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The Conflict Between Intellectual Property Rights And Competition Law

Competition law and Intellectual Property law are the two main areas of law that govern the market and promote consumer welfare and transfer of technology. The relationship shared between intellectual property rights and competition law plays a very vital role in ensuring the maintenance of a competitive and dynamic economic market. They have many similarities and are often complementary to each other and are two sides of the same coin.

It is simple to look into the common aspects of both competition law and intellectual property law as they both relate to the consumer market. However, it can also be argued that they are like fire and water and are entirely different. Competition law seeks to eliminate any practices that restrict trade and generally discourage monopoly. Intellectual property law on the other hand seeks to give a benefit to the owner of intellectual property rights to freely use his right and maintain exclusivity.

hough intellectual property law gives exclusive control of intellectual assets to its rightful owners, competition law strives to avoid market barriers by encouraging competition among various suppliers of goods, services, and technologies to ensure maximum benefit to consumers. It is because of such opposing and different goals that conflicts may occur if any. Another aspect is that competition law advocates many things including the necessity for free markets, aspires to create a perfectly competitive ground that benefits consumer choice, etc.

With this structure in place, it aims to create a system oriented towards free trade, consumer rights, efficient resource allocation, etc. Intellectual property on the other hand creates a monopoly. In this sense, there is a contradiction between the two. S 3(5)(i) of the Competition Act, 2002 deals with IPR in Competition Law. The section excludes IPR from restrictive trade practices and attempts to resolve some of the contradictions.

This is because intellectual property protection is, in fact, necessary as it is a prerequisite for innovation, which is why most laws, including Competition Law, gives a priority to IPR protection.

Competition Law

Competition Law is the body of law that seeks to promote market competition by regulating the market. This regulation is done by monitoring any anti-competitive conduct on the part of businesses and regulating the same. The objective of competition law is to ensure that there is a fair marketplace for consumers to choose from and for producers to carry on their business. It seeks to prohibit unethical practices that are aimed at gaining a larger market share, which causes difficulty to smaller businesses and new businesses trying to enter the market.

Some anti-competitive practices include:
  • Predatory pricing
  • Price fixing
  • Bid rigging
  • Dumping
These practices are generally prohibited by most countries and are deemed to be anti-competitive.

Intellectual Property Rights

According to WIPO[1], Intellectual Property (IP) refers to creations of the mind, such as inventions; literary and artistic works; design; and symbols, names and images used in commerce. It is the creative work of the human intellect.[2] Like any other property right, it gives the owner the sole right to benefit from their creation, for a specified period. Article 27 of the Universal Declaration of Human Rights provides for the right to benefit from the protection of moral and material interests resulting from authorship of scientific, literary or artistic productions.[3] It promotes science, technology, art etc. and can be associated with a nation's progress in those fields and other related fields. It is therefore necessary to protect intellectual property. IPRs are extremely private rights.

Intellectual property can be classified under the following types:
  • Copyrights
  • Trademarks
  • Design
  • Patents
  • Geographical Indication

Relationship Between Competition Law And IPR

If history taught us anything, it was that competition law and intellectual property law operate against each other. The most logical explanation for this would be their main objective. Competition law discourages monopoly whereas intellectual property rights encourages it. At first glance IPR and competition law are like fire and water,[4] i.e., they operate against each other. This perception has somehow changed over time and the current belief is that they have converging notions.

Competition law is focused on limiting monopoly power and the goal is to protect and promote consumer welfare. On the other hand, IPR is focused on innovation by providing exclusivity to the owners to perform a commercial activity but this does not mean they can exert monopoly status in the market. Even though IPR grants the holder a preventive right, this right cannot be exclusive so as to grant monopoly status.

This is where competition law comes in and if there is any anti-competitive practice or conduct on the part of the IPR holder, it is subjected to competition law. The Competition act, 2002 deals with IPR conflicts in a comprehensive manner. Section 3 of the Act sets out what amounts to an anti-competitive practice and it is clear that this is the only intended protection.

