike the former Monopolies and Restrictive Trade Practices (MRTP) Act of 1969, India’s Competition Act does not forbid supremacy, but rather prohibits the exploitation of dominance per se. In view of the economic growth of the country post-liberalisation and privatisation, the Indian Competition Act was passed. The change has been from “command-and-control” triggered policies to a free-market approach, and so now, “monopoly” is not bad per se, but it is justifiably exploitation of this “monopoly”.
The exemption provision of Section 3(5) of the Indian Competition Act 2002, however, finds its limit in Section 4(2) of the Indian Competition Act [14], which provides that a misuse of a dominant position is to take place when an undertaking imposes unjust and discriminatory requirements or rates on the purchase and/or selling of products [15].
Therefore, the interests of IPR holders, to the detriment of customers, impose limitations to their use. This means that under Indian law, when licencing the IPR, IPR-holders will not impose arbitrary limitations on inventions. There is no fixed list of “unreasonable” limitations, and this decision would have to be conducted on a case-by-case basis much of the time. Section 83(f) and (g) of the Patent Act 1970[16], for example, provides that a patent proprietor or an individual acquiring the title or interest in a patent shall not adhere to activities that ‘unreasonably’ limit trade or adversely impact the international transfer of inventions and that the patented invention should be made available to the public at fairly fair rates.
V. Conclusion
The same economic reasoning is shared by IP and competition rules. For the development of sustainable and creative business environments, both are critical. The common aim of both initiatives is to foster creativity that will potentially contribute to a nation’s economic growth, but this should not be to the detriment of the common public. Competition regulators ought to ensure the co-existence of competition policies and IP rules because economic and consumer welfare will result in a compromise between the two laws.
Competition laws are often aimed at the dilution of monopolies, unequal monopoly practises and the domination in the hands of few entities, such as cartels and charters, of the misuse of consumer control. While IPRs advocate the hegemony and misuse of market power supremacy in the hands of the innovator, it tends to promote creativity and economic development as it allows more and more investors to spend capital in R&D and to make successful use of its application.
It should be borne in mind that as mentioned in the above discussions, the only controversy occurring between IPRs and competition laws occurs due to the monopolistic impact of the IPRs. We must not ignore that short-term monopolies (Patent-20years, Copyrights-life+60years) are given by IPRs, which means that it supplies the innovator with benefits and encourages them to apply its industrial application as well.
The patent on the innovator’s side expires within the allotted time period and it comes to the public domain. By providing enforceable property rights for developers of innovative and valuable goods, more effective methods and original works of expression, intellectual property laws provide motivation for invention and its distribution and commercialisation.
In the absence of intellectual property rights, the contributions of innovators and investors without compensation may be more easily abused by imitators. Both IPRs and competition law go hand in hand, it can be inferred. As such rights are granted under the IPRs, the regulation of competition laws is limited. Nothing (right) is absolute, as rightly stated in Indian legislation, every right comes with limits, constraints and liabilities.
In brief, IPR and competition law are complementary to each other and should thus not be viewed in isolation, provided that their scope tends to differ and, in some circumstances, disagree to a significant degree. In order to achieve the objectives of widespread competition and consumer welfare, it is, therefore, necessary to promote a balance between IPR and competition law, while at the same time protecting creativity by granting inventors adequate protection to enable them to recover their investment in research and development.
In these cases, the role of competition law is to enforce IPR regulations where IPR holders misuse their dominant roles, violating the ‘fair use of their rights under section 3(5) of the Indian Competition Act. In such cases, appropriate powers should be granted to the CCI to deal with IP problems that create market distortions and are recognised by the jurisdiction.
The rule of rivalry though does not go too far. From a competition law point of view, the threshold of its enforcement does not surpass such situations in which the IPR has a major adverse impact on competition.
Originally Published on: Dec 18, 2020
References
[1] Patel, A., Panda, A., Deo, A., & Khettry, S. (2011). Intellectual property law & competition law. J. Int’l Com. L. & Tech., 6, 120.
[2] Report of High-Level Committee on Competition Policy and Law, S. V. S. Raghavan Committee, Para. 5.1.7
[3] Ganslandt, M. (2007). Chapter 7 Intellectual Property Rights and Competition Policy’. Intellectual Property, Growth and Trade (Frontiers of Economics and Globalization, Volume 2). Emerald Group Publishing Limited, 233-261.
[4] Aamir Khan Productions Pvt Ltd v Union of India, 2010, 112 Bom LR 3778
[5] Kingfisher v CCI, Writ Petition No. 1785 of 2009, Bombay High Court
[6] FICCI Multiplex Association of India v United Producers/Distributors Forum, Case No. 1 of 2009, CCI Order Dated 25 May 2011
[7] Ericsson v CCI, W. O. (C) 464/2014 & CM No. 911/2014 & 915/2014
[8] United Nations Conference on Trade and Development, ‘Examining the interface between the objectives competition policy and intellectual property’, Intergovernmental Group of Experts on Competition Law and Policy, 15th Session, October 2016
[9] Bhowmik, P. (2018). Competition Law and IPR: Implications for India1. International Journal of Research in Social Sciences, 8(7), 330-334.
[10] Max Planck Institute for Intellectual Property, Competition and Tax Law (August 18, 2010)
[11] J M Clark, ‘Toward a Concept of Workable Competition’, The American Economic Review (1940) 30(2) 241-56
[12] V K Singh, ‘Competition Law Dominant Position and its Abuse: Meaning of Dominant Position’, Module written for e-Pathshala, MHRD Project NME-ICT of Government of India
[13] Section 3(5), Indian Competition Act 2002
[14] Section 4(2), Indian Competition Act 2002
[15] Laad, A., & Gaurav, M. (2019). Arbitrating IPR and Competition Law Disputes in India: Issues, Scope and Challenges. Indian JL & Pub. Pol’y, 6, 26.
[16] Section 83 of the Patent Act, 1970