The anti-competitive practices that involve the use of both IPR and Competition law and bring out the differences between the two are:

Abuse of dominant position
Section 4 of the Indian Competition Act, 2002 states that no enterprise shall abuse its dominant position. In this aspect, India has many cases that go to show that there exists a conflict in the area of IPR in relation to competition law. These issues were then decided to be dealt with by the Competition Commission of India (CCI) to resolve the same. This was stated in Aamir Khan Productions Pvt. Ltd. V. Union of India[5]. CCI further said intellectual property laws do not have any absolute overriding effect on competition law.

Refusal to License
This concept is based on the complementary goals of the intellectual property system and competition law. The right holder can prevent others from exploiting the limited period right given by law but cannot prohibit its development. In the case of Entertainment Network (India) Limited v. Super Cassette Industries Ltd,[6] the relationship between IPR and Competition law in this aspect was discussed. It was held that the owner of the copyright exercises freedom of monopoly, but with unreasonable terms, it would amount to refusal. This refusal to license was viewed as anti-competitive.

Excessive Pricing
The concepts of excessive pricing and predatory pricing are closely related to refusal to license. Predatory pricing is considered by the Monopolies and Restrictive Trade Practices Act, 1969 (MRTP Act) as a restrictive trade practice. Overpricing of any patented product is, however, non-violative of any competitive provisions. After looking into a number of cases, CCI observed that charging differently for the same product under different kinds of licenses is common in any market. It is necessary to strike the right balance between IP protection and the competition-related policy in any market as a playing field for any upcoming industry.

Tying agreements
S 3(4) of the Competition Act prohibits tying agreements. This type involves a seller agreeing to sell a highly usable product or service only on the condition that the buyer also purchases a less important product or service. In conclusion, the aims and objectives of patent and antitrust laws may not always go hand in hand, they are complementary with common goals encouraging areas of innovation, industry, and competition.

S 3(5) (i) Of The Competition Act
IPR laws should not be applied in isolation to competition law even though none of the IPR statutes contain references to competition law. However, this particular section of the competition act deals with protecting IPR and excluding it from restrictive trade practices.

The section states that nothing contained in s 3, that prohibits anti-competitive agreements, shall be applicable to any person to restrain any infringement of, or to impose reasonable conditions, for protecting his/her intellectual property rights that are conferred under IPR laws, mainly, the Copyright Act, 1957, the Patents Act, 1970, the Trade Marks Act, 1999, the Geographical Indications of Goods (Registration and Protection) Act, 1999, the Designs Act, 2000 and the Semi-conductor Integrated Circuits Layout-Design Act, 2000.

Any holder of IPR who wishes to restrain another from infringing his rights has a free pass under this section in doing so. But the question to be considered is whether this free pass can be used exclusively or if there need to be exceptions in place for this free pass.

Competent Authority To Determine Applicability Of Competition Law To IPR

The Competition Commission of India established under s 7 of the Act as a quasi-judicial authority, is the competent authority to determine the applicability of competition law to IPR. This power is not a special power but one that it can exercise under the Act as the Act covers the treatment of IPRs. The CCI states that a 'reasonable condition' imposed would not be in contravention to s 3 but any 'unreasonable condition' would be in contravention to s 3. The CCI has a clear list of practices that would be in contravention to s 3 of the Act.

Some of these practices include:
  • Patent pooling - If the patent pooling persons/businesses decide not to grant a license to outside parties, it would be a restrictive practice
  • Tie-in arrangement - If the patentee alone supplies goods to third parties, it would be a restrictive practice
  • Price fixing - If the licensor fixes the prices at which licensees should sell the products, it would be a restrictive practice
  • Royalty - If there is an agreement to continue paying royalty even after the patent has expired, it would be a restrictive practice

In Shamsher Kataria v Honda Siel Cars Ltd (Automobile spare parts case), the CCI dealt with the IPR exemption under s 3(5). In this case, the original equipment manufacturers (OEMs) entered into agreements with original equipment suppliers (OESs) for the procurement of some components. The designs, technical specifications, tools, etc. were given by the OEMs and the agreement prohibited OESs to trade in the outside market with third parties or aftermarkets without the consent of the OEMs. The OEM's contention was that this agreement fell within the ambit of 'reasonable condition' under S 3(5).

The CCI identified 2 issues:
  1. Whether the right protects any intellectual property?
  2. Whether the right has been conferred upon by relevant IPR statutes?
The CCI held that if any exemption is claimed under the section, the pre-requisite is that the rights in question have to be conferred by the mentioned IPR statutes. The OEMs had failed to submit relevant documents to prove that they had IPRs in India conferred by the Acts mentioned in s 3(5) (i) and as a result, the OEMs could not claim protection under the said section.

Definition Of Markets
S 2 (r) of the Act defines relevant market as any market which may be determined by the commission with reference to relevant product market or geographic market or both. To determine the relevant product market for IPRs, it is necessary to take a look at the factors mentioned in s 19 (7) of the Act:

  • Physical characteristics or end-use of goods
  • Price of goods or service
  • Consumer preferences
  • Exclusion of in-house production
  • Existence of specialized producers
  • Classification of industrial products
  • With reference to the Automobile Spare Parts case, the CCI identified 3 separate relevant markets:
    • Primary market- Manufacture and sale of cars
    • Aftermarkets- sale of spare parts including the tools, technical manuals, etc.
    • After-sale service of repair and maintenance
  • In HT Media Ltd v Super Cassettes Industries Ltd, the CCI held that the exclusive rights that a copyright owner has, i.e. right to perform and communicate his/her work to the public, to make adaptations, etc. may constitute different markets individually. In the healthcare sector, both patents and trademarks play a vital role in determining the relevant market. There is no restriction on how many trademarks can exist in a market and it is free for anyone to enter the market with a trademark and compete fairly with the existing products.
Scope Of The Section
It is apparent that most laws are biased towards IPR to promote innovation and protect the rights of IPR holders. The same can be said for competition law as well. IPR laws are given a clear preference and priority over the objectives sought by competition law. The section draws a boundary line between competition law and IPRs where any situation entails both aspects. As stated above, the CCI has jurisdiction to determine whether the existence of IPRs has a restrictive or monopolistic power in the market and prohibits any anti-competitive practices.

IPRs are considered to be a negative right as they are restrictive. The holder either restrains infringement of his IPR or imposes conditions to protect the same and s 3(5) (i) merely makes this possible for any rights conferred by IPR statutes. The rights that can be protected, however, are left to the specific statutes themselves by the use of the words have been or may be conferred upon him under. As held in the Automobile Spare parts case, the rights must be conferred by the acts mentioned in the section and are therefore limited.

Infringement And Imposing Reasonable Conditions
Infringement gives the IPR holder an incentive to exercise the negative rights that he/she possesses. However, the competition act does not specify what amounts to infringement, and it is safe to assume that infringement would mean infringement under the IPR statutes.

Similarly, for imposing reasonable conditions, the section does not specify the same. The usage of words like maybe conferred and imposition of reasonable conditions was purely intended, and this legislative intent is enough to say that the Competition act did not want to exclude the application of IPR statutes.

Recommendations To Overcome The Conflicts
IPR cannot be dealt with in isolation from Competition Law. The conditions imposed by competition law may help to resolve the conflict. The following are some of the recommendations to help resolve the conflict:
  • Defining the market clearly by assessing the implications and regimes
  • Ensuring coordination between the competition law authorities (CCI) and IPR authorities
  • Granting compulsory licenses in cases of refusal to deal
  • Using the flexibilities allowed by the TRIPS agreement to determine the grounds of granting compulsory licenses to remedy anti-competitive practices relating to IPRs

It can be concluded that although it has been seen that there are many conflicts that overweigh the similarities between IPR and Competition law, there are existing acts and legislations that help bridge the gap between the two. S 3(5) (i) of the Competition Act is concise enough to deal with the issue because the use of the words like maybe conferred and imposition of reasonable conditions was purely intended, and this legislative intent is enough to say that the Competition act did not want to exclude the application of IPR statutes.

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